AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
FILE NO. 33-87376
811-8914
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 5 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 6 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
----------------------
PHL VARIABLE ACCUMULATION ACCOUNT
(EXACT NAME OF REGISTRANT)
PHL VARIABLE INSURANCE COMPANY
(NAME OF DEPOSITOR)
----------------------
ONE AMERICAN ROW, HARTFORD, CONNECTICUT 06102-5056
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 447-4312
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------
DONA D. YOUNG, ESQ.
PHL VARIABLE INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06102-5056
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------
COPY TO:
EDWIN L. KERR, ESQ.
PHL VARIABLE INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CT 06102-5056
----------------------
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
----------------------
================================================================================
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
REGISTRATION
STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
AS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
<S> <C>
1. Cover Page ............................................... Cover Page
2. Definitions .............................................. Special Terms
3. Synopsis.................................................. Summary of Expenses; Summary
4. Condensed Financial Information .......................... Financial Highlights
5. General Description of Registrant, Depositor and PHL Variable Insurance Company and the PHL Variable
Portfolio Companies.................................... Accumulation Account; The Fund; Voting Rights
6. Deductions and Charges ................................... Deductions and Charges; Sales of Variable Accumulation
Contracts
7. General Description of Variable Annuity Contracts......... The Variable Accumulation Annuity; Purchase of Contracts;
The Accumulation Period; Miscellaneous Provisions
8. Annuity Period ........................................... The Annuity Period
9. Death Benefits............................................ Payment Upon Death Before Maturity Date; Payment Upon
Death After Maturity Date
10. Purchases and Contract Value ............................. Purchase of Contracts; The Accumulation Period; Variable
Account Valuation Procedures; Sales of Variable
Accumulation Contracts
11. Redemptions............................................... Surrender of Contracts; Partial Withdrawals; Free Look
Period
12. Taxes .................................................... Federal Income Taxes
13. Legal Proceeding.......................................... Litigation
14. Table of Contents of Statement of Additional Information.. Statement of Additional Information
15. Cover Page ............................................... Cover Page
16. Table of Contents ........................................ Table of Contents
17. General Information and History .......................... Not Applicable
18. Services.................................................. Not Applicable
19. Purchase of Securities Being Offered...................... Appendix
20. Underwriters ............................................. Underwriter
21. Calculation of Yield Quotations of Money Market
Subaccounts............................................ Calculation of Yield and Return
22. Annuity Payments.......................................... Calculation of Annuity Payments
23. Financial Statements ..................................... Financial Statements
</TABLE>
<PAGE>
PHL VARIABLE INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO"):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
PROSPECTUS
May 1, 1998
This Prospectus describes a variable accumulation deferred annuity contract (the
"Contract" or "Contracts"), offered by PHL Variable Insurance Company. The
Contract is designed to give the Contract Owner a retirement income in the
future. Purchase payments made to the Contract accumulate on a tax-deferred
basis which later may be distributed under a variety of options designed to suit
your financial needs. You decide the timing and amount of purchase payments and
allocations of Contract Value to the Guaranteed Interest Account ("GIA"), the
Market Value Adjusted Guaranteed Interest Account ("MVA") and/or one or more of
the Subaccounts of the PHL Variable Accumulation Account (the "Account"). The
assets of the Subaccounts are used to purchase, at Net Asset Value, shares of a
designated underlying mutual fund (collectively, the "Funds") in the following
series or portfolios ("Series") of the Funds of underlying Account options:
<TABLE>
<CAPTION>
FUND ADVISER
===============================================================================================
THE PHOENIX EDGE SERIES FUND
<S> <C>
o Money Market Series [] Phoenix Investment Counsel, Inc.
o Multi-Sector Fixed Income Series [] Phoenix Investment Counsel, Inc.
o International Series [] Phoenix Investment Counsel, Inc.
o Strategic Theme Series [] Phoenix Investment Counsel, Inc.
o Engemann Nifty Fifty Series [] Phoenix Investment Counsel, Inc.
o Phoenix Value Equity Series [] Phoenix Investment Counsel, Inc.
o Seneca Mid-Cap Growth Series [] Phoenix Investment Counsel, Inc.
o Growth Series [] Phoenix Investment Counsel, Inc.
o Strategic Allocation Series [] Phoenix Investment Counsel, Inc.
o Balanced Series [] Phoenix Investment Counsel, Inc.
o Research Enhanced Index Series [] Phoenix Investment Counsel, Inc.
o Phoenix Growth & Income Series [] Phoenix Investment Counsel, Inc.
o Schafer Mid-Cap Value Series [] Phoenix Investment Counsel, Inc.
o Real Estate Securities Series [] Duff & Phelps Investment Management Co.
o Aberdeen New Asia Series [] Phoenix-Aberdeen International Advisors, LLC
WANGER ADVISORS TRUST
o U.S. Small Cap Series [] Wanger Asset Management, L.P.
o International Small Cap Series [] Wanger Asset Management, L.P.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
o Templeton Stock Series [] Templeton Investment Counsel, Inc.
o Templeton International Series [] Templeton Investment Counsel, Inc.
o Templeton Asset Allocation Series [] Templeton Investment Counsel, Inc.
o Templeton Developing Markets Series [] Templeton Asset Management, Ltd.
===============================================================================================
</TABLE>
The Contract Value allocated to the Account is not guaranteed and will vary with
the investment performance of the underlying Fund. The Contract Value allocated
to the GIA and MVA will accumulate at rates we determine. The guaranteed rates
offered will, in no event, be less than 4% for allocations made to the GIA.
You may select from a number of different variable annuity and fixed annuity
payout options, some of which offer retirement income payments which you cannot
outlive. See "The Annuity Period--Annuity Options."
The Contract has a "free look" period during which you may return the Contract
if you are not satisfied for any reason. See "Free Look Period."
It may not be advantageous to purchase a Contract as a replacement for an
existing annuity contract or life insurance policy. You should recognize that a
contract that has been in existence for a period of time might have certain
advantages to you over a new contract. On the other hand, the proposed Contract
may offer new features which are more important to you.
1
<PAGE>
It is in your best interest to have adequate information before a decision to
replace your present annuity contract becomes final so that you may understand
the basic features of both the proposed Contract and your existing contract.
If you are replacing a life insurance policy, it is important to understand that
the proposed Contract would provide limited, if any, life insurance coverage,
and that annuities and life insurance are treated differently under the tax
laws.
In all cases, it is important to know if the replacement will result in current
tax liability.
This Prospectus provides information about the Contract that prospective
investors should know before investing and is valid only if accompanied by or
preceded by current prospectuses for the Funds and MVA. This Prospectus and the
prospectuses for the Funds and MVA should be read and retained for future
reference.
A Statement of Additional Information ("SAI"), dated May 1, 1998, which is part
of the registration statement filed with the Securities and Exchange Commission
("SEC") for the Account, is available free of charge upon request by writing to
VPMO or by calling our service center, Variable Products Operations ("VPO") toll
free at 800-447-4312. The SAI has been incorporated by reference into this
Prospectus, and its Table of Contents appears at the back of this Prospectus.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE FLUCTUATION OF CONTRACT
VALUE AND THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------
SPECIAL TERMS............................................. 4
SUMMARY OF EXPENSES....................................... 5
SUMMARY................................................... 8
FINANCIAL HIGHLIGHTS...................................... 10
PERFORMANCE HISTORY....................................... 11
THE VARIABLE ACCUMULATION ANNUITY......................... 12
PHL VARIABLE AND THE ACCOUNT ............................. 12
THE PHOENIX EDGE SERIES FUND.............................. 12
WANGER ADVISORS TRUST..................................... 14
TEMPLETON VARIABLE PRODUCTS SERIES FUND................... 14
MVA....................................................... 14
PURCHASE OF CONTRACTS..................................... 15
DEDUCTIONS AND CHARGES.................................... 15
Premium Tax............................................ 15
Sales Charges.......................................... 15
Charges for Mortality and Expense Risks................ 15
Charges for Administrative Services.................... 16
Market Value Adjustment................................ 16
Other Charges.......................................... 16
THE ACCUMULATION PERIOD................................... 16
Accumulation Units..................................... 16
Accumulation Unit Values............................... 16
Transfers ............................................. 17
Surrender of Contract; Partial Withdrawals............. 17
Lapse of Contract...................................... 18
Payment Upon Death Before Maturity Date ............... 18
THE ANNUITY PERIOD ....................................... 18
Variable Accumulation Annuity Contracts................ 18
Annuity Options ....................................... 19
Option A--Life Annuity With Specified Period Certain. 19
Option B--Non-Refund Life Annuity.................... 19
Option D--Joint and Survivor Life Annuity............ 19
Option E--Installment Refund Life Annuity............ 19
Option F--Joint and Survivor Life Annuity with
10-Year Period Certain .......................... 20
Option G--Payments for Specified Period.............. 20
Option H--Payments of Specified Amount............... 20
Option I--Variable Payment Life Annuity with 10-Year
Period Certain .................................. 20
Option J--Joint Survivor Variable Payment Life Annuity
with 10-Year Period Certain ..................... 20
Option K--Variable Payment Annuity for a Specified
Period .......................................... 20
Option L--Variable Payment Life Expectancy Annuity... 20
Option M--Unit Refund Variable Payment Life Annuity.. 20
Option N--Variable Payment Non-Refund Life Annuity... 20
Other Options and Rates.............................. 20
Other Conditions..................................... 20
Payment Upon Death After Maturity Date................. 21
VARIABLE ACCOUNT VALUATION PROCEDURES..................... 21
MISCELLANEOUS PROVISIONS.................................. 21
Assignment............................................. 21
Deferment of Payment .................................. 21
Free Look Period....................................... 21
Amendments to Contracts................................ 22
Substitution of Fund Shares............................ 22
Ownership of the Contract.............................. 22
FEDERAL INCOME TAXES...................................... 22
Introduction........................................... 22
Tax Status............................................. 22
Taxation of Annuities in General--Non-Qualified Plans.. 22
Surrenders or Withdrawals Prior to the Contract
Maturity Date..................................... 22
Surrenders or Withdrawals On or After the Contract
Maturity Date..................................... 22
Penalty Tax on Certain Surrenders and Withdrawals.... 23
Additional Considerations.............................. 23
Diversification Standards ............................. 24
Qualified Plans........................................ 24
Tax Sheltered Annuities ............................. 25
Keogh Plans.......................................... 26
Individual Retirement Accounts....................... 26
Corporate Pension and Profit-Sharing Plans........... 26
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations.......................... 26
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts.......................... 26
Seek Tax Advice...................................... 27
SALES OF VARIABLE ACCUMULATION CONTRACTS ................. 27
STATE REGULATION ......................................... 27
REPORTS .................................................. 27
VOTING RIGHTS ............................................ 27
TEXAS OPTIONAL RETIREMENT PROGRAM ........................ 28
LEGAL MATTERS ............................................ 28
SAI...................................................... 28
APPENDIX A ............................................... 29
APPENDIX B ............................................... 30
3
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: PHL Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Subaccount
used in determining the value of a Contract and the interest in the Subaccounts
prior to the commencement of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
ANNUITANT: The person whose life is used as the measuring life under the
Contract. The primary Annuitant as shown on the Contract's Schedule Page while
the primary Annuitant is living, and then the contingent Annuitant designated on
the application for the Contract or as later changed by the Owner, if the
contingent Annuitant is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as Life Annuity with Ten Years Certain.
See "Annuity Options."
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable income payment under the variable payment Annuity Options I, J, K, M
and N.
CONTRACT: The deferred variable accumulation annuity contract described in this
Prospectus.
CONTRACT OWNER (OWNER, YOU, YOUR): The person or entity, usually the one to whom
the Contract is issued, who has the sole right to exercise all rights and
privileges under the Contract except as otherwise provided in the Contract. The
Owner may be the Annuitant, an employer, a trust or any other individual or
entity specified in the application for the Contract. However, under Contracts
used with certain tax qualified plans, the Owner must be the Annuitant. A
husband and wife may be designated as joint owners, and if such a joint owner
dies, the other joint owner becomes the sole Owner of the Contract. If no Owner
is named in the application, the Annuitant will be the Owner.
CONTRACT VALUE: Prior to the Maturity Date, the sum of all Accumulation Units
held in the Subaccounts of the Account and the value held in the GIA and/or MVA.
For 403(b) plans with loans, the Contract Value is the sum of all Accumulation
Units held in the Subaccounts of the Account and the value held in the GIA
and/or MVA plus the value held in the Loan Security Account, and less any Loan
Debt.
FIXED PAYMENT ANNUITY: A benefit providing periodic payments of a fixed dollar
amount throughout the Annuity Period that does not vary with or reflect the
investment performance of any Subaccount.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GIA: An allocation option under which premium amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial purchase payment is invested under a
Contract.
LOAN DEBT: Loan Debt is equal to the sum of the outstanding loan balance plus
any accrued loan interest.
LOAN SECURITY ACCOUNT: The Loan Security Account is part of the general account
and is the sole security for 403(b) loans. It is increased with all loan amounts
taken and reduced by all repayments of loan principal.
MVA: An account that pays interest at a guaranteed rate if held to maturity. If
amounts are withdrawn, transferred or applied to an annuity option before the
end of the guarantee period, a market value adjustment will be made. Assets
allocated to the MVA are not part of the assets allocated to the Account or the
general account of PHL Variable.
MATURITY DATE: The date elected by the Owner pursuant to the Contract as of
which annuity payments will commence. The Maturity Date shall be no earlier than
the fifth Contract anniversary and no later than the Annuitant's 95th birthday.
The election is subject to certain conditions described in "The Annuity Period."
MINIMUM INITIAL PURCHASE PAYMENT: The amount which must be paid when a Contract
is purchased. Minimum initial purchase payments of $1,000, $1,000, $25 and
$1,000 annually are required for non-qualified, IRA, bank draft program and
qualified plan contracts, respectively.
MINIMUM SUBSEQUENT PAYMENT: The amount which must be paid when any subsequent
payments are made, after the minimum initial purchase payment has been made (see
above). The minimum subsequent payment for all Contracts is $25.
NET ASSET VALUE: Net asset value of a Series' shares is computed by dividing the
value of the net assets of the Series by the total number of Series shares
outstanding.
PAYMENT UPON DEATH: The obligation of PHL Variable under a Contract to make a
payment on the death of the Owner or Annuitant at any time before the Maturity
Date of a Contract (see "Payment Upon Death Before Maturity Date") or after the
Maturity Date of a Contract (see "Payment Upon Death After Maturity Date").
PHL VARIABLE (OUR, US, WE, COMPANY): PHL Variable Insurance Company.
SERIES: A separate investment portfolio of a Fund.
VALUATION DATE: A Valuation Date is every day the New York Stock Exchange
("NYSE") is open for trading and PHL Variable is open for business.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amount
after the first payment is made, in accordance with the investment experience of
the selected Subaccounts.
VPMO: The Variable Products Mail Operation division of PHL Variable that
receives and processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
4
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charges Imposed on Purchases.................................................. None
Deferred Sales Charges (as a percentage of amount withdrawn):(1)
Age of Payment in Complete Years 0-1............................................ 7%
Age of Payment in Complete Years 1-2............................................ 6%
Age of Payment in Complete Years 2-3............................................ 5%
Age of Payment in Complete Years 3-4............................................ 4%
Age of Payment in Complete Years 4-5............................................ 3%
Age of Payment in Complete Years 5-6............................................ 2%
Age of Payment in Complete Years 6-7............................................ 1%
Age of Payment in Complete Years 7 and thereafter............................... None
Exchange Fee
Maximum Allowable Charge Per Exchange........................................... $10
ANNUAL ADMINISTRATIVE CHARGE
Maximum......................................................................... $35
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fee................................................... 1.25%
Daily Administrative Fee......................................................... 0.125%
Total Separate Account Annual Expenses.............................................. 1.375%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES(2)
RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL(2)
MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
--------------- ---- -------------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... .63% N/A .11% .74%
Multi-Sector Fixed Income Series................................ .50% N/A .15% .65%
Strategic Allocation Series .................................... .58% N/A .13% .71%
Money Market Series............................................. .40% N/A .15% .55%
International Series ........................................... .75% N/A .26% 1.01%
Balanced Series................................................. .55% N/A .15% .70%
Real Estate Securities Series................................... .75% N/A .25% 1.00%
Strategic Theme Series.......................................... .75% N/A .25% 1.00%
Aberdeen New Asia Series........................................ 1.00% N/A .25% 1.25%
Research Enhanced Index Series................................. .45% N/A .10% .55%
Engemann Nifty Fifty Series(5).................................. .90% N/A .15% 1.05%
Phoenix Growth & Income Series(5)............................... .70% N/A .15% .85%
Phoenix Value Equity Series(5).................................. .70% N/A .15% .85%
Seneca Mid-Cap Growth Series(5)................................. .80% N/A .25% 1.05%
Schafer Mid-Cap Value Series(5)................................. 1.05% N/A .15% 1.20%
Wanger U.S. Small Cap Series.................................... .97% N/A .09% 1.06%
Wanger International Small Cap Series........................... 1.28% N/A .32% 1.60%
Templeton Stock Series -- Class 2(3)............................ .69% .25% .19% 1.13%
Templeton Asset Allocation Series -- Class 2(3)................. .60% .25% .18% 1.03%
Templeton International Series -- Class 2(3).................... .69% .25% .19% 1.13%
Templeton Developing Markets Series -- Class 2(4)............... 1.25% .25% .33% 1.83%
</TABLE>
(1) A sales charge is taken from the proceeds when a Contract is surrendered or
when an amount is withdrawn, if assets have not been held under the Contract
for a certain period of time. An amount up to 10% of the Contract Value as
of the end of the previous Contract year may be withdrawn each year without
a sales charge. See "Deductions and Charges--Sales Charges."
(2) Each Series pays a portion or all of its total annual expenses other than
the management fee. The Research Enhanced Index Series will pay up to .10%;
the Growth, Multi-Sector Fixed Income, Strategic Allocation, Money Market,
Balanced, Nifty Fifty, Growth & Income, Value and Schafer Mid-Cap Series
will pay up to .15%; the Real Estate Securities, Strategic Theme, Aberdeen
New Asia, and Seneca Mid-Cap Series will pay up to .25%; the International
Series will pay up to .40%; the Wanger U.S. Small Cap Series will pay up to
.50%; and the Wanger International Small Cap Series will pay up to .60%.
Absent expense reimbursement, Total Annual Expenses were .66%, 1.05%, 1.07%,
1.14% and 2.00% for the Multi-Sector, Enhanced Index, Real Estate, Theme and
Asia Series, respectively. Expenses may be higher or lower than those shown
but are subject to expense limitations as noted.
(3) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997, except that Management Fees and Total Annual Expenses
have been restated to reflect the management fee schedule which was approved
by shareholders and effective on May 1, 1997. Actual Management Fees and
Total Annual Expenses during 1997 were lower. See Fund prospectus for
details.
(4) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997.
(5) Inclusion of this Subaccount began on March 2, 1998. Accordingly, annualized
expenses have been projected for the fiscal period ending December 31, 1998.
Without reimbursement, the total operating expenses are estimated to be
approximately 1.35%, 1.68%, 1.10%, 1.10% and 1.31% of the average net assets
of the Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer
Mid-Cap Series, respectively, for the fiscal year ending December 31, 1998.
5
<PAGE>
SUMMARY OF EXPENSES
EXAMPLES
If you surrender your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 79 $110 $143 $260
Multi-Sector Fixed Income Series............................ 78 108 138 251
Strategic Allocation Series................................ 78 109 141 256
Money Market Series......................................... 77 105 133 241
International Series........................................ 81 118 156 287
Balanced Series............................................. 78 109 141 257
Real Estate Securities Series............................... 81 118 155 286
Strategic Theme Series...................................... 81 118 155 286
Aberdeen New Asia Series.................................... 83 125 168 311
Research Enhanced Index Series............................. 77 105 N/A N/A
Engemann Nifty Fifty Series(1).............................. 82 119 N/A N/A
Phoenix Growth & Income Series(1)........................... 80 114 N/A N/A
Phoenix Value Equity Series(1).............................. 80 114 N/A N/A
Seneca Mid-Cap Growth Series(1)............................. 82 119 N/A N/A
Schafer Mid-Cap Value Series(1)............................. 83 124 N/A N/A
Wanger U.S. Small Cap Series................................ 82 120 158 292
Wanger International Small Cap Series....................... 87 135 184 344
Templeton Stock Series -- Class 2........................... 82 122 162 299
Templeton Asset Allocation Series -- Class 2................ 81 119 157 289
Templeton International Series -- Class 2................... 82 122 162 299
Templeton Developing Markets Series -- Class 2.............. 89 142 195 365
</TABLE>
If you annuitize your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 79 $110 $122 $260
Multi-Sector Fixed Income Series............................ 78 108 117 251
Strategic Allocation Series................................. 78 109 120 257
Money Market Series......................................... 77 105 112 241
International Series........................................ 81 118 136 287
Balanced Series............................................. 78 109 120 256
Real Estate Securities Series............................... 81 118 135 286
Strategic Theme Series...................................... 81 118 135 286
Aberdeen New Asia Series.................................... 83 125 147 311
Research Enhanced Index Series............................. 77 105 N/A N/A
Engemann Nifty Fifty Series1................................ 82 119 N/A N/A
Phoenix Growth & Income Series(1)........................... 80 114 N/A N/A
Phoenix Value Equity Series(1).............................. 80 114 N/A N/A
Seneca Mid-Cap Growth Series(1)............................. 82 119 N/A N/A
Schafer Mid-Cap Value Series(1)............................. 83 124 N/A N/A
Wanger U.S. Small Cap Series................................ 82 120 138 292
Wanger International Small Cap Series....................... 87 135 165 344
Templeton Stock Series -- Class 2........................... 82 122 141 299
Templeton Asset Allocation Series -- Class 2................ 81 119 137 289
Templeton International Series -- Class 2................... 82 122 141 299
Templeton Developing Markets Series -- Class 2.............. 89 142 176 365
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
6
<PAGE>
SUMMARY OF EXPENSES
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 23 $ 71 $122 $260
Multi-Sector Fixed Income Series............................ 22 69 117 251
Strategic Allocation Series................................ 23 70 120 257
Money Market Series......................................... 21 66 112 241
International Series........................................ 26 79 136 287
Balanced Series............................................. 23 70 120 256
Real Estate Securities Series............................... 26 79 135 286
Strategic Theme Series...................................... 26 79 135 286
Aberdeen New Asia Series.................................... 28 87 147 311
Research Enhanced Index Series.............................. 21 66 N/A N/A
Engemann Nifty Fifty Series(1).............................. 26 81 N/A N/A
Phoenix Growth & Income Series(1)........................... 24 75 N/A N/A
Phoenix Value Equity Series(1).............................. 24 75 N/A N/A
Seneca Mid-Cap Growth Series(1)............................. 26 81 N/A N/A
Schafer Mid-Cap Value Series(1)............................. 28 85 N/A N/A
Wanger U.S. Small Cap Series................................ 26 81 138 292
Wanger International Small Cap Series....................... 32 97 165 344
Templeton Stock Series -- Class 2........................... 27 83 141 299
Templeton Asset Allocation Series -- Class 2................ 26 80 137 289
Templeton International Series -- Class 2................... 27 83 141 299
Templeton Developing Markets Series -- Class 2.............. 34 104 176 365
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. It is based on historical Fund expenses, as a percentage
of net assets for the year ended December 31, 1997, except as indicated. The
tables reflect expenses of the Account as well as the Funds. See "Deductions and
Charges" in this Prospectus and in the Fund Prospectuses.
Premium taxes, which are not reflected in the table above, may apply. Any
premium or other taxes levied by any governmental entity with respect to the
Contract will be charged against the Contract Values based on a percentage of
premiums paid. Premium taxes are currently imposed by certain states on the
Contracts and range from 0% to 3.5% of premiums paid. See "Deductions and
Charges--Premium Tax" and Appendix B.
The Example should not be considered a representation of future expenses and
actual expenses may be greater or less than those shown. The $35 annual
administrative charge is reflected in the Example as $1.75 since the average
Contract account size is greater than $1,000 and the expense effect is reduced
accordingly. See "Deductions and Charges."
7
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The following summary of Prospectus information of the Contract should be
read with the detailed information appearing elsewhere in this Prospectus. See
"Table of Contents" and "Special Terms."
OVERVIEW
The Contract offers a dynamic concept in retirement planning designed to
give you maximum flexibility in obtaining your investment goals. There are no
deductions from your purchase payments so that your entire investment is put to
work in one or more of the Subaccounts, GIA and/or the MVA. The Contract offers
a combination of investment options, both variable and fixed. Investments in the
Subaccounts provide returns which are variable and are contingent upon the
performance of the underlying Fund. Allocations to either the GIA or MVA
produces guaranteed interest earnings subject to certain conditions. Please
refer to "Appendix A" for detailed information regarding the GIA and to the MVA
prospectus before allocating payments to these options. You also may select from
a number of different variable annuity and fixed annuity payout options, some of
which offer retirement income payments which you cannot outlive. See "The
Annuity Period--Annuity Options." Contracts are available to fund both non-tax
qualified and certain tax qualified retirement plans. The Contract is designed
to provide retirement income at a future date by the investment of funds on a
tax-deferred basis. Generally, any earnings on your investment will accumulate
without being subject to annual income tax until withdrawn. The Contract
provides for payment upon the death of either the Owner or the Annuitant anytime
before the Maturity Date. Contracts may not be available for sale in all states.
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
You may make payments any time until the Maturity Date that you select
subject to certain limitations. You can vary the amount and frequency of your
purchase payments. Other than the Minimum Initial Purchase Payment there is no
scheduled or required purchase payment.
CONTRIBUTIONS
For non-tax qualified plans and Individual Retirement Annuities ("IRAs")
including SEP IRAs and SIMPLE IRAs, you must make a Minimum Initial Purchase
Payment of at least $1,000 to put a Contract in effect. Minimum purchase
payments to the MVA must be at least $1,000. If your payments are made by our
monthly bank draft investment program, you are allowed to pay a reduced Minimum
Initial Purchase Payment amount of at least $25.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
Your purchase payment will be invested in one or more of the Subaccounts,
GIA and/or the MVA. The assets of the Subaccounts are used to purchase, at Net
Asset Value, shares of a designated Fund. You also may change your allocation to
the various investment options by changing your allocation percentages or by
making transfers among the Subaccounts, GIA and/or the MVA. Transfers into the
GIA, MVA and/or among the Subaccounts of the Account may be made anytime prior
to the annuity date.
In general, you can only make one transfer per year from the GIA. The amount
that can be transferred out is limited to the greater of $1,000 or 25% of the
Contract Value in the GIA as of the date of the transfer. If you elect the
Systematic Transfer Program, approximately equal amounts may be transferred out
of the GIA. Also, the total Contract Value allocated to the GIA may be
transferred out of the GIA to one or more of the Subaccounts and/or MVA.
Transfers from the GIA are subject to the rules discussed in Appendix A and in
"The Accumulation Period--Transfers."
Transfers from the MVA may be subject to market value adjustments and are
subject to certain rules. See the MVA prospectus.
The Contract Value allocated to the Account is not guaranteed and will vary
with the investment performance of the underlying Fund. The Contract Value
allocated to the GIA will depend on deductions taken from the GIA and will
accumulate at rates we determine (4% minimum for GIA).
WITHDRAWALS
You may partially or fully surrender the Contract anytime for its Contract
Value less any applicable sales charge and premium tax. Prior to the Maturity
Date, you may withdraw up to 10% of the Contract Value as of the end of the
previous year in a Contract year after the first Contract year without a sales
charge. See "Surrender of Contract; Partial Withdrawals."
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
at any time prior to the Maturity Date of the Contract. The amount payable will
be different depending on whether the Annuitant or Owner/Annuitant has attained
age 85. If the Annuitant and Owner are not the same, the amount payable upon the
death of the Owner will be equal to the greater of: (a) 100% of purchase
payments made, less withdrawals or (b) the Contract Value (no surrender charge
is imposed), less any deferred premium tax. See "Payment Upon Death Before
Maturity." The Contract also provides for payment upon death after the Contract
Maturity Date. See "Payment Upon Death Before Maturity Date" and "Payment Upon
Death After Maturity Date."
DEDUCTIONS AND CHARGES
GENERALLY
No deductions are made from purchase payments. A deduction for sales charges
may be taken from the proceeds when a Contract is surrendered or when an amount
is withdrawn, if assets have not been held under the Contract for a certain
period of time. However, no deduction for sales charges will be taken after the
Annuity Period has begun, unless unscheduled withdrawals are made under Annuity
Options K or L. If a sales charge is imposed, it is imposed on a first-in,
first-out basis. No sales charge will be imposed in the event that the Annuitant
or Owner dies before the date that annuity payments will commence. The total
deferred sales charges on a Contract will never exceed 9% of the total purchase
payments. See "Sales Charges."
8
<PAGE>
FROM THE ACCOUNT
There is a mortality and expense risk fee and a daily administrative fee
assessed against the Account. The mortality and expense risk fee is 1.25%. See
"Charges for Mortality & Expense Risks." The daily administrative fee is equal
to 0.125% on an annual basis. See "Charges for Administrative Services."
OTHER CHARGES OR DEDUCTIONS
In most states, premium taxes are imposed when a Contract is annuitized
rather than when purchase payments are made by the Contract Owner. PHL Variable
will reimburse itself for such taxes on the date of a partial withdrawal,
surrender of the Contract, Maturity Date or payment of death proceeds. See
"Premium Tax." To cover its fixed cost of administration, PHL Variable generally
charges each Contract $35 each year.
In addition, certain charges are deducted from the assets of the Funds. For
investment management services, each Series of a Fund pays the investment
manager a separate monthly fee calculated on the basis of its average daily net
assets during the year.
For a more complete description of the fees chargeable under the Contract,
see "Deductions and Charges."
VARIATIONS
PHL Variable is subject to laws and regulations in every state in which the
Contract is sold. As a result, the terms of the Contract may vary from state to
state.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the 10-day period, unless
the Contract is issued with a Temporary Money Market Allocation Amendment, in
which case the initial purchase payment is refunded. See "Free Look Period."
LAPSE
If on any Valuation Date the total Contract Value equals zero, or, the
premium tax reimbursement due on a surrender or partial withdrawal is greater
than or equal to the Contract Value, the Contract will immediately terminate and
lapse without value.
9
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(SELECTED DATA FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are financial highlights for the period indicated.
<TABLE>
<CAPTION>
MONEY MARKET MULTI-SECTOR
SUBACCOUNT GROWTH SUBACCOUNT SUBACCOUNT
---------- ----------------- ----------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.051525 $1.014954 $1.000000 $1.202623 $1.082876 $1.000000 $1.166339 $1.051781 $1.000000
Unit value, end of period...... $1.091039 $1.051525 $1.014954 $1.436490 $1.202623 $1.082876 $1.276756 $1.166339 $1.051781
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 32,019 22,142 5,893 42,365 77,819 3,037 29,245 13,252 319
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION SUBACCOUNT INTERNATIONAL SUBACCOUNT BALANCED SUBACCOUNT
--------------------- ------------------------ -------------------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.120864 $1.042018 $1.000000 $1.181847 $1.009660 $1.000000 $1.142528 $1.047597 $1.000000
Unit value, end of period...... $1.334927 $1.120864 $1.042018 $1.306260 $1.181847 $1.009660 $1.329181 $1.142528 $1.047597
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 22,085 13,249 2,919 7,089 3,095 133 10,024 5,616 719
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE SUBACCOUNT WANGER INT'L SMALL CAP WANGER U.S. SMALL CAP
---------------------- ---------------------- ---------------------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.378845 $1.050105 $1.000000 $1.417188 $1.088168 $1.000000 $1.376482 $0.951679 $1.000000
Unit value, end of period...... $1.660307 $1.378845 $1.050105 $1.377428 $1.417188 $1.088168 $1.757439 $1.376482 $0.951679
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 7,737 1,543 226 20,361 9,834 257 34,966 16,757 1,313
</TABLE>
<TABLE>
<CAPTION>
THEME SUBACCOUNT ASIA SUBACCOUNT ENHANCED INDEX
---------------- --------------- --------------
FROM FROM FROM
INCEPTION INCEPTION INCEPTION
YEAR ENDED 1/29/96 TO YEAR ENDED 1/29/96 TO 5/1/97 TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.078271 $1.000000 $0.997488 $1.000000 $1.000000
Unit value, end of period...... $1.246377 $1.078271 $0.665071 $0.997488 $1.040992
========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 10,169 4,054 3,655 1,133 3,958
</TABLE>
<TABLE>
<CAPTION>
STOCK ASSET ALLOCATION INTERNATIONAL DEVELOPING MARKETS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
FROM FROM FROM FROM
INCEPTION INCEPTION INCEPTION INCEPTION
5/1/97 TO 5/1/97 TO 5/1/97 TO 5/1/97 TO
12/31/97 12/31/97 12/31/97 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.000000 $1.000000 $1.000000 $1.000000
Unit value, end of period...... $1.044077 $1.064886 $1.075133 $0.662660
Number of units outstanding
(000)........................ 6,100 4,622 4,072 3,275
</TABLE>
ENGEMANN NIFTY FIFTY SUBACCOUNT, PHOENIX GROWTH & INCOME SUBACCOUNT,
PHOENIX VALUE EQUITY SUBACCOUNT
SENECA MID-CAP GROWTH SUBACCOUNT, SCHAFER MID-CAP VALUE SUBACCOUNT
These Subaccounts commenced operations on March 2, 1998; accordingly, data
for these Subaccounts is not yet available.
10
<PAGE>
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
From time to time, the Account may include the performance history of any or
all Subaccounts in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUBACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the
Multi-Sector Subaccount and as total return of any Subaccount. For the
Multi-Sector Subaccount, quotations of yield will be based on all investment
income per unit earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing the net investment income by the maximum offering price
per unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $1,000 investment in the Subaccount at the
beginning of the relevant period to the value of the investment at the end of
the period, assuming the reinvestment of all distributions at net asset value
and the deduction of all applicable Contract charges except for premium taxes
(which vary by state) at the beginning of the relevant period.
For those Subaccounts within the Account that have not been available for
one of the quoted periods, the standardized average annual total return
quotations may show the investment performance such Subaccount would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED 12/31/97
---------------------------------------------------------
COMMENCEMENT SINCE
SUBACCOUNT DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------- ---- ------ ------- -------- ---------
Multi-Sector... 1/1/83 3.48% 9.01% 9.21% 9.40%
Balanced....... 5/1/92 9.88% 9.09% N/A 9.56%
Allocation..... 9/17/84 12.49% 9.17% 10.56% 11.55%
Growth......... 1/1/83 12.82% 14.58% 15.81% 16.84%
International.. 5/1/90 4.39% 12.97% N/A 7.34%
Money Market... 10/10/82 (2.01%) 2.55% 4.10% 4.84%
Real Estate.... 5/1/95 13.73% N/A N/A 23.48%
U.S. Small Cap. 5/1/95 20.59% N/A N/A 30.14%
Int'l. Small
Cap.......... 5/1/95 (8.21%) N/A N/A 19.44%
Theme.......... 1/29/96 9.17% N/A N/A 9.90%
Asia........... 9/20/96 (37.05%) N/A N/A (30.21%)
Enhanced Index. 7/15/97 N/A N/A N/A (1.44%)
TPT Allocation. 11/28/88 7.43% 13.15% N/A 10.79%
TPT Stock...... 11/4/88 3.99% 15.16% N/A 11.22%
TPT Int'l...... 5/1/92 5.89% 16.25% N/A 12.74%
TPT Dev. Mkts.. 9/15/96 (34.23%) N/A N/A (27.91%)
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.56% N/A N/A 31.10% N/A 6.85%
1984.... 9.82% N/A (1.51%) 9.16% N/A 8.72%
1985.... 18.97% N/A 25.61% 33.09% N/A 6.56%
1986.... 17.67% N/A 14.11% 18.83% N/A 5.06%
1987.... (0.30%) N/A 11.02% 5.47% N/A 5.05%
1988.... 8.98% N/A 0.94% 2.50% N/A 5.98%
1989.... 6.76% N/A 18.28% 34.35% N/A 7.71%
1990.... 3.78% N/A 4.32% 2.62% (8.98%) 6.74%
1991.... 17.96% N/A 27.56% 40.81% 18.11% 4.53%
1992.... 8.58% 8.43% 9.15% 8.79% (14.03%) 2.16%
1993.... 14.35% 7.13% 9.50% 18.08% 36.59% 1.47%
1994.... (6.78%) (4.17%) (2.75%) 0.08% (1.31%) 2.42%
1995.... 21.89% 21.69% 16.63% 29.13% 8.12% 4.23%
1996.... 10.89% 9.06% 7.57% 11.06% 17.05% 3.60%
1997 9.57% 16.34% 19.10% 19.45% 10.53% 3.76%
REAL ENHANCED U.S. INT'L
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.75%(3) N/A N/A N/A 14.97%(3) 33.35%(3)
1996.... 31.31% 8.98%(3) (0.23%)(3) N/A 44.64% 30.24%
1997.... 20.41% 15.59% (33.33%) 5.19%(3) 27.68% (2.81%)
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L(2) DEV. MKTS.(2)
- ---- ------------- -------- -------- -------------
1989.... 11.49% 12.83% N/A N/A
1990.... (9.47%) (12.50%) N/A N/A
1991.... 25.70% 25.50% N/A N/A
1992.... 6.36% 5.41% (7.15%)(3) N/A
1993.... 24.15% 31.92% 45.01% N/A
1994.... (4.55%) (3.80%) (3.83%) N/A
1995.... 20.60% 23.26% 13.91% N/A
1996.... 16.96% 20.47% 22.06% 0.90%(3)
1997 13.74% 10.10% 12.12% (30.35%)
(1) Sales charges have not been deducted from the Annual Total Returns.
(2) Returns shown prior to 1997, the inception year of the Class 2 shares, are
derived from the historical performance of Class 1 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually. Past fee waivers by
the Investment Manager of the Templeton Developing Markets Fund increased
total returns.
(3) Since inception
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
Current yield for the Money Market Subaccount is based upon the income
earned by the Subaccount over a seven-day period and then annualized, i.e., the
income earned in the period is assumed to be earned every seven days over a
52-week period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Subaccount Units and thus compounded in the course
of a 52-week period. Yield and effective yield reflect the recurring charges on
the Account level excluding the annual administrative fee.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical Contract Owner's
account having a balance of exactly one Unit at the beginning of a seven-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this 7-day period will be the
change in the value of the hypothetical Contract Owner's account's original
unit. The following
11
<PAGE>
is an example of this yield quotation for the Money Market Subaccount based on a
7-day period ending December 31, 1997.
Example:
Value of hypothetical pre-existing account with
exactly one unit
at the beginning of the period:................... 1.090370
Value of the same account (excluding capital
changes) at the
end of the 7-day period:......................... 1.091039
Calculation:
Ending account value.............................. 1.091039
Less beginning account value...................... 1.090370
Net change in account value....................... 0.000669
Base period return:
(adjusted change/beginning account value)......... 0.000614
Current yield = return H (365/7) =................. 3.20%
Effective yield = [(1 + return)(365/7)] -1 =........ 3.25%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), and the Europe Australia Far East Index, and also may be compared to the
performance of the other variable annuity accounts as reported by services such
as Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA") and Morningstar, Inc. or in other various publications. Lipper and
CDA are widely recognized independent rating/ranking services. A Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the S&P
500, Dow Jones Industrial Average, First Boston High Yield Index and Solomon
Brothers Corporate and Government Bond Indices.
Each Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by PHL Variable may be significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who assume the risk of investment gain or loss rather
than PHL Variable. To the extent that payments are not allocated to the GIA or
MVA, the amounts which will be available for annuity payments under a Contract
will depend on the investment performance of the amounts allocated to the
Subaccounts of the Account. Upon the maturity of a Contract, the amounts held
under a Contract will continue to be invested in the Account or the GIA and
monthly annuity payments will vary in accordance with the investment experience
of the investment options selected. However, a fixed annuity may be elected, in
which case PHL Variable will guarantee specified monthly annuity payments.
The Owner selects the investment objective of each Contract on a continuing
basis by directing the allocation of purchase payments and Contract Value among
the Subaccounts, GIA or MVA.
PHL VARIABLE AND THE ACCOUNT
- --------------------------------------------------------------------------------
PHL Variable is a wholly-owned indirect subsidiary of Phoenix Home Life
Mutual Insurance Company. Its executive office is located at One American Row,
Hartford, Connecticut 06102 and its main administrative office is located at 100
Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. PHL Variable is a
Connecticut stock company formed on April 24, 1981. On December 31, 1997, it had
assets of $428 million. PHL Variable sells variable annuity contracts through
its own field force of agents and through brokers. Its operations are currently
conducted in 45 states.
On December 7, 1994, PHL Variable established the Account, a separate
account created under the insurance laws of Connecticut. The Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act") and it meets the definition of a "separate account"
under the 1940 Act. Registration under the 1940 Act does not involve supervision
of the management or investment practices or policies of the Account or PHL
Variable.
Under Connecticut law, all income, gains or losses of the Account, whether
realized or not, must be credited to or charged against the amounts placed in
the Account without regard to the other income, gains and losses of PHL
Variable. The assets of these accounts may not be charged with liabilities
arising out of any other business that PHL Variable may conduct. Obligations
under the Contracts are obligations of PHL Variable.
Contributions to the GIA are not invested in the Account; rather, they
become part of the general account of PHL Variable (the "General Account"). The
General Account supports all insurance and annuity obligations of PHL Variable
and is made up of all of its general assets other than those allocated to any
separate account such as the Account. For more complete information concerning
the GIA, see Appendix A.
THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The investment adviser of all of the Series (except
the Real Estate and Asia Series) is Phoenix Investment Counsel, Inc. ("PIC").
The investment adviser of the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM") and for the Asia Series, the adviser is Phoenix-Aberdeen
International
12
<PAGE>
Advisors, LLC ("PAIA"). The investment objective of each of the
Series of the Fund is as follows:
(1) MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment
objective of the Multi-Sector Series is to seek long-term total return
by investing in a diversified portfolio of high yield (high risk) and
high quality fixed income securities. For a discussion of the risks
associated with investing in high yield bonds, please see the
accompanying Fund prospectus.
(2) MONEY MARKET SERIES: The investment objective of the Money Market
Series is to provide maximum current income consistent with capital
preservation and liquidity. The Money Market Series invests exclusively
in high quality money market instruments.
(3) GROWTH SERIES: The investment objective of the Growth Series is to
achieve intermediate and long-term growth of capital, with income as a
secondary consideration. The Growth Series invests principally in
common stocks of corporations believed by management to offer growth
potential.
(4) STRATEGIC ALLOCATION ("ALLOCATION") SERIES: The investment objective of
the Allocation Series is to realize as high a level of total rate of
return over an extended period of time as is considered consistent with
prudent investment risk. The Allocation Series invests in stocks, bonds
and money market instruments in accordance with the adviser's appraisal
of investments most likely to achieve the highest total rate of return.
(5) INTERNATIONAL SERIES: The International Series seeks as its investment
objective a high total return consistent with reasonable risk. It
intends to achieve its objective by investing primarily in an
internationally diversified portfolio of equity securities. It intends
to reduce its risk by engaging in hedging transactions involving
options, futures contracts and foreign currency transactions.
Investments may be made for capital growth or for income or any
combination thereof for the purpose of achieving a high overall return.
(6) BALANCED SERIES: The investment objectives of the Balanced Series are
reasonable income, long-term capital growth and conservation of
capital. The Balanced Series intends to invest based on combined
considerations of risk, income, capital enhancement and protection of
capital value.
(7) REAL ESTATE SECURITIES ("REAL ESTATE") SERIES: The investment objective
of the Real Estate Series is to seek capital appreciation and income
with approximately equal emphasis. It intends under normal
circumstances to invest in marketable securities of publicly traded
real estate investment trusts (REITs) and companies that operate,
develop, manage and/or invest in real estate located primarily in the
United States.
(8) STRATEGIC THEME ("THEME") SERIES: The investment objective of the Theme
Series is to seek long-term appreciation of capital through investing
in securities of companies that the adviser believes are particularly
well positioned to benefit from cultural, demographic, regulatory,
social or technological changes worldwide.
(9) ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the Asia
Series is to seek long-term capital appreciation. It is intended that
this Series will invest primarily in a diversified portfolio of equity
securities of issuers organized and principally operating in Asia,
excluding Japan.
(10) RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES: The investment
objective of the Enhanced Index Series is to seek high total return by
investing in a broadly diversified portfolio of equity securities of
large and medium capitalization companies within market sectors
reflected in the S&P 500. It is intended that this Series will invest
in a portfolio of undervalued common stocks and other equity securities
which appear to offer growth potential and an overall volatility of
return similar to that of the S&P 500.
(11) ENGEMANN NIFTY FIFTY ("NIFTY FIFTY") SERIES: The investment objective
of the Nifty Fifty Series is to seek long-term capital appreciation by
investing in approximately 50 different securities which, in the
opinion of the Adviser, offer the best potential for long term growth
of capital. At least 75% of the Series' assets will be invested in
common stocks of high quality growth companies. The remaining portion
will be invested in common stocks of small corporations with rapidly
growing earnings per share or common stocks believed to be undervalued.
(12) SENECA MID-CAP GROWTH ("SENECA MID-CAP") SERIES: The investment
objective of the Seneca Mid-Cap Series is to seek capital appreciation
primarily through investments in equity securities of companies that
have the potential for above average market appreciation. The Series
seeks to outperform the Standard & Poor's Mid-Cap 400 Index.
(13) PHOENIX GROWTH AND INCOME ("GROWTH & INCOME") SERIES: The investment
objective of the Growth & Income Series is to seek dividend growth,
current income and capital appreciation by investing in common stocks.
The Series seeks to achieve its objective by selecting securities
primarily from equity securities of the 1,000 largest companies traded
in the United States, ranked by market capitalization.
(14) PHOENIX VALUE EQUITY ("VALUE") SERIES: The primary investment
objective of the Value Series is long-term capital appreciation, with a
secondary investment objective of current income. The Series seeks to
achieve its objective by investing in a diversified portfolio of common
stocks that meet certain quantitative standards that indicate above
average financial soundness and intrinsic value relative to price.
(15) SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary
investment objective of the Schafer Mid-Cap Series is to seek
long-term capital appreciation, with current income as the
secondary investment objective. The Series will invest in common stocks
of established companies having a strong financial position and a low
stock market
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valuation at the time of purchase which are believed to
offer the possibility of increase in value.
INVESTMENT ADVISERS
The investment adviser to all series except the Real Estate and Asia Series
is Phoenix Investment Counsel, Inc. ("PIC"). Pursuant to subadvisory agreements
with the Fund, PIC delegates certain investment decisions and research functions
with respect to the following series to the subadviser indicated:
Enhanced Index Series J.P. Morgan Investment Management, Inc.
Nifty Fifty Series Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Series Seneca Capital Managment, LLC ("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix Home Life. PAIA is jointly owned and managed by PM
Holdings, Inc., a subsidiary of Phoenix Home Life, and Aberdeen Fund Managers,
Inc.
WANGER ADVISORS TRUST
- --------------------------------------------------------------------------------
The investment adviser of the U.S. Small Cap and International Small Cap
Series is Wanger Asset Management, L.P. The investment objective of each of the
Series is as follows:
(1) WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment
objective of the U.S. Small Cap Series is to provide long-term growth.
The U.S. Small Cap Series will invest primarily in securities of U.S.
companies with total common stock market capitalization of less than $1
billion.
(2) WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to
provide long-term growth. The International Small Cap Series will
invest primarily in securities of non-U.S.
companies with total common stock market capitalization of less than $1
billion.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------------------------------------------
The investment adviser for the Templeton Stock, Templeton Asset Allocation
and Templeton International Series is Templeton Investment Counsel, Inc.
("TICI"). Templeton Asset Management, Ltd. is the investment adviser for the
Templeton Developing Markets Series. The investment objectives and policies of
each Series is as follows:
(1) TEMPLETON STOCK ("TPT STOCK") SERIES: Pursues capital growth through a
policy of investing primarily in common stocks issued by companies,
large and small, in various nations throughout the world.
(2) TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES: Seeks a high
level of total return through a flexible policy of investing in stocks
of companies in any nation, debt securities of companies and
governments of any nation and in money market instruments. Changes in
the asset mix will be made in an attempt to capitalize on total return
potential produced by changing economic conditions throughout the
world.
(3) TEMPLETON INTERNATIONAL ("TPT INTERNATIONAL") SERIES: Seeks long-term
capital growth through a flexible policy of investing in stocks and
debt obligations of companies and governments outside the United
States. Any income realized will be incidental. Although the Fund
generally invests in common stock, it also may invest in preferred
stocks and certain debt securities such as convertible bonds which are
rated in any category by S&P or Moody's or which are unrated by any
rating agency.
(4) TEMPLETON DEVELOPING MARKETS ("TPT DEV. MKTS.") SERIES: Seeks long-term
capital appreciation by investing primarily in equity securities of
issuers in countries having developing markets.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
Shares of the Funds may be sold to other separate accounts of PHL Variable
or its affiliates or of other insurance companies funding variable annuity or
variable life insurance contracts. It is conceivable that it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Funds simultaneously. Although
neither PHL Variable nor the Funds currently foresee any such disadvantages
either to variable annuity contract owners or to variable life insurance
policyowners, the Funds' Trustees intend to monitor events in order to identify
any material conflict between variable annuity contract owners and variable life
insurance policyowners and to determine what action, if any, should be taken in
response thereto. Material conflicts could result from, for example, (1) changes
in state insurance laws, (2) changes in federal income tax laws, (3) changes in
the investment management of any portfolio of a Fund or (4) differences in
voting instructions between those given by variable life insurance policyowners
and those given by variable annuity contract owners.
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
MVA
- --------------------------------------------------------------------------------
The MVA is an account that pays interest at a guaranteed rate if held to
maturity. If amounts are withdrawn, transferred or applied to an annuity option
before the end of the guarantee period, a market
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value adjustment will be made. Assets allocated to the MVA are not part of the
assets allocated to the Account or the general account of PHL Variable.
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS AND THE MVA, PLEASE SEE THE
ACCOMPANYING PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
The minimum initial purchase payment for each Contract purchased is $1,000.
However, for contracts purchased in connection with tax-qualified or employer
sponsored plans, a minimum annual payment of $1,000 is required. In addition, a
Contract Owner may authorize his or her bank to draw $25 or more from his or her
personal checking account monthly to purchase Units in any available Subaccount,
or for deposit in the GIA or MVA. The amount the Contract Owner designates will
be automatically invested on the date the bank draws on his or her account. If
this "check-o-matic" privilege is elected, the minimum initial purchase payment
is $25. This payment must accompany the application. Each subsequent purchase
payment under a Contract must be at least $25.
Generally, a Contract may not be purchased with respect to a proposed
Annuitant who is 81 years of age or older. Total purchase payments in excess of
$1,000,000 cannot be made without the permission of PHL Variable. While the
Annuitant is living and the Contract is in force, purchase payments may be
resumed at any time before the Maturity Date of a Contract.
Purchase payments received under the Contracts will be allocated in any
combination to any Subaccount, GIA or MVA, in the proportion specified in the
application for the Contract or as indicated by the Owner from time to time.
Initial purchase payments may, under certain circumstances, be allocated to the
Money Market Subaccount. See "Free Look Period." Changes in the allocation of
purchase payments will be effective as of receipt by VPMO of notice of election
in a form satisfactory to PHL Variable and will apply to any purchase payments
accompanying such notice or made subsequent to the receipt of the notice, unless
otherwise requested by the Contract Owner.
DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
PREMIUM TAX
Whether or not a premium tax is imposed will depend upon, among other
things, the Owner's state of residence, the Annuitant's state of residence, the
status of PHL Variable within those states and the insurance tax laws of those
states. PHL Variable will pay any premium tax due and will reimburse itself only
upon the earlier of partial withdrawal, surrender of the Contract, Maturity Date
or payment of death proceeds. For a list of states and premium taxes, see
Appendix B to this Prospectus.
SALES CHARGES
A deduction for sales charges (also referred to in this Prospectus as
"surrender charges") for this Contract may be taken from proceeds of withdrawals
from, or complete surrender of, the Contract if assets are not held under the
Contract for a certain period of time. See chart below. No sales charge will be
taken from death proceeds or after the Annuity Period has begun except with
respect to unscheduled withdrawals under Annuity Option K or L below. See
"Annuity Options." Any sales charge is imposed on a first-in, first-out basis.
With respect to withdrawals or surrenders, up to 10% of the Contract Value
may be withdrawn in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders, without the imposition of a sales
charge. During the first Contract year, the 10% withdrawal without a sales
charge is available only on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
withdrawal. In all subsequent years, the 10% will be based on the previous
Contract anniversary value. The deduction for sales charges, expressed as a
percentage of the amount withdrawn in excess of the 10% allowable amount, is as
follows:
AGE OF PURCHASE PAYMENT DEFERRED
IN COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
--------------------- ----------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and over 0%
In the event that the Annuitant or Owner dies before the Maturity Date of
the Contract, the sales charge described in the table above will not apply.
The total deferred sales charges on a Contract will never exceed 9% of the
total purchase payments, and the applicable level of sales charge cannot be
changed with respect to outstanding Contracts. Sales charges imposed in
connection with partial surrenders will be deducted from the Subaccounts, GIA
and MVA on a pro rata basis. Any distribution costs not paid for by sales
charges will be paid by PHL Variable from the assets of the General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While fixed annuity payments to Annuitants will reflect the investment
performance of the applicable Series of the Funds during the Accumulation
Period, the amount of such payments will not be decreased because of adverse
mortality experience of Annuitants as a class or because of an increase in
actual expenses of PHL Variable over the expense charges provided for in the
Contract. PHL Variable assumes the risk that Annuitants as a class may live
longer than expected (necessitating a greater number of annuity payments) and
that its expenses may be higher than the deductions for such expenses.
In assuming the mortality risk, PHL Variable agrees to continue life annuity
payments, determined in accordance with the annuity tables and other provisions
of the Contract, to the Annuitant or other payee for as long as he or she may
live.
PHL Variable charges each Subaccount the daily equivalent of .40% annually
of the current value of the Subaccount's net assets for mortality risks assumed
and the daily equivalent of .85% annually for expense risks assumed. (See the
Contract Schedule Pages). No mortality and expense risk charge is deducted from
the GIA or MVA.
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If the percentage charges prove insufficient to cover actual insurance
underwriting costs and excess administrative costs, then the loss will be borne
by PHL Variable; conversely, if the amount deducted proves more than sufficient,
the excess will be a profit to PHL Variable. Any such profit may be used, as
part of PHL Variable's General Account assets, to meet sales expenses, if any,
which are in excess of sales commission revenue generated from any sales
charges. PHL Variable has concluded that there is a reasonable likelihood that
the distribution financing arrangement being used in connection with the
Contract will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
PHL Variable is responsible for administering the Contract. In this
connection, PHL Variable, among other things, maintains an account for each
Owner and Annuitant, makes all disbursements of benefits, furnishes
administrative and clerical services for each Contract, makes disbursements to
pay obligations chargeable to the Account, maintains the accounts, records and
other documents relating to the business of the Account required by regulatory
authorities, causes the maintenance of the registration and qualification of the
Account under laws administered by the SEC, prepares and distributes notices and
reports to Owners, and the like. PHL Variable also reimburses Phoenix Equity
Planning Corporation for any expenses incurred by it as "principal underwriter."
To cover certain of its costs of administration, such as preparation of
billings and statements of account, PHL Variable generally charges each Contract
$35 each year prior to the Contract's Maturity Date. A reduced charge may apply.
This charge is deducted from each Subaccount, GIA and MVA holding the assets of
the Owner or on a pro rata basis from two or more Subaccounts, GIA or MVA in
relation to their values under the Contract, and is not subject to increase but
may be subject to decrease. This charge is deducted on the Contract anniversary
date for services rendered since the preceding Contract anniversary date. Upon
surrender of a Contract, where applicable, the entire annual administrative
charge of $35 is deducted regardless of when the surrender occurs.
If the Owner elects Payment Options I, J, K, M or N, the annual
administrative charge after the Maturity Date will be deducted from each annuity
payment in equal amounts.
PHL Variable may reduce the annual administrative charges for Contracts
issued under tax-qualified plans other than IRAs and group or sponsored
arrangements such as Internal Revenue Code Section 403(b) or 457 Plans.
Generally, administrative costs per Contract vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which the Contracts are
purchased and other factors. The amounts of reductions will be considered on a
case-by-case basis but will be applied in a uniform, nondiscriminatory manner
that reflects the reduced administrative costs expected as a result of sales to
a particular group or sponsored arrangement.
PHL Variable also charges each Subaccount available through a Contract the
daily equivalent of 0.125% on an annual basis of the accumulated value of the
Subaccount to cover its variable costs of administration (such as printing and
distribution of materials pertaining to Contract Owner meetings). This fee is
not deducted from the GIA or MVA.
No sales or annual administrative charges will be deducted for Contracts
sold to registered representatives of the principal underwriter or to officers,
directors and employees of PHL Variable or its affiliates and their spouses; or
to employees or agents who retire from PHL Variable or its affiliates or Phoenix
Equity Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of broker/dealers with whom PEPCO has selling agreements,
regardless as to their state of residence.
MARKET VALUE ADJUSTMENT
Any withdrawal from your MVA will be subject to a market value adjustment.
See the accompanying MVA prospectus for information relating to this option.
OTHER CHARGES
As compensation for investment management services, the Advisers are entitled to
a fee, payable monthly and based on an annual percentage of the average
aggregate daily net asset values of each Series. These Fund charges and other
expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- -------------------------------------------------------------------------------
ACCUMULATION UNITS
Initial purchase payments will be applied within two days if the application
for a Contract is complete. If an incomplete application is completed within
five business days of receipt by VPMO, the initial purchase payment will be
applied within two days of the completion of the application. In the event that
VPMO does not accept the application within five business days or if an order
form is not completed within five business days of receipt by VPMO, then the
purchase payment will be immediately returned. If the GIA or MVA is chosen,
additional purchase payments are deposited on the date of receipt of such
purchase payment at VPMO. If one or more of the Subaccounts is chosen,
additional purchase payments are applied to the purchase of Accumulation Units
of the Subaccount(s) chosen, at the value of such Units next determined after
the receipt of such purchase payment at VPMO. The number of Accumulation Units
of a Subaccount purchased with a specific purchase payment will be determined by
dividing the applied purchase payment by the value of an Accumulation Unit in
that Subaccount next determined after receipt of the purchase payment. The value
of the Accumulation Units of a Subaccount will vary depending upon the
investment performance of the applicable Series of the Funds, the expenses
charged against the Fund and the charges and deductions made against the
Subaccount.
ACCUMULATION UNIT VALUES
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Subaccount which has been credited under a Contract
can be computed by multiplying the number of such Units by the appropriate value
of an Accumulation Unit in effect for such date. The value of an Accumulation
Unit on a day other than a Valuation Date is the value of the Accumulation Unit
on the next Valuation Date. The number of Accumulation Units in each Subaccount
credited under each Contract and their current value will be reported to the
Owner at least annually.
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<PAGE>
TRANSFERS
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Subaccounts, the GIA or MVA. Any such transfer from a
Subaccount will result in the redemption of Accumulation Units and, if another
Subaccount is selected, in the purchase of Accumulation Units on the basis of
the respective values next determined after the receipt by VPMO of written
notice of election in a form satisfactory to PHL Variable. A transfer among
Subaccounts, the GIA or MVA does not automatically change the payment allocation
schedule of a contract.
A Contract Owner also may request transfers and changes in payment
allocations among available Subaccounts, the GIA or MVA by calling VPO at
800-447-4312 between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless
the Contract Owner elects in writing not to authorize telephone transfers or
allocation changes, telephone transfer orders and allocation changes also will
be accepted on behalf of the Contract Owner from his or her registered
representative. PHL Variable and PEPCO will employ reasonable procedures to
confirm that telephone instructions are genuine. They will require verification
of account information and will record telephone instructions on tape. All
telephone transfers and allocation changes will be confirmed in writing to the
Contract Owner. To the extent that procedures reasonably designed to prevent
unauthorized transfers are not followed, PHL Variable and PEPCO may be liable
for following telephone instructions for transfers that prove to be fraudulent.
However, the Contract Owner would bear the risk of loss resulting from
instructions entered by an unauthorized third party that PHL Variable and PEPCO
reasonably believe to be genuine. These telephone exchange and allocation change
privileges may be modified or terminated at any time and during times of extreme
market volatility, may be difficult to exercise. In such cases a Contract Owner
should submit a written request.
A Contract Owner also may elect to transfer funds automatically among the
Subaccounts or GIA on a monthly, quarterly, semi-annual or annual basis under
the Systematic Transfer Program for Dollar Cost Averaging ("Systematic Transfer
Program"). Under this Systematic Transfer Program, the minimum initial and
subsequent transfer amounts are $25 monthly, $75 quarterly, $150 semi-annually
or $300 annually. A Contract Owner must have an initial value of $2,000 in the
GIA or the Subaccount that funds will be transferred from (sending Subaccount),
and if the value in that Subaccount or the GIA drops below the elected transfer
amount, the entire remaining balance will be transferred and no more systematic
transfers will be processed. Funds may be transferred from only one sending
Subaccount or the GIA but may be allocated to multiple receiving Subaccounts.
Under the Systematic Transfer Program, Contract Owners may transfer
approximately equal amounts from the GIA over a minimum 18-month period. This
program is not available for the MVA.
Upon completion of the Systematic Transfer Program, the Contract Owner must
notify VPO at (800) 447-4312 or in writing to VPMO to implement another
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month rather than on the
basis of the respective values next determined after receipt of the transfer
request. If the first of the month falls on a holiday or weekend, then the
transfer will be processed on the next succeeding business day.
Unless PHL Variable agrees otherwise or the Systematic Transfer Program has
been elected, a Contract Owner may make only one transfer per Contract year from
the GIA. Non-systematic transfers from the GIA and MVA will be effectuated on
the date of receipt by VPMO except as otherwise may be requested by the Contract
Owner. For non-systematic transfers, the amount that may be transferred from the
GIA at any one time cannot exceed the greater of $1,000 or 25% of the Contract
Value in the GIA at the time of transfer. For non-systematic transfers from the
MVA, the market value adjustment may be applied. See the accompanying MVA
prospectus for more information.
Because excessive trading can hurt Fund performance and harm Contract
Owners, Phoenix reserves the right to temporarily or permanently terminate
exchange privileges or reject any specific order from anyone whose transactions
seem to follow a timing pattern, including those who request more than one
exchange out of a Subaccount within any 30-day period. Phoenix will not accept
batch transfer instructions from registered representatives (acting under powers
of attorney for multiple Contract Owners), unless the registered
representative's broker-dealer firm and Phoenix have entered into a third party
transfer service agreement.
PHL Variable reserves the right not to accept transfer instructions from
registered representatives acting under powers of attorney for multiple Contract
Owners unless the registered representative's broker-dealer and PHL Variable
have entered into a third-party transfer service agreement.
No sales charge will be assessed when a transfer is made. The date a payment
was credited for the purpose of calculating the sales charge will remain the
same notwithstanding the transfer. Currently, there is no charge for transfers;
however, PHL Variable reserves the right to charge a transfer fee of $10 per
transfer after the first two in each Contract year to defray administrative
costs. Currently, unlimited transfers are permitted; however, PHL Variable
reserves the right to limit the number of transfers made during each Contract
year a Contract is in existence. When the Temporary Money Market Allocation
Amendment has been elected, no transfers may be made until the end of the free
look period. See "Free Look Period." However, Contract Owners will be permitted
at least six transfers during each Contract year. THERE ARE ADDITIONAL
RESTRICTIONS ON TRANSFERS FROM THE GIA AS DESCRIBED ABOVE AND IN APPENDIX A. See
the MVA prospectus for information regarding transfers from the MVA.
PHL Variable reserves the right to limit the number of Subaccounts you may
elect to a total of 18 at any one time and/or over the life of the Contract
unless required to be less to comply with changes in federal and/or state
regulation, including tax, securities and insurance law.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Prior to the Maturity Date, the Contract Owner may
withdraw up to 10% of the Contract Value in
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<PAGE>
a Contract year, either in a lump sum or by multiple scheduled or unscheduled
partial withdrawals, without the imposition of a sales charge. During the first
Contract year, the 10% withdrawal without a sales charge is available only on
Contracts issued on or after May 1, 1996 and will be determined based on the
Contract Value at the time of the first partial withdrawal. In all subsequent
years, the 10% will be based on the previous Contract anniversary value. A
signed written request for withdrawal must be sent to VPMO. If the Contract
Owner has not yet reached age 59 1/2, a 10% penalty tax may apply on taxable
income withdrawn. See "Federal Income Taxes." The appropriate number of
Accumulation Units of a Subaccount will be redeemed at their value next
determined after the receipt by VPMO of a written notice in a form satisfactory
to PHL Variable. Accumulation Units redeemed in a partial withdrawal will be
redeemed in the same proportion as the value of the Accumulation Units of the
Contract is then allocated among the Subaccounts unless the Owner designates
otherwise. Also, Contract Values in the GIA or MVA will be withdrawn in a
partial withdrawal in the same proportion as the Contract Value is then
allocated to the GIA or MVA, unless the Owner designates otherwise. Withdrawals
from the MVA may be subject to the market value adjustment. See the MVA
prospectus. The redemption value of Accumulation Units may be more or less than
the purchase payments applied under the Contract to purchase the Accumulation
Units, depending upon the investment performance in each Subaccount. The
resulting cash payment will be made in a single sum, ordinarily within seven
days after receipt of such notice. However, redemption and payment may be
delayed under certain circumstances. See "Deferment of Payment." There may be
adverse tax consequences to certain surrenders and partial withdrawals. See
"Surrenders or Withdrawals Prior to the Contract Maturity Date." Certain
restrictions on redemptions are imposed on Contracts used in connection with
Internal Revenue Code Section 403(b) plans. Although loans are available under
403(b) plans only, certain limitations may apply. See "Qualified Plans"; "Tax
Sheltered Annuities." A deduction for sales charges may be imposed on partial
withdrawals from, and complete surrender of, a Contract. See "Sales Charges."
Any sales charge is imposed on a first-in, first-out basis.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operations, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date the Contract Value is zero, or the premium tax
reimbursement due on surrender or partial withdrawal is greater than or equal to
the Contract Value, unless any Contract Value has been applied under one of the
variable payment options, the Contract will immediately terminate and lapse
without value. Within 30 days after this Valuation Date, PHL Variable will
notify the Contract Owner in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Owner/Annuitant's beneficiary. If
the Owner and the Annuitant are not the same and the Annuitant dies prior to the
Maturity Date, the contingent Annuitant becomes the Annuitant. If there is no
contingent Annuitant, the death benefit will be paid to the Annuitant's
beneficiary. Upon the death of the Annuitant or an Owner/Annuitant who has not
yet attained age 85, the death benefit (less any deferred premium tax) is
calculated according to the following method:
1. Death occurring in the first Contract year -- the greater of:
a. 100% of purchase payments, less any withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
2. Death occurring in the second Contract year or any subsequent Contract
year -- the greater of:
a. the death benefit at the end of the previous Contract year, plus 100%
of purchase payments, less any withdrawals made -- since that
date; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
After the Annuitant's age 85, the death benefit (less any deferred premium
tax) equals the Contract Value (no surrender charge is imposed) next determined
following receipt of a certified copy of the death certificate at VPMO.
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
beneficiary. The amount of death benefit payable is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
If the Owner or Owner/Annuitant's beneficiary elects to defer payment of the
death proceeds for a period longer than one Contract year, the death proceeds
that will be payable upon distribution is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt at VPMO of both
written authorization for distribution and a certified copy of the
death certificate.
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election. See "Sales Charges." Notwithstanding the foregoing, if the amount
to be paid is less than $2,000, it will be paid in a single sum. See "Annuity
Options." Depending upon state law, the payment to the beneficiary may avoid
probate and the death benefit may be reduced by any premium tax due. See
"Premium Tax." See also "Distribution at Death" under "Federal Income Taxes."
THE ANNUITY PERIOD
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VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will commence on the Contract's Maturity Date if the
Annuitant is then living and the Contract is then in force. On the
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Maturity Date and thereafter, investment in the Account is continued unless a
Fixed Payment Annuity is elected. No sales charge is taken. Each Contract will
provide, at the time of its issuance, for a Variable Payment Life Annuity with
10-Year Period Certain unless a different annuity option is elected by the
Owner. See "Annuity Options." Under a Variable Payment Life Annuity with 10-Year
Period Certain, annuity payments, which may vary in amount based on the
performance of the Subaccount selected, are made monthly for life and, if the
Annuitant dies within 10 years after the Maturity Date, the Annuitant's
beneficiary will be paid the payments remaining in the 10-year period. A
different form of annuity may be elected by the Owner prior to the Maturity
Date. Once annuity payments have commenced, the Annuity Option may not be
changed.
If the amount to be applied on the Maturity Date is less than $2,000, PHL
Variable may pay such amount in one lump sum in lieu of providing an annuity. If
the initial monthly annuity payment under an Annuity Option would be less than
$20, PHL Variable also may make a single sum payment equal to the total Contract
Value on the date the initial payment would be payable, in place of all other
benefits provided by the Contract, or, make periodic payments quarterly,
semi-annually or annually in place of monthly payments.
Each Contract specifies a provisional Maturity Date at the time of its
issuance. The Owner may subsequently elect a different Maturity Date. The
Maturity Date shall not be earlier than the fifth Contract anniversary or later
than the Contract anniversary nearest the Annuitant's 95th birthday unless the
Contract is issued in connection with certain qualified plans. Generally, under
qualified plans, the Maturity Date must be such that distributions begin no
later than April 1st of the calendar year following the later of: (a) the year
in which the employee attains age 70 1/2 or (b) the calendar year in which
employee retires. The date set forth in (b) does not apply to an IRA.
The Maturity Date election shall be made by written notice and must be
received by VPMO 30 days before the provisional Maturity Date. If a Maturity
Date, which is different from the provisional Maturity Date of the Contract, is
not elected by the Owner, the provisional Maturity Date becomes the Maturity
Date. Particular care should be taken in electing the Maturity Date of a
Contract issued under a Tax Sheltered Annuity (TSA), a Keogh Plan or an IRA
plan. See "Tax Sheltered Annuities," "Keogh Plans" and "Individual Retirement
Accounts."
ANNUITY OPTIONS
Unless an alternative annuity payment option is elected on or before the
Maturity Date, the amounts held under a Contract on the Maturity Date
automatically will be applied to provide a 10-year period certain variable
payment monthly life annuity based on the life of the Annuitant under Option I
described below. Any annuity payments falling due after the death of the
Annuitant during the period certain will be paid to the Annuitant's beneficiary.
Each annuity payment will be based upon the value of the Annuity Units credited
to the Contract. The number of Annuity Units in each Subaccount to be credited
is based on the value of the Accumulation Units in that Subaccount and the
applicable annuity purchase rate. The purchase rate differs according to the
payment option selected and the age of the Annuitant. The value of the Annuity
Units will vary with the investment performance of each Subaccount to which
Annuity Units are credited based on an assumed investment return of 4 1/2% per
year. This rate is a fulcrum return around which variable annuity payments will
vary to reflect whether actual investment experience of the Subaccount is better
or worse than the assumed investment return. The assumed investment return and
the calculation of variable income payments for such 10-year period certain
variable payment life annuity and for Options J and K described below are
described in more detail in the Contract and in the SAI.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with 10-Year Period Certain"), the
Owner may, by written request received by VPMO on or before the Maturity Date of
the Contract, elect any of the other annuity payment options described below. No
surrender charge will be assessed under any annuity option, unless unscheduled
withdrawals are made under Annuity Options K or L.
The level of annuity payments payable under the following options is based
upon the option selected and, depending on the option chosen, such factors as
the age at which payments begin, the form of annuity, annuity purchase rates,
assumed investment return (for variable payment annuities) and the frequency of
payments.
PHL Variable deducts a daily charge for mortality and expense risks and a
daily administrative fee from Contract Values held in the Subaccounts See
"Charges For Mortality and Expense Risks" and "Charges for Administrative
Services." Therefore, electing Option K will result in a deduction being made
even though PHL Variable assumes no mortality risk under that option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the event of
death of the Annuitant, the annuity income will be paid to the beneficiary until
the end of the specified period certain. For example, a 10-year period certain
will provide a total of 120 monthly payments. The certain period may be 5, 10 or
20 years.
OPTION B--NON-REFUND LIFE ANNUITY
Provides a monthly income for the lifetime of the Annuitant. No income is
payable after the death of the Annuitant.
OPTION C--DISCONTINUED
OPTION D--JOINT AND SURVIVOR LIFE ANNUITY
Provides a monthly income for the lifetimes of both the Annuitant and a
joint annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue for the life of
the survivor. The amount to be continued to the survivor is 100% of the amount
of the joint annuity payment, as elected at the time the annuity option is
chosen. No income is payable after the death of the survivor annuitant.
Under Option D, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION E--INSTALLMENT REFUND LIFE ANNUITY
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, the annuity income will continue to the Annuitant's
beneficiary until the amount applied to purchase the annuity has been
distributed.
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OPTION F--JOINT AND SURVIVOR LIFE ANNUITY WITH 10-YEAR
PERIOD CERTAIN
Provides a monthly income for the lifetime of both the Annuitant and a joint
annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue to the survivor.
If the survivor dies prior to the end of the 10-year period, the annuity income
will continue to the named beneficiary until the end of the 10-year period
certain.
Under Option F, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION G--PAYMENTS FOR SPECIFIED PERIOD
Provides equal income installments for a specified period of years whether
the Annuitant lives or dies. Any specified whole number of years from 5 to 30
years may be elected.
OPTION H--PAYMENTS OF SPECIFIED AMOUNT
Provides equal installments of a specified amount over a period of at least
five years. The specified amount may not be greater than the total annuity
amount divided by five annual installment payments. If the Annuitant dies prior
to the end of the elected period certain, annuity payments will continue to the
Annuitant's beneficiary until the end of the elected period certain.
OPTION I--VARIABLE PAYMENT LIFE ANNUITY WITH 10-YEAR
PERIOD CERTAIN
Unless another annuity option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
Annuitant's beneficiary until the end of the 10-year period. The 10-year period
provides a total of 120 monthly payments. Payments will vary as to dollar
amount, based on the investment experience of the Subaccounts to which proceeds
are applied.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH
10-YEAR PERIOD CERTAIN
Provides a variable payout monthly annuity while the Annuitant and the
designated joint annuitant are living and continues thereafter during the
lifetime of the survivor or, if later, until the end of a 10-year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Subaccounts to which proceeds are applied. The joint annuitant
must be named at the time the option is elected and cannot be changed. The joint
annuitant must have reached an adjusted age of 40, as defined in the Contract.
This option is not available for payment of any death benefit under the
Contract.
OPTION K--VARIABLE PAYMENT ANNUITY FOR A SPECIFIED PERIOD
Provides variable payout monthly income installments for a specified period
of time, whether the Annuitant lives or dies. The period certain specified must
be in whole numbers of years from 5 to 30. However, the period certain selected
by the beneficiary of any death benefit under the Contract may not extend beyond
the life expectancy of such beneficiary. A Contract Owner may request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred sales charge at any time.
OPTION L--VARIABLE PAYMENT LIFE EXPECTANCY ANNUITY
Provides a variable payout monthly income payable over the Annuitant's
annually recalculated life expectancy or the annually recalculated life
expectancy of the Annuitant and joint annuitant. A Contract Owner may request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred sales charge at anytime. Upon the death
of the Annuitant (and joint annuitant, if there is a joint annuitant), the
remaining Contract Value will be paid in a lump sum to the Annuitant's
beneficiary.
OPTION M--UNIT REFUND VARIABLE PAYMENT LIFE ANNUITY
Provides variable monthly payments as long as the Annuitant lives. If the
Annuitant dies, the Annuitant's beneficiary will receive the value of the
remaining Annuity Units in a lump sum.
OPTION N--VARIABLE PAYMENT NON-REFUND LIFE ANNUITY
Provides a variable monthly income for the life of the Annuitant. No income
or payment to a beneficiary is paid after the death of the Annuitant.
OTHER OPTIONS AND RATES
PHL Variable may offer other annuity options at the Maturity Date of a
Contract. In addition, in the event that current settlement rates for Contracts
are more favorable than the applicable rates guaranteed under the Contract, the
current settlement rates shall be used in determining the amount of any annuity
payment under the Annuity Options above.
OTHER CONDITIONS
Federal income tax requirements currently applicable to most qualified plans
provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse.
Federal income tax requirements also provide that participants in regular or
SIMPLE IRAs must begin minimum distributions by April 1 of the year following
the year in which they attain age 70 1/2. Minimum distribution requirements do
not apply to Roth IRAs. Distributions from qualified plans generally must begin
by the later of actual retirement or April 1 of the year following the year
participants attain age 70 1/2. Any required minimum distributions must be such
that the full amount in the contract will be distributed over a period not
greater than the participant's life expectancy, or the combined life expectancy
of the participant and his or her spouse or designated beneficiary.
Distributions made under this method are generally referred to as Life
Expectancy Distributions ("LEDs"). An LED program is available to participants
in qualified plans or IRAs. Requests to elect this program must be made in
writing.
Under the LED program, regardless of Contract year, amounts up to the
required minimum distribution may be withdrawn without a deduction for sales
charges, even if the minimum distribution exceeds the 10% allowable amount. See
"Sales Charges." Also, any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of the greater of the minimum
distribution and the 10% free available amount will be subject to any applicable
sales charge.
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If the initial monthly annuity payment under an Annuity Option would be less
than $20, PHL Variable may make a single sum payment equal to the Contract Value
on the date the initial payment would be payable, in place of all other benefits
provided by the Contract, or, may make periodic payments quarterly,
semi-annually or annually in place of monthly payments.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who also is the Annuitant dies on or after the Maturity Date,
except as may otherwise be provided under any supplementary contract between the
Owner and PHL Variable, PHL Variable will pay to the Owner/Annuitant's
beneficiary any annuity payments due during any applicable period certain under
the Annuity Option in effect on the Annuitant's death. If the Annuitant who is
not the Owner dies on or after the Maturity Date, PHL Variable will pay any
remaining annuity payments to the Annuitant's beneficiary according to the
payment option in effect at the time of the Annuitant's death. If an Owner who
is not the Annuitant dies on or after the Maturity Date, PHL Variable will pay
any remaining annuity payments to the Owner's beneficiary according to the
payment option in effect at the time of the Owner's death.
VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading
and PHL Variable is open for business. The NYSE is scheduled to be closed for
trading on the following days: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Board of Directors of the NYSE reserves
the right to change this schedule as conditions warrant. On each Valuation Date,
the value of the Separate Account is determined at the close of the NYSE
(currently 4:00 p.m. Eastern Time).
VALUATION PERIOD--Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION UNIT VALUE--The value of one Accumulation Unit was set at
$1.0000 on the date assets were first allocated to each Subaccount. The value of
one Accumulation Unit on any subsequent Valuation Date is determined by
multiplying the immediately preceding Accumulation Unit Value by the applicable
Net Investment Factor for the Valuation Period ending on such Valuation Date.
NET INVESTMENT FACTOR--The Net Investment Factor for any Valuation Period is
equal to 1.000000 plus the applicable net investment rate for such Valuation
Period. A Net Investment Factor may be more or less than 1.000000. To determine
the net investment rate for any Valuation Period for the Funds allocated to each
Subaccount, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, whether realized or unrealized, of the
Subaccount for such Valuation Period is computed, (b) the amount in (a) is then
adjusted by the sum of the charges and credits for any applicable income taxes
and the deductions at the beginning of the Valuation Period for mortality and
expense risk charges and daily administration fee, and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Unit Values in the Subaccount at
the beginning of the Valuation Period.
MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with non-tax qualified plans may
assign their interest in the Contract without the consent of the beneficiary. A
written notice of such assignment must be filed with VPMO before it will be
honored.
A pledge or assignment of a Contract is treated as payment received on
account of a partial surrender of a Contract. See "Surrenders or Withdrawals
Prior to the Contract Maturity Date."
In order to qualify for favorable tax treatment, Contracts issued in
connection with tax qualified plans may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation, or for any other purpose, to any person other than PHL Variable.
DEFERMENT OF PAYMENT
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract will ordinarily be made within seven days
after receipt of the written request by VPMO. However, payment of the value of
any Accumulation Units may be postponed at times (a) when the NYSE is closed,
other than customary weekend and holiday closings, (b) when trading on the NYSE
is restricted, (c) when an emergency exists as a result of which disposal of
securities in the Fund is not reasonably practicable or it is not reasonably
practicable to determine the Contract Value or (d) when a governmental body
having jurisdiction by order permits such suspension. Rules and regulations of
the SEC, if any, are applicable and will govern as to whether conditions
described in (b), (c) or (d) exist.
FREE LOOK PERIOD
PHL Variable may mail the Contract to the Owner or we may deliver it in
person. An Owner may surrender a Contract for any reason within 10 days after
its receipt and receive in cash the adjusted value of the initial purchase
payment. (A longer free look period may be required by the Contract Owner's
state.) The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the free look period. If a
portion or all of the initial purchase payment has been allocated to the GIA, we
also will refund any earned interest. If a portion or all of the initial
purchase payment has been allocated to the MVA, we will apply the Market Value
Adjustment which can increase or decrease the initial purchase payment.
If the Temporary Money Market Allocation Amendment was elected on the
application or the Contract Owner resides in a state that requires the full
refund of premium, we will temporarily allocate those portions of the initial
purchase payment designated for the Subaccounts to the Money Market Subaccount
and those portions designated for the GIA and MVA will be allocated to those
Accounts. If the Contract Owner surrenders the Contract, then the initial
purchase payment is refunded. At the expiration of the Free Look Period, the
value of the Accumulation Units held in the Money Market Subaccount is allocated
among the available Subaccounts in accordance with the Contract Owner's
allocation instructions on the application.
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AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although PHL Variable believes it to be highly unlikely, it is possible that
in the judgment of its management, one or more of the Series of the Funds may
become unsuitable for investment by Contract Owners because of a change in
investment policy, or a change in the tax laws, or because the shares are no
longer available for investment. In that event, PHL Variable may seek to
substitute the shares of another Series or the shares of an entirely different
mutual fund. Before this can be done, the approval of the SEC, and possibly one
or more state insurance departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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INTRODUCTION
The Contracts are designed for use with retirement plans which may or may
not be tax-qualified plans ("Qualified Plans") under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments
and on the economic benefits of the Contract Owner, Annuitant or beneficiary
depends on PHL Variable's tax status, on the type of retirement plan for which
the Contract is purchased, and upon the tax and employment status of the
individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any estate or inheritance taxes or any applicable state,
local or other tax laws. Moreover, the discussion is based upon PHL Variable's
understanding of the federal income tax laws as they are currently interpreted.
No representation is made regarding the likelihood of continuation of the
federal income tax laws or the current interpretations by the Internal Revenue
Service (the "IRS"). PHL Variable does not guarantee the tax status of the
Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. For a discussion
of federal income taxes as they relate to the Funds, please see the accompanying
prospectuses for the Funds.
TAX STATUS
PHL Variable is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Since the Account is not a separate entity from PHL Variable and
its operations form a part of PHL Variable, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized capital gains on the assets of the Account are reinvested and taken
into account in determining the Contract Value. Under existing federal income
tax law, the Account's investment income, including realized net capital gains,
is not taxed to PHL Variable. PHL Variable reserves the right to make a
deduction for taxes should they be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value of the Units held under a Contract
until some form of distribution is made under the Contract. However, in certain
cases the increase in value may be subject to tax currently. In the case of
Contracts not owned by natural persons, see "Contracts Owned by Non-Natural
Persons." In the case of Contracts not meeting the diversification requirements,
see "Diversification Standards."
1. SURRENDERS OR WITHDRAWALS PRIOR TO THE CONTRACT
MATURITY DATE.
Code Section 72 provides that a total or partial surrender from a
Contract prior to the Contract Maturity Date will be treated as taxable
income to the extent the amounts held under the Contract exceed the
"investment in the Contract." The "investment in the Contract" is that
portion, if any, of purchase payments (premiums paid) by or on behalf of an
individual under a Contract that is not excluded from the individual's gross
income. However, under certain types of Qualified Plans there may be no
investment in the Contract within the meaning of Code Section 72, so that
the total amount of all payments received will be taxable. The taxable
portion is taxed as ordinary income in an amount equal to the value of the
Contract or portion thereof that is pledged or assigned. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment
received on account of a partial surrender of a Contract.
2. SURRENDERS OR WITHDRAWALS ON OR AFTER THE CONTRACT
MATURITY DATE.
Upon receipt of a lump sum payment under the Contract, the recipient is
taxed on the portion of the payment that exceeds the investment in the
Contract. Ordinarily, such taxable portion is taxed as ordinary income.
Under certain circumstances, the proceeds of a surrender of a Contract may
qualify for "lump sum distribution" treatment under Qualified Plans. See
your tax adviser if you think you may qualify for "lump sum distribution"
treatment. The five year averaging rule for lump sum distribution has been
repealed for tax years beginning after 1999.
For fixed annuity payments, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of annuity payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula that establishes a specific
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dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the investment in the Contract by the total number of
expected periodic payments. The remaining portion of each payment is taxed
as ordinary income. Once the excludable portion of annuity payments equals
the investment in the Contract, the balance of the annuity payments will be
fully taxable. For certain types of qualified plans, there may be no
investment in the Contract resulting in the full amount of the payments be
taxable. A simplified method of determining the exclusion ratio is effective
with respect to qualified plan annuities starting after November 18, 1996.
Withholding of federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld and properly
notifies VMPO of that election.
3. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS.
With respect to amounts surrendered or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to ten percent (10%) of
the portion of such amount that is includable in gross income. However, the
penalty tax will not apply to withdrawals: (i) made on or after the death of
the Contract Owner (or where the Contract Owner is not an individual, the
death of the "Primary Annuitant," who is defined as the individual the
events in whose life are of primary importance in affecting the timing and
amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments made (not less frequently than annually) for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies)
of the taxpayer and his or her beneficiary; (iv) from certain qualified
plans (such distributions may, however, be subject to a similar penalty
under Code Section 72(t) relating to distributions from qualified retirement
plans and to a special penalty of 25% applicable specifically to SIMPLE IRAs
or other special penalties applicable to Roth IRAs); (v) allocable to
investment in the contract before August 14, 1982; (vi) under a qualified
funding asset (as defined in Code Section 130(d)); (vii) under an immediate
annuity contract (as defined in Code Section 72(u)(4)); or (viii) that are
purchased by an employer on termination of certain types of qualified plans
and which are held by the employer until the employee separates from
service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the
first year when the modification occurs will be increased by an amount
(determined by the Treasury regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral
period, but only if the modification takes place: (a) before the close of
the period which is 5 years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
Separate tax withdrawal penalties apply to Qualified Plans. See "Penalty Tax
on Surrenders and Withdrawals from Qualified Contracts."
ADDITIONAL CONSIDERATIONS
1. DISTRIBUTION-AT-DEATH RULES.
In order to be treated as an annuity contract for federal income tax
purposes, a Contract must provide the following two distribution rules: (a)
if the Contract Owner dies on or after the Contract Maturity Date, and
before the entire interest in the Contract has been distributed, the
remainder of the Contract Owner's interest will be distributed at least as
quickly as the method in effect on the Contract Owner's death; and (b) if a
Contract Owner dies before the Contract Maturity Date, the Contract Owner's
entire interest generally must be distributed within five (5) years after
the date of death, or if payable to a designated beneficiary may be
annuitized over the life of that beneficiary or over a period not extending
beyond the life expectancy of that beneficiary, and must commence within one
(1) year after the Contract Owner's date of death. If the beneficiary is the
spouse of the Contract Owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the
name of the spouse as Contract Owner. Similar distribution requirements
apply to annuity contracts under Qualified Plans (other than Code Section
457 Plans). However, a number of restrictions, limitations and special rules
apply to qualified plans and Contract Owners should consult with their tax
adviser.
If the Annuitant, who is not the Contract Owner, dies before the
Maturity Date and there is no Contingent Annuitant, the Annuitant's
beneficiary must elect within 60 days whether to receive the death benefit
in a lump sum or in periodic payments commencing within one (1) year.
If the Contract Owner is not an individual, the death of the primary
Annuitant is treated as the death of the Contract Owner. In addition, when
the Contract Owner is not an individual, a change in the primary Annuitant
is treated as the death of the Contract Owner. Finally, in the case of
non-spousal joint Contract Owners the distribution will be required at the
death of the first of the Contract Owners.
If the Contract Owner or a Joint Contract Owner dies on or after the
Maturity Date, the remaining payments, if any, under the Annuity Option
selected will be made at least as rapidly as under the method of
distribution in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of non-qualified Contracts prior to the Maturity Date for less
than full and adequate consideration to the Contract Owner at the time of
such transfer, will trigger tax on the gain in the Contract, with the
transferee getting a step-up in basis for the amount included in the
Contract Owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
3. CONTRACTS OWNED BY NON-NATURAL PERSONS.
If the Contract is held by a non-natural person (for example, a
corporation) the income on that Contract (generally the increase in the net
surrender value less the premium paid) is includable in income each year.
The rule does not apply where the non-natural person is the nominal owner of
a Contract and the beneficial owner is a natural person. The rule also does
not apply where the
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annuity contract is acquired by the estate of a decedent, where the Contract
is held under a qualified plan, a TSA program or an IRA, where the Contract
is a qualified funding asset for structured settlements, where the Contract
is purchased on behalf of an employee upon termination of a qualified plan,
and in the case of an immediate annuity.
4. SECTION 1035 EXCHANGES.
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A
replacement contract obtained in a tax-free exchange of contracts generally
succeeds to the status of the surrendered contract. If the surrendered
contract was issued prior to August 14, 1982, the tax rules that formerly
provided that the surrender was taxable only to the extent the amount
received exceeds the Contract Owner's investment in the Contract, will
continue to apply. In contrast, Contracts issued on or after January 19,
1985, in a Code Section 1035 exchange, are treated as new Contracts for
purposes of the distribution-at-death rules. Special rules and procedures
apply to Code Section 1035 transactions. Prospective Contract Owners wishing
to take advantage of Code Section 1035 should consult their tax advisers.
5. MULTIPLE CONTRACTS.
Code Section 72(e)(11)(A)(ii) provides that for Contracts entered into
after October 21, 1988, for purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includable in gross income, all non-qualified deferred annuity
contracts issued by the same insurer (or affiliate) to the same Contract
Owner during any calendar year are to be aggregated and treated as one
contract. Thus, any amount received under any such contract prior to the
Contract Maturity Date, such as a withdrawal, dividend or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
The Treasury Department has specific authority to issue regulations that
prevent the avoidance of Code Section 72(e) through the serial purchase of
annuity contracts or otherwise. In addition, there may be situations where
the Treasury may conclude that it would be appropriate to aggregate two or
more contracts purchased by the same Contract Owner. Accordingly, a Contract
Owner should consult a competent tax adviser before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
1. DIVERSIFICATION REGULATIONS.
To comply with the diversification regulations under Code Section 817(h)
("Diversification Regulations"), after a start-up period, each Series of the
Funds will be required to diversify its investments. The Diversification
Regulations generally require that, on the last day of each quarter of a
calendar year no more than 55% of the value of the assets of a Series are
represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments
and no more than 90% is represented by any four investments. A
"look-through" rule applies to treat a pro rata portion of each asset of a
Series as an asset of the Account, and each Series of the Funds are tested
for compliance with the percentage limitations. All securities of the same
issuer are treated as a single investment. As a result of the 1988 Act, each
government agency or instrumentality will be treated as a separate issuer
for purposes of these limitations.
The Treasury Department has indicated that the Diversification
Regulations do not provide guidance regarding the circumstances in which
Contract Owner control of the investments of the Account will cause the
Contract Owner to be treated as the owner of the assets of the Account,
thereby resulting in the loss of favorable tax treatment for the Contract.
At this time, it cannot be determined whether additional guidance will be
provided and what standards may be contained in such guidance. The amount of
Contract Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published
rulings issued by the IRS in which was held that the policyowner was not the
owner of the assets of the separate account. It is unknown whether these
differences, such as the Contract Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets
of the Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling generally will be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets
of the Account.
Due to the uncertainty in this area, PHL Variable reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
PHL Variable has represented that it intends to comply with the
Diversification Regulations to assure that the Contracts continue to be
treated as annuity contracts for federal income tax purposes.
2. DIVERSIFICATION REGULATIONS AND QUALIFIED PLANS.
Code Section 817(h) applies to a variable annuity contract other than a
pension plan contract. The Diversification Regulations reiterate that the
diversification requirements do not apply to a pension plan contract. All of
the Qualified Plans (described below) are defined as pension plan contracts
for these purposes. Notwithstanding the exception of Qualified Plan
Contracts from application of the diversification rules, all investments of
the PHL Variable Qualified Plan Contracts (i.e., the Funds) will be
structured to comply with the diversification standards because the Funds
serve as the investment vehicle for non-qualified Contracts as well as
Qualified Plan Contracts.
QUALIFIED PLANS
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-Sharing Plans and State Deferred
Compensation Plans will be treated, for purposes of this discussion, as
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan
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and the terms and conditions of the plan itself. No attempt is made herein to
provide more than general information about the use of the Contracts with the
various types of Qualified Plans. Participants under such Qualified Plans as
well as Contract Owners, Annuitants and beneficiaries, are cautioned that the
rights of any person to any benefits under such Qualified Plans may be subject
to the terms and conditions of the plans themselves or limited by applicable
law, regardless of the terms and conditions of the Contract issued in connection
therewith. For example, PHL Variable will accept beneficiary designations and
payment instructions under the terms of the Contract without regard to any
spousal consents that may be required under the Retirement Equity Act (REA).
Consequently, a Contract Owner's beneficiary designation or elected payment
option may not be enforceable.
Effective January 1, 1993, Section 3405 of the Internal Revenue Code was
amended to change the roll-over rules applicable to the taxable portions of
distributions from qualified pension and profit-sharing plans and Section 403(b)
TSA arrangements. Taxable distributions eligible to be rolled over generally
will be subject to 20 percent income tax withholding. Mandatory withholding can
be avoided only if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
qualified plans or TSA's (not including IRAs), except (a) distributions required
under the Code, (b) substantially equal distributions made over the life (or
life expectancy) of the employee, or for a term certain of 10 years or more and
(c) the portion of distributions not includable in gross income (i.e., return of
after tax contributions).
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by PHL Variable in connection
with certain Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables also will be available
for use in connection with certain non-qualified deferred compensation plans.
Numerous changes have been made to the income tax rules governing Qualified
Plans as a result of legislation enacted during the past several years,
including rules with respect to: coverage, participation, maximum contributions,
required distributions, penalty taxes on early or insufficient distributions and
income tax withholding on distributions. The following are general descriptions
of the various types of Qualified Plans and of the use of the contracts in
connection therewith.
1. TAX SHELTERED ANNUITIES ("TSAs").
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3) to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of purchase payments from gross income
for federal income tax purposes. These annuity contracts are commonly
referred to as TSAs.
For taxable years beginning after December 31, 1988, Code Section
403(b)(11) imposes certain restrictions on a Contract Owner's ability to
make partial withdrawals from, or surrenders of, Code Section 403(b)
Contracts, if the cash withdrawn is attributable to purchase payments made
under a salary reduction agreement. Specifically, Code Section 403(b)(11)
allows a Contract Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies or
becomes disabled (as defined in the Code), or (b) in the case of hardship.
In the case of hardship, the amount distributable cannot include any income
earned under the Contract.
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution restrictions do not apply to assets held as of December 31,
1988.
In addition, in order for certain types of contributions under a Code
Section 403(b) Contract to be excluded from taxable income, the employer
must comply with certain nondiscrimination requirements. Contract Owners
should consult their employers to determine whether the employer has
complied with these rules. Contract owner loans are not allowed under the
contracts.
Effective May 4, 1998, loans may be made available under Internal
Revenue Code Section 403(b) tax sheltered annuity programs. If the program
permits loans, a loan from the participant's contract value may be
requested. The loan must at least $1,000 and the maximum loan amount is the
greater of: (a) 90% of the first $10,000 of Contract Value minus any
contingent deferred sales charge; and (b) 50% of the Contract Value minus
any contingent deferred sales charge. The maximum loan amount is $50,000. If
loans are outstanding from any other tax-qualified plan then the maximum
loan amount of the contract may be reduced from the amount stated above in
order to comply with the maximum loan amount requirements under Section
72(p) of the Internal Revenue Code. Amounts borrowed from the GIA are
subject to the same limitations as applies to transfers from the GIA; thus
no more than the greater of $1000 and 25% of the contract value in the GIA
may be borrowed at any one time. Amounts borrowed from the Market Value
Adjustment ("MVA") account are subject to the same market value adjustment
as applies to transfers from the MVA.
Loan repayments will first pay any accrued loan interest. The balance
will be applied to reduce the outstanding loan balance and will also reduce
the amount of the Loan Security Account by the same amount that the
outstanding loan balance is reduced. The balance of loan repayments, after
payment of accrued loan interest, will be credited to the Sub-accounts of
the Separate Account or the GIA in accordance with the participant's most
recent premium allocation on file with Us, except that no interest will be
transferred to the MVA.
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If a loan repayment is not received by Us before 90 days after the
payment was due, then the entire loan balance plus accrued interest will be
in default. In the case of default, the outstanding loan balance plus
accrued interest will be deemed a distribution for income tax purposes, and
will be reported as such to the extent required by law. At the time of such
deemed distribution interest will continue to accrue until such time as an
actual distribution occurs under the Contract.
2. KEOGH PLANS.
The Self-Employed Individual Tax Retirement Act of 1962, as amended,
permits self-employed individuals to establish "Keoghs" or qualified plans
for themselves and their employees. The tax consequences to participants
under such a plan depend upon the terms of the plan. In addition, such plans
are limited by law with respect to the maximum permissible contributions,
distribution dates, nonforfeitability of interests, and tax rates applicable
to distributions. In order to establish such a plan, a plan document must be
adopted and implemented by the employer, as well as approved by the IRS.
3. INDIVIDUAL RETIREMENT ACCOUNTS.
Code Sections 408 and 408A permit eligible individuals to contribute to
an individual retirement program known as an "IRA." These IRAs are subject
to limitations on the amount which may be contributed, the persons who may
be eligible and on the time when distributions may commence. In addition,
distributions from certain other types of Qualified Plans may be placed on a
tax-deferred basis into an IRA. Effective January 1, 1997, employers may
establish a new type of IRA called SIMPLE (Savings Incentive Match Plan for
Employees). Special rules apply to participants' contributions to and
withdrawals from SIMPLE IRAs. Also effective January 1, 1997, salary
reduction IRAs (SARSEP) no longer may be established. Effective January 1,
1998, individuals may establish Roth IRAs. Special rules also apply to
contributions to and withdrawals from Roth IRAs.
4. CORPORATE PENSION AND PROFIT-SHARING PLANS.
Code Section 401(a) permits corporate employers to establish various
types of retirement plans for employees. Such retirement plans may permit
the purchase of Contracts to provide benefits thereunder.
These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit
of employees will not be includible in the gross income of the employee
until distributed from the Plan. The tax consequences to participants may
vary depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amount of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. Participant loans are not allowed
under the Contracts purchased in connection with these Plans. Purchasers of
Contracts for use with Corporate Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
5. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS.
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other
entities. The Contracts may be used in connection with these plans; however,
under these plans if issued to tax exempt organizations, the Contract Owner
is the plan sponsor, and the individual participants in the plans are the
Annuitants. Under such Contracts, the rights of individual plan participants
are governed solely by their agreements with the plan sponsor and not by the
terms of the Contracts. Effective in 1997 for new state and local government
plans, such plans must be funded through a tax exempt annuity contract held
for the exclusive benefit of plan participants.
6. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED PLANS
In the case of a withdrawal under a Qualified Plan, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain
distributions from a Qualified Plan. Section 72(t) of the Code imposes a 10%
penalty tax on the taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified under Code
Sections 401 (Keogh and Corporate Pension and Profit-Sharing Plans),
Tax-Sheltered Annuities and Individual Retirement Annuities other than Roth
IRAs. The penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two years of the Contract Owner's
participation in the SIMPLE IRA. To the extent amounts are not includible in
gross income because they have been properly rolled over to an IRA or to
another eligible Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution
is made on or after the date on which the Contract Owner or Annuitant (as
applicable) reaches age 59 1/2; (b) distributions following the death or
disability of the Contract Owner or Annuitant (as applicable) (for this
purpose disability is as defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of substantially equal
periodic payments made not less frequently than annually for the life (or
life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his or her designated beneficiary; (d) distributions to
a Contract Owner or Annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the Contract Owner
or Annuitant (as applicable) to the extent such distributions do not exceed
the amount allowable as a deduction under Code Section 213 to the Contract
Owner or Annuitant (as applicable) for amounts paid during the taxable year
for medical care; (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order; (g) distributions from an IRA for the
purchase of medical insurance (as described in Section 213(d)(1)(D) of the
Code) for the Contract Owner and his or her spouse and dependents if the
Contract Owner has received unemployment compensation for at least 12 weeks;
and (h) distributions from IRAs for first time home purchase expenses
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(maximum $10,000) or certain qualified educational expenses of the Contract
Owner, spouse, children or grandchildren of the Contract Owner. This
exception will no longer apply after the Contract Owner has been re-employed
for at least 60 days. The exceptions stated in items (d) and (f) above do
not apply in the case of an IRA. The exception stated in item (c) applies to
an IRA without the requirement that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later
than April 1 of the calendar year following the later of: (a) the year in
which the employee attains age 70 1/2 or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to a regular or
SIMPLE IRA and the required distribution rules do not apply to Roth IRAs.
Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount
not distributed.
7. SEEK TAX ADVICE.
The above description of federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contracts
offered by this Prospectus is only a brief summary and is not intended as
tax advice. The rules governing the provisions of Qualified Plans are
extremely complex and often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are subject to change,
may have adverse tax consequences. A prospective Contract Owner considering
adoption of a Qualified Plan and purchase of a Contract in connection
therewith should first consult a qualified tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
SALES OF VARIABLE ACCUMULATION CONTRACTS
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The principal underwriter of the Contracts is PEPCO. Contracts may be
purchased through registered representatives of W.S. Griffith & Company, Inc.
("WSG") licensed to sell PHL Variable annuity contracts. WSG is an indirect
wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company. PEPCO is
an indirect, majority owned subsidiary of Phoenix Home Life Mutual Insurance
Company. Contracts also may be purchased through other broker-dealers or
entities registered under or exempt under the Securities Exchange Act of 1934,
whose representatives are authorized by applicable law to sell Contracts under
terms of agreement provided by PEPCO and terms of agreement provided by PHL
Variable.
In addition to reimbursing PEPCO for its expenses, PHL Variable pays PEPCO
an amount equal to up to 7.25% of the purchase payments made under the Contract.
PEPCO pays any qualified distribution organization an amount which may not
exceed up to 7.25% of the purchase payments under the Contract. Any such amount
paid with respect to Contracts sold through other broker/dealers will be paid by
PHL Variable to or through PEPCO. The amounts paid are not deducted from the
purchase payments. Deductions for sales charges (as described under "Sales
Charges") may be used as reimbursement for commission payments.
Although the Glass-Steagall Act prohibits banks and bank affiliates from
engaging in the business of underwriting securities, banking regulators have not
indicated that such institutions are prohibited from purchasing variable annuity
contracts upon the order and for the account of their customers.
STATE REGULATION
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PHL Variable is subject to the provisions of the Connecticut insurance laws
applicable to life insurance companies and to regulation and supervision by the
Connecticut Superintendent of Insurance. PHL Variable also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of PHL Variable includes certain limitations on the
investments which may be made for its General Account and separate accounts,
including the Account. It does not include, however, any supervision over the
investment policies of the Account.
REPORTS
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Reports showing the Contract Value and containing the financial statements
of the Account will be furnished at least annually to Contract Owners.
VOTING RIGHTS
- --------------------------------------------------------------------------------
As stated above, all of the assets held in an available Subaccount will be
invested in shares of a corresponding Series of the Funds. PHL Variable is the
legal owner of those shares and as such has the right to vote to elect the Board
of Trustees of the Funds, to vote upon certain matters that are required by the
Investment Company Act of 1940 ("1940 Act") to be approved or ratified by the
shareholders of a mutual fund and to vote upon any other matter that may be
voted upon at a shareholders' meeting. However, PHL Variable intends to vote the
shares of the Funds at regular and special meetings of the shareholders of the
Funds in accordance with instructions received from Owners of the Contracts.
PHL Variable currently intends to vote Fund shares attributable to any PHL
Variable assets and Fund shares held in each Subaccount for which no timely
instructions from Owners are received in the same proportion as those shares in
that Subaccount for which instructions are received. In the future, to the
extent applicable federal securities laws or regulations permit PHL Variable to
vote some or all shares of the Fund in its own right, it may elect to do so.
Matters on which Owners may give voting instructions may include the
following: (1) election of the Board of Trustees of a Fund; (2) ratification of
the independent accountant for a Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund corresponding to the
Owner's selected Subaccount(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of a Fund. With respect to amendment of any
investment advisory agreement or any change in a Series' fundamental investment
policy, Owners participating in such Series will vote separately on the matter,
pursuant to the requirements of the 1940 Act.
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The number of votes that a Contract Owner has the right to cast will be
determined by applying the Contract Owner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized. The number of votes for
which each Owner may give PHL Variable instructions will be determined as of the
record date for Fund shareholders chosen by the Board of Trustees of a Fund. PHL
Variable will furnish Owners with proper forms and proxies to enable them to
give these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
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Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a Contract, or apply
them to provide annuity options prior to retirement except in the case of
termination of employment in the Texas public institutions of higher education,
death or total disability. Such proceeds, however, may be used to fund another
eligible retirement vehicle.
LEGAL MATTERS
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Edwin L. Kerr, Counsel, Phoenix Home Life Mutual Insurance Company, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the Contracts described in this Prospectus.
SAI
The SAI contains more specific information and financial statements relating
to the Account and PHL Variable. The Table of Contents of the SAI is set forth
below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed, in
writing, to Phoenix Variable Products Mail Operations at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 447-4312.
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APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Contract and transfers to the GIA become
part of the general account of PHL Variable Insurance Company (the "General
Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the 1940 Act. Accordingly,
neither the General Account nor any interest therein is specifically subject to
the provisions of the 1933 or 1940 Acts and the staff of the SEC has not
reviewed the disclosures in this Prospectus concerning the GIA. Disclosures
regarding the GIA and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of PHL Variable
Insurance Company other than those allocated to any separate account. Purchase
payments will be allocated to the GIA and, therefore, the General Account, as
elected by the Owner at the time of purchase or as subsequently changed. PHL
Variable will invest the assets of the General Account in assets chosen by it
and allowed by applicable law. Investment income from General Account assets is
allocated between PHL Variable and the contracts participating in the General
Account, in accordance with the terms of such contracts.
Fixed annuity payments made to Annuitants under the Contract will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. PHL Variable assumes this "mortality
risk" by virtue of annuity rates incorporated in the Contract that cannot be
changed. In addition, PHL Variable guarantees that it will not increase charges
for maintenance of the Contracts regardless of its actual expenses.
Investment income from the General Account allocated to PHL Variable
includes compensation for mortality and expense risks borne by it in connection
with General Account contracts.
The amount of investment income allocated to the Contracts will vary from
year to year in the sole discretion of PHL Variable. However, PHL Variable
guarantees that it will credit interest at a rate of not less than 4% per year
compounded annually, to amounts allocated to the GIA. PHL Variable may credit
interest at a rate in excess of these rates; however, it is not obligated to
credit any interest in excess of these rates.
Biweekly, PHL Variable will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by PHL Variable based on
information as to expected investment yields. Some of the factors that PHL
Variable may consider in determining whether to credit excess interest to
amounts allocated to the GIA and the amount thereof, are general economic
trends, rates of return currently available and anticipated on investments,
regulatory and tax requirements and competitive factors. ANY INTEREST CREDITED
TO AMOUNTS ALLOCATED TO THE GIA IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF PHL VARIABLE AND WITHOUT REGARD TO ANY SPECIFIC FORMULA.
THE CONTRACT OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO GIA ALLOCATIONS
MAY NOT EXCEED THE MINIMUM GUARANTEE FOR ANY GIVEN YEAR.
PHL Variable is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in PHL Variable's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders, contract owners and shareholders.
Excess interest, if any, will be credited on the GIA Contract Value. PHL
Variable guarantees that, at any time, the GIA Contract Value will not be less
than the amount of purchase payments allocated to the GIA, plus interest at the
rate of 4% per year, compounded annually, plus any additional interest which PHL
Variable may, in its discretion, credit to the GIA, less the sum of all annual
administrative or surrender charges, any applicable premium taxes, and less any
amounts surrendered. If the Owner surrenders the Contract, the amount available
from the GIA will be reduced by any applicable surrender charge and annual
administration charge. See "Deductions and Charges."
For 403(b) plans with loans, amounts borrowed from the GIA will be treated
as transfers to the Loan Security Account and subject to the same limitations as
applies to transfers from the GIA (see "Qualified Plans").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE
AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF
THE CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
29
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- ----------- ------------- ------------- ---------
<S> (C) (C) <C> <C>
California .......................................... X 2.35% 0.50%
D.C.................................................. X 2.25 2.25
Kentucky............................................. X 2.00 2.00
Maine................................................ X 2.00
Nevada............................................... X 3.50
South Dakota......................................... X 1.25
West Virginia........................................ X 1.00 1.00
Wyoming.............................................. X 1.00
</TABLE>
NOTE: The above premium tax deduction rates are as of January 1, 1998. No
premium tax deductions are made for states not listed above. However,
premium tax statutes are subject to amendment by legislative act and to
judicial and administrative interpretation, which may affect both the
above list of states and the applicable tax rates. Consequently, the
Company reserves the right to deduct premium tax when necessary to
reflect changes in state tax laws or interpretation.
For a more detailed explanation of the assessment of Premium Taxes, see
"Deductions and Charges, Premium Tax."
(1) "Purchase" in this chart refers to the earlier of partial withdrawal,
surrender of the Contract, payment of death proceeds or Maturity Date.
30
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PHL VARIABLE INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO"):
Hartford, Connecticut P.O. Box 8027
Boston, Massachusetts 02266-8027
PHL VARIABLE ACCUMULATION ACCOUNT
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus, dated May 1, 1998, which is
available without charge by contacting PHL Variable Insurance Company at the
above address or at the above telephone number.
-----------------
Table of Contents
PAGE
----
Underwriter............................................................ B-2
Calculation of Yield and Return........................................ B-2
Calculation of Annuity Payments ....................................... B-3
Year 2000 Issue ....................................................... B-4
Experts ............................................................... B-4
Financial Statements................................................... B-5
B-1
<PAGE>
UNDERWRITER
- --------------------------------------------------------------------------------
The offering of Contracts is made on a continuous basis by PEPCO, an
affiliate of PHL Variable. For sales of Contracts, during the fiscal years ended
December 31, 1995, 1996 and 1997, PEPCO was paid $967,884, $7,750,042 and
$11,883,955, respectively, and retained $0.
CALCULATION OF YIELD AND RETURN
- --------------------------------------------------------------------------------
Yield of the Money Market Subaccount. As summarized in the Prospectus under
the heading "Performance History," the yield of the Money Market Subaccount for
a 7-day period (the "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return and multiplying the base period return
by 365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period, but
will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares. A mortality and expense risk charge
of 1.25% (approximately 0.40% for mortality and 0.85% for expense) and a daily
administrative fee of 0.125% are reflected.
The Money Market Subaccount yield and effective yield will vary in response
to fluctuations in interest rates and in the expenses of the Subaccount.
The current yield and effective yield reflect recurring charges at the
Account level, excluding the maximum annual administrative fee.
Example:
The following is an example of this yield calculation for the Money Market
Subaccount based on a 7-day period ending December 31, 1997
Value of hypothetical pre-existing account with
exactly one unit at the beginning of the 1.090370
period:.......................................
Value of the same account (excluding capital
changes) at the end of the 7-day period:..... 1.091039
Calculation:
Ending account value.......................... 1.091039
Less beginning account value.................. 1.090370
Net change in account value................... 0.000669
Base period return:
(adjusted change/beginning account value)..... 0.000614
Current yield = return H (365/7) =............... 3.20%
Effective yield = [(1 + return)(365/7)] -1 =..... 3.25%
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results will
continue.
Calculation of Total Return. As summarized in the Prospectus under the
heading, "Performance History," total return is a measure of the change in value
of an investment in a Subaccount over the period covered and is computed by
finding the average annual compounded rates of return over the 1-, 5- and
10-year periods that would equate the initial amount invested to the ending
redeemable value according to a formula. The formula for total return used
herein includes four steps: (1) assuming a hypothetical $1,000 initial
investment in the Subaccount; (2) calculating the value of the hypothetical
initial investment of $1,000 as of the end of the period by multiplying the
total number of units owned at the end of the period by the unit value per unit
on the last trading day of the period; (3) assuming redemption at the end of the
period and deducting any recurring fees and any applicable contingent deferred
sales charge; and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment. Total return will be calculated for one year,
five years and ten years or some other relevant periods if a Subaccount has not
been in existence for at least ten years.
PERFORMANCE INFORMATION
Advertisements, sale literature and other communications may contain
information about any Series or Adviser's current investment strategies and
management style. Current strategies and style may change to allow any Series to
respond quickly to changing market and economic conditions. From time to time,
the Funds may include specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Funds may
separate its cumulative and average annual returns into income and capital gains
components; or cite separately as a return figure the equity or bond portion of
a portfolio; or compare a Series' equity or bond return figure to well-known
indices of market performance, including, but not limited to: the S&P 500, Dow
Jones Industrial Average, First Boston High Yield Index and Salomon Brothers
Corporate and Government Bond Indices.
Each Subaccount may, from time to time, include its yield and total return
in advertisements or information furnished to present or prospective Contract
Owners. Each Subaccount may, from time to time, include in advertisements
containing total return (and yield in the case of certain Subaccounts) the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized as having the same investment objectives as Lipper
Analytical Services, CDA Investment Technologies, Inc., Weisenberger Financial
Services, Inc., Morningstar, Inc. and Tillinghast. Additionally, the Fund may
compare a Series' performance results to other investment or savings vehicles
(such as certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barrons, Business
Week, Investor's Business Daily, The Stanger Register, Stanger's Investment
Adviser, The Wall Street Journal, The New York Times, Consumer Reports,
Registered Representative, Financial Planning, Financial Services Weekly,
Financial World, U.S. News and World Report, Standard & Poor's The Outlook and
Personal Investor. The Fund may, from time to time, illustrate the benefits of
tax deferral by comparing taxable investments to investments made through
tax-deferred retirement plans.
The total return and yield may also be used to compare the performance of
the Subaccounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The S&P 500 is a market value-weighted
and unmanaged index showing the changes in the aggregate market value of 500
stocks relative to the base period 1941-43. The S&P 500 is composed almost
entirely of common stocks of companies listed on the NYSE, although the common
stocks of a few companies listed on the American Stock Exchange or traded
over-the-counter are included.
B-2
<PAGE>
The 500 companies represented include 400 industrial, 60 transportation and 40
financial services concerns. The S&P 500 represents about 80% of the market
value of all issues traded on the NYSE.
The manner in which total return and yield will be calculated is described
above.
CALCULATION OF ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS
Unless an alternative annuity payment option is elected on or before the
Contract Maturity Date, the Contract Value on the Maturity Date automatically
will be applied to provide a Variable Payment Life Annuity with 10-Year Period
Certain based on the Annuitant's life under annuity payment Option I as
described in the Prospectus. Any annuity payments falling due after the
Annuitant's death during the period certain will be paid to the beneficiary.
If the amount to be applied on the Maturity Date is less than $2,000 or
would result in monthly payments of less than $20, PHL Variable Insurance
Company shall have the right to pay such amount in one lump sum in lieu of
providing the annuity payments. PHL Variable Insurance Company will also have
the right to change the annuity payment frequency to annually if the monthly
annuity payment would otherwise be less than $20.
Under the Variable Payment Life Annuity with 10-Year Period Certain (payment
Option I), the first monthly income payment is due on the Maturity Date.
Thereafter, payments are due on the same day of the month as the first payment
was due, or if such date does not fall within a particular month, then the
future payment is due on the first Valuation Date to occur in the following
month. Payments will continue during the lifetime of the Annuitant, or, if
later, until the end of the Ten-Year Period Certain starting with the date the
first payment is due.
The Variable Income Table below shows the minimum amount of the first
monthly payment for each $1,000 of Accumulation Value applied. The minimum first
payments shown are based on the 1983 table, an annuity table projected to the
year 2040 with Projection Scale G, and with Projection Scale G thereafter, and
an effective assumed investment return of 4 1/2%. The actual payments will be
based on the monthly payment rate PHL Variable Insurance Company is using when
the first payment is due. They will not be less than those shown in the Variable
Income Table.
VARIABLE INCOME TABLE
Minimum monthly payment rate for first payment for each $1,000 applied based
on 4 1/2% assumed investment return.
ADJUSTED AGE* MALE FEMALE
------------- ---- ------
40 $4.15 $4.02
45 4.29 4.12
50 4.40 4.27
55 4.73 4.46
60 5.06 4.71
65 5.51 5.05
70 6.08 5.52
75 6.79 6.17
80 7.65 6.99
85 8.57 7.98
* Age on birthday nearest due date of the first payment. Monthly payment rates
for ages not shown will be furnished on request.
In determining the amount of the first payment, the amounts held under the
Variable Payment Option in each Subaccount are multiplied by the rates PHL
Variable Insurance Company is using for the Option on the first Payment
Calculation Date. The Payment Calculation Date is the earliest Valuation Date
that is not more than 10 days before the due date of the payment. The first
payment equals the total of such figures determined for each Subaccount.
Future payments are measured in Annuity Units and are determined by
multiplying the Annuity Units in each Subaccount with assets under the Variable
Payment Option by the Annuity Unit Value for each Subaccount on the Payment
Calculation Date that applies. The number of Annuity Units in each Subaccount
with assets under a Variable Payment Option is equal to the portion of the first
payment provided from that Subaccount divided by the Annuity Unit Value for that
Subaccount on the first Payment Calculation Date. The payment will equal the sum
of such amounts from each Subaccount.
All Annuity Unit Values in each Subaccount were set at $1.000000 on the
first Valuation Date selected by PHL Variable Insurance Company. The value of an
Annuity Unit on any date thereafter is equal to (a) the Net Investment Factor
for that Subaccount for the Valuation Period divided by (b) the sum of 1.000000
and the rate of interest for the number of days in the Valuation Period, based
on an effective annual rate of interest equal to the assumed investment return,
and multiplied by (c) the corresponding Annuity Unit Value on the preceding
Valuation Date. The assumed investment return of 4 1/2% per year is the annual
interest rate assumed in determining the first payment. The amount of each
subsequent payment from each Subaccount will depend on the relationship between
the assumed investment return and the actual investment performance of the
Subaccount. If a 4 1/2% rate would result in a first variable payment larger
than that permitted under applicable state law, we will select a lower rate that
will comply with such law.
No partial or full surrenders, withdrawals, transfers or additional premium
payments may be made with respect to any assets held under Variable Payment
Options I and J. Although no transfers or additional premium payments may be
made with respect to assets held under Option K, under this option partial or
full surrenders may be made.
FIXED ANNUITY PAYMENTS
Fixed monthly annuity payments under a Contract are determined by applying
the Contract Value to the respective annuity purchase rates on the Maturity Date
of a Contract or other date elected for commencement of fixed annuity payments.
Under a Contract, the amount of the fixed annuity payment is calculated by
first multiplying the number of the Subaccounts' Accumulation Units credited to
the Contract on the Maturity Date by the appropriate Unit Value for each
Subaccount on the Maturity Date. The dollar value for all Subaccounts'
Accumulation Units is then aggregated, along with the dollar value of any
investment in the GIA. For each Contract the resulting dollar value is then
multiplied by the applicable annuity purchase rate, which reflects the age (and
sex for non-tax qualified plans) of the Annuitant specified in the Contract for
the Fixed Payment Annuity Option selected. This computation determines the
amount of PHL Variable Insurance Company's fixed monthly annuity payment to the
Annuitant.
B-3
<PAGE>
The mortality table used as a basis for the applicable annuity purchase
rates is the a-49 Individual Annuity Mortality Table projected to 1985 at
Projection Scale B. An interest rate of 33/ 8 % for 5- and 10-year certain
periods under Option A, for the 10-year period under Option F and for Option E;
an interest rate of 3 1/4% for the 20-year certain period under Options A and F;
an interest rate of 3 1/2% under Option B and D. Under Options G and H the
guaranteed interest rate is 3%. More favorable rates may be available on the
Maturity Date or other dates elected for commencement of fixed annuity payments.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
Many existing computer programs use only two digits to identify the year in
a date field. Commonly referred to as the "Year 2000 Issue," companies must
consider the impact of the upcoming change in the century on their computer
systems. The Year 2000 Issue, if not adequately addressed, could result in
computer system failures or miscalculations causing disruptions of operations
and the possible inability of companies to process transactions. PHL Variable
believes that the Year 2000 Issue is an important business priority requiring
careful analysis of every business system in order to be assured that all
information systems applications are century compliant.
PHL Variable's ultimate parent, Phoenix Home Life Mutual Insurance Company
("Phoenix") has been addressing the Year 2000 Issue in earnest since 1995 when,
with consultants, a comprehensive inventory and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
-- upgrading systems with compliant versions;
-- developing or acquiring new systems to replace those that are obsolete;
-- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems,
and those of its subsidiaries, compliant by the end of 1998, with testing to
continue through 1999. In addition, Phoenix is examining the status of its
third-party vendors, obtaining assurances that their software and hardware
products will be century compliant by 1999.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of PHL Variable Insurance Company and the Account
have been audited by Price Waterhouse LLP, independent accountants, whose
reports are set forth herein, and the financial statements have been included
upon the authority of said firm as experts in accounting and auditing. Price
Waterhouse LLP, whose address is One Financial Plaza, Hartford, Connecticut,
also provides other accounting and tax-related services as requested by PHL
Variable from time to time.
Edwin L. Kerr, Counsel, Phoenix Home Life Mutual Insurance Company, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the Contracts described in this Prospectus.
B-4
<PAGE>
PHL VARIABLE
ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
B-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
----------------- ------------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $34,973,345 $114,046,318 $37,679,445
=========== ============ ===========
Investment in The Phoenix Edge Series Fund, at market ......... $34,973,346 $111,911,612 $37,379,700
----------- ------------ -----------
Total assets ................................................. 34,973,346 111,911,612 37,379,700
Liabilities
Accrued expenses to related party ............................. 39,021 125,357 41,358
----------- ------------ -----------
Net assets ..................................................... $34,934,325 $111,786,255 $37,338,342
=========== ============ ===========
Accumulation units outstanding ................................. 32,019,323 77,819,024 29,244,694
=========== ============ ===========
Unit value ..................................................... $ 1.091039 $ 1.436490 $ 1.276756
=========== ============ ===========
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
----------- ----------- -----------
Assets
Investments at cost ........................................... $30,150,355 $ 9,403,184 $13,688,463
=========== ============ ===========
Investment in The Phoenix Edge Series Fund, at market ......... $29,513,910 $ 9,271,259 $13,338,670
----------- ------------ -----------
Total assets ................................................. 29,513,910 9,271,259 13,338,670
Liabilities
Accrued expenses to related party ............................. 32,604 10,830 15,591
----------- ------------ -----------
Net assets ..................................................... $29,481,306 $ 9,260,429 $13,323,079
=========== ============ ===========
Accumulation units outstanding ................................. 22,084,578 7,089,271 10,023,529
=========== ============ ===========
Unit value ..................................................... $ 1.334927 $ 1.306260 $ 1.329181
=========== ============ ===========
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
----------- ----------- -----------
Assets
Investments at cost ........................................... $11,606,088 $12,745,792 $ 3,469,019
============ ============ ============
Investment in The Phoenix Edge Series Fund, at market ......... $12,860,111 $12,688,144 $ 2,433,232
------------ ------------ ------------
Total assets ................................................. 12,860,111 12,688,144 2,433,232
Liabilities
Accrued expenses to related party ............................. 14,362 14,130 2,649
------------ ------------ ------------
Net assets ..................................................... $12,845,749 $12,674,014 $ 2,430,583
============ ============ ============
Accumulation units outstanding ................................. 7,736,970 10,168,688 3,654,619
============ ============ ============
Unit value ..................................................... $ 1.660307 $ 1.246377 $ 0.665071
============ ============ ============
</TABLE>
See Notes to Financial Statements
B-6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
Sub-Account Sub-Account Sub-Account
----------------- -------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ..................................................... $ 4,064,121 $28,526,326 $ 48,244,895
=============== =========== ============
Investment in The Phoenix Edge Series Fund, at market ................... $ 4,124,836 -- --
Investment in Wangers Advisors Trust, at market ......................... -- $28,078,035 $ 61,519,860
--------------- ----------- ------------
Total assets ........................................................... 4,124,836 28,078,035 61,519,860
Liabilities
Accrued expenses to related party ....................................... 4,159 32,817 69,247
--------------- ----------- ------------
Net assets ............................................................... $ 4,120,677 $28,045,218 $ 61,450,613
=============== =========== ============
Accumulation units outstanding ........................................... 3,958,413 20,360,563 34,965,994
=============== =========== ============
Unit value ............................................................... $ 1.040992 $ 1.377428 $ 1.757439
=============== =========== ============
Templeton Templeton
Stock Asset Allocation
Sub-Account Sub-Account
--------------- ----------
Assets
Investments at cost ..................................................... $ 6,576,487 $5,053,505
=============== ===========
Investment in Templeton Variable Products Series Fund, at market ........ $ 6,375,658 $4,927,468
--------------- -----------
Total assets ........................................................... 6,375,658 4,927,468
Liabilities
Accrued expenses to related party ....................................... 7,001 5,481
--------------- -----------
Net assets ............................................................... $ 6,368,657 $4,921,987
=============== ===========
Accumulation units outstanding ........................................... 6,099,799 4,622,079
=============== ===========
Unit value ............................................................... $ 1.044077 $ 1.064886
=============== ===========
Templeton Templeton
International Developing Markets
Sub-Account Sub-Account
--------------- ----------
Assets
Investments at cost ..................................................... $ 4,488,062 $2,940,375
=============== ===========
Investment in Templeton Variable Products Series Fund, at market ........ $ 4,382,855 $2,172,437
--------------- -----------
Total assets ........................................................... 4,382,855 2,172,437
Liabilities
Accrued expenses to related party ....................................... 4,787 2,406
--------------- -----------
Net assets ............................................................... $ 4,378,068 $2,170,031
=============== ===========
Accumulation units outstanding ........................................... 4,072,117 3,274,727
=============== ===========
Unit value ............................................................... $ 1.075133 $ 0.662660
=============== ===========
</TABLE>
See Notes to Financial Statements
B-7
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
----------------- ------------------- --------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $1,245,489 $ 486,351 $1,898,021
Expenses
Mortality, expense risk and administrative charges ..................... 338,151 1,116,736 330,057
---------- ----------- ----------
Net investment income (loss) ............................................ 907,338 (630,385) 1,567,964
---------- ----------- ----------
Net realized loss from share transactions ............................... (11) (24,605) (12,941)
Net realized gain distribution from Fund ................................ -- 16,340,543 857,375
Net unrealized appreciation (depreciation) on investment ................ 1 (1,781,965) (162,539)
---------- ----------- ----------
Net gain (loss) on investments .......................................... (10) 14,533,973 681,895
---------- ----------- ----------
Net increase in net assets resulting from operations .................... $ 907,328 $13,903,588 $2,249,859
========== =========== ==========
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------- ----------- ----------
Investment income
Distributions .......................................................... $ 486,850 $ 69,646 $ 298,910
Expenses
Mortality, expense risk and administrative charges ..................... 295,475 90,241 129,442
----------- ------------ -----------
Net investment income (loss) ............................................ 191,375 (20,595) 169,468
----------- ------------ -----------
Net realized gain (loss) from share transactions ........................ 17,492 764 (9,031)
Net realized gain distribution from Fund ................................ 3,559,520 820,452 1,383,267
Net unrealized depreciation on investment ............................... (230,816) (256,669) (214,179)
----------- ------------ -----------
Net gain on investments ................................................. 3,346,196 564,547 1,160,057
----------- ------------ -----------
Net increase in net assets resulting from operations .................... $3,537,571 $ 543,952 $1,329,525
=========== ============ ===========
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
---------- ----------- -----------
Investment income
Distributions .......................................................... $ 274,998 $ 36,499 $ 95,020
Expenses
Mortality, expense risk and administrative charges ..................... 101,238 118,766 31,144
----------- ------------ -----------
Net investment income (loss) ............................................ 173,760 (82,267) 63,876
----------- ------------ -----------
Net realized gain (loss) from share transactions ........................ 23 (18,155) (23,903)
Net realized gain distribution from Fund ................................ 426,393 1,461,092 1,339
Net unrealized appreciation (depreciation) on investment ................ 954,191 (205,450) (1,037,281)
----------- ------------ -----------
Net gain (loss) on investments .......................................... 1,380,607 1,237,487 (1,059,845)
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations ......... $1,554,367 $ 1,155,220 $ (995,969)
=========== ============ ===========
</TABLE>
See Notes to Financial Statements
B-8
<PAGE>
STATEMENT OF OPERATIONS
For the period ended Decemer 31, 1997
(Continued)
<TABLE>
<CAPTION>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
------------------ ------------------ --------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $ 19,092 $ 444,004 $ 661,738
Expenses
Mortality, expense risk and administrative charges ..................... 10,646 332,607 573,294
---------------- ------------ -----------
Net investment income ................................................... 8,446 111,397 88,444
---------------- ------------ -----------
Net realized gain (loss) from share transactions ........................ (11,455) 2,114 8,063
Net realized gain distribution from Fund ................................ 17,968 -- --
Net unrealized appreciation (depreciation) on investment ................ 60,714 (1,519,831) 10,309,844
---------------- ------------ -----------
Net gain (loss) on investments .......................................... 67,227 (1,517,717) 10,317,907
---------------- ------------ -----------
Net increase (decrease) in net assets resulting from operations ......... $ 75,673 $(1,406,320) $10,406,351
================ ============ ===========
Templeton Templeton
Stock Asset Allocation
Sub-Account(2) Sub-Account(3)
---------------- ----------------
Investment income
Distributions .......................................................... $ -- $ --
Expenses
Mortality, expense risk and administrative charges ..................... 26,216 21,060
---------------- ------------
Net investment loss ..................................................... (26,216) (21,060)
---------------- ------------
Net realized gain (loss) from share transactions ........................ 121 (615)
Net unrealized depreciation on investment ............................... (200,829) (126,037)
---------------- ------------
Net loss on investments ................................................. (200,708) (126,652)
---------------- ------------
Net decrease in net assets resulting from operations .................... $ (226,924) $ (147,712)
================ ============
Templeton Templeton
International Developing Markets
Sub-Account(2) Sub-Account(2)
---------------- ----------------
Investment income
Distributions .......................................................... $ -- $ --
Expenses
Mortality, expense risk and administrative charges ..................... 17,298 11,121
---------------- ------------
Net investment loss ..................................................... (17,298) (11,121)
---------------- ------------
Net realized gain (loss) from share transactions ........................ 2,484 (12,846)
Net unrealized depreciation on investment ............................... (105,208) (767,938)
---------------- ------------
Net loss on investments ................................................. (102,724) (780,784)
---------------- ------------
Net decrease in net assets resulting from operations .................... $ (120,022) $ (791,905)
================ ============
</TABLE>
(1)From inception July 22, 1997 to December 31, 1997
(2)From inception May 5, 1997 to December 31, 1997
(3)From inception May 6, 1997 to December 31, 1997
See Notes to Financial Statements
B-9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
----------------- ------------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 907,338 $ (630,385) $ 1,567,964
Net realized gain (loss) ................................................ (11) 16,315,938 844,434
Net unrealized appreciation (depreciation) .............................. 1 (1,781,965) (162,539)
------------ ------------ -----------
Net increase in net assets resulting from operations .................... 907,328 13,903,588 2,249,859
------------ ------------ -----------
From accumulation unit transactions
Participant deposits .................................................... 129,791,265 19,020,238 6,621,512
Participant transfers ................................................... (118,052,959) 30,883,327 14,037,050
Participant withdrawals ................................................. (994,507) (2,970,576) (1,026,256)
-------------- ------------ -----------
Net increase in net assets resulting from participant transactions ...... 10,743,799 46,932,989 19,632,306
-------------- ------------ -----------
Net increase in net assets .............................................. 11,651,127 60,836,577 21,882,165
Net assets
Beginning of period ..................................................... 23,283,198 50,949,678 15,456,177
-------------- ------------ -----------
End of period ........................................................... $ 34,934,325 $111,786,255 $37,338,342
============== ============ ============
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
------------- ------------ ------------
From operations
Net investment income (loss) ............................................ $ 191,375 $ (20,595) $ 169,468
Net realized gain ....................................................... 3,577,012 821,216 1,374,236
Net unrealized depreciation ............................................. (230,816) (256,669) (214,179)
-------------- ------------- ------------
Net increase in net assets resulting from operations .................... 3,537,571 543,952 1,329,525
-------------- ------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 4,491,372 1,958,885 3,065,921
Participant transfers ................................................... 7,178,160 3,245,739 3,096,312
Participant withdrawals ................................................. (575,990) (145,413) (584,926)
-------------- ------------- ------------
Net increase in net assets resulting from participant transactions ...... 11,093,542 5,059,211 5,577,307
-------------- ------------- ------------
Net increase in net assets .............................................. 14,631,113 5,603,163 6,906,832
Net assets
Beginning of period ..................................................... 14,850,193 3,657,266 6,416,247
-------------- ------------- ------------
End of period ........................................................... $ 29,481,306 $ 9,260,429 $13,323,079
============== ============= ============
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ------------ ------------
From operations
Net investment income (loss) ............................................ $ 173,760 $ (82,267) $ 63,876
Net realized gain (loss) ................................................ 426,416 1,442,937 (22,564)
Net unrealized appreciation (depreciation) .............................. 954,191 (205,450) (1,037,281)
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations ......... 1,554,367 1,155,220 (995,969)
-------------- ------------- -------------
From accumulation unit transactions
Participant deposits .................................................... 2,913,014 2,055,321 979,395
Participant transfers ................................................... 6,386,122 5,362,519 1,374,336
Participant withdrawals ................................................. (135,526) (269,975) (57,020)
-------------- ------------- -------------
Net increase in net assets resulting from participant transactions ...... 9,163,610 7,147,865 2,296,711
-------------- ------------- -------------
Net increase in net assets .............................................. 10,717,977 8,303,085 1,300,742
Net assets
Beginning of period ..................................................... 2,127,772 4,370,929 1,129,841
-------------- ------------- -------------
End of period ........................................................... $ 12,845,749 $ 12,674,014 $ 2,430,583
============== ============= =============
</TABLE>
See Notes to Financial Statements
B-10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
------------------ ---------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 8,446 $ 111,397 $ 88,444
Net realized gain ....................................................... 6,513 2,114 8,063
Net unrealized appreciation (depreciation) .............................. 60,714 (1,519,831) 10,309,844
---------------- ------------ ------------
Net increase (decrease) in net assets resulting from operations ......... 75,673 (1,406,320) 10,406,351
---------------- ------------ ------------
From accumulation unit transactions
Participant deposits .................................................... 1,672,794 6,103,151 9,172,386
Participant transfers ................................................... 2,390,678 10,427,408 20,534,319
Participant withdrawals ................................................. (18,468) (1,015,981) (1,728,149)
---------------- ------------ ------------
Net increase in net assets resulting from participant transactions ...... 4,045,004 15,514,578 27,978,556
---------------- ------------ ------------
Net increase in net assets .............................................. 4,120,677 14,108,258 38,384,907
Net assets
Beginning of period ..................................................... -- 13,936,960 23,065,706
---------------- ------------ ------------
End of period ........................................................... $ 4,120,677 $28,045,218 $ 61,450,613
================ ============ ============
Templeton Templeton
Stock Asset Allocation
Sub-Account(2) Sub-Account(3)
---------------- ------------------
From operations
Net investment loss ..................................................... $ (26,216) $ (21,060)
Net realized gain (loss) ................................................ 121 (615)
Net unrealized depreciation ............................................. (200,829) (126,037)
---------------- ------------
Net decrease in net assets resulting from operations .................... (226,924) (147,712)
---------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 2,039,079 2,964,700
Participant transfers ................................................... 4,594,725 2,135,147
Participant withdrawals ................................................. (38,223) (30,148)
---------------- ------------
Net increase in net assets resulting from participant transactions ...... 6,595,581 5,069,699
---------------- ------------
Net increase in net assets .............................................. 6,368,657 4,921,987
Net assets
Beginning of period ..................................................... -- --
---------------- ------------
End of period ........................................................... $ 6,368,657 $ 4,921,987
================ ============
Templeton Templeton
International Developing Markets
Sub-Account(2) Sub-Account(2)
---------------- ----------------
From operations
Net investment loss ..................................................... $ (17,298) $ (11,121)
Net realized gain (loss) ................................................ 2,484 (12,846)
Net unrealized depreciation ............................................. (105,208) (767,938)
---------------- -------------
Net decrease in net assets resulting from operations .................... (120,022) (791,905)
---------------- -------------
From accumulation unit transactions
Participant deposits .................................................... 2,136,967 1,308,608
Participant transfers ................................................... 2,385,768 1,662,130
Participant withdrawals ................................................. (24,645) (8,802)
---------------- -------------
Net increase in net assets resulting from participant transactions ...... 4,498,090 2,961,936
---------------- -------------
Net increase in net assets .............................................. 4,378,068 2,170,031
Net assets
Beginning of period ..................................................... -- --
---------------- -------------
End of period ........................................................... $ 4,378,068 $ 2,170,031
================ =============
</TABLE>
(1)From inception July 22, 1997 to December 31, 1997
(2)From inception May 5, 1997 to December 31, 1997
(3)From inception May 6, 1997 to December 31, 1997
See Notes to Financial Statements
B-11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
----------------- --------------- ------------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 448,990 $ (51,201) $ 473,276
Net realized gain ....................................................... -- 3,220,291 445,349
Net unrealized depreciation ............................................. -- (104,167) (136,643)
----------- ---------------- --------------
Net increase in net assets resulting from operations .................... 448,990 3,064,923 781,982
----------- ---------------- --------------
From accumulation unit transactions
Participant deposits .................................................... 100,807,056 16,137,985 3,658,318
Participant transfers ................................................... (83,156,951) 28,719,551 10,819,170
Participant withdrawals ................................................. (797,035) (261,356) (138,991)
------------ ---------------- --------------
Net increase in net assets resulting from participant transactions ...... 16,853,070 44,596,180 14,338,497
------------ ---------------- --------------
Net increase in net assets .............................................. 17,302,060 47,661,103 15,120,479
Net assets
Beginning of period ..................................................... 5,981,138 3,288,575 335,698
------------ ---------------- --------------
End of period ........................................................... $23,283,198 $50,949,678 $15,456,177
============ ================ ==============
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
----------- --------------- -------------
From operations
Net investment income ................................................... $ 81,294 $ 23,302 $ 60,499
Net realized gain ....................................................... 855,410 77,403 464,572
Net unrealized appreciation (depreciation) .............................. (280,377) 123,310 (134,164)
------------ ---------------- --------------
Net increase in net assets resulting from operations .................... 656,327 224,015 390,907
------------ ---------------- --------------
From accumulation unit transactions
Participant deposits .................................................... 3,603,086 1,016,275 1,688,276
Participant transfers ................................................... 7,602,197 2,297,094 3,646,583
Participant withdrawals ................................................. (52,881) (14,382) (62,505)
------------ ---------------- --------------
Net increase in net assets resulting from participant transactions ...... 11,152,402 3,298,987 5,272,354
------------ ---------------- --------------
Net increase in net assets .............................................. 11,808,729 3,523,002 5,663,261
Net assets
Beginning of period ..................................................... 3,041,464 134,264 752,986
------------ ---------------- --------------
End of period ........................................................... $14,850,193 $ 3,657,266 $ 6,416,247
============ ================ ==============
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account(1) Sub-Account(2 )
----------- --------------- --------------
From operations
Net investment income (loss) ............................................ $ 25,006 $ (11,691) $ 3,508
Net realized gain (loss) ................................................ 24,120 12,195 (2,679)
Net unrealized appreciation ............................................. 299,093 147,802 1,494
------------ ---------------- ---------------
Net increase in net assets resulting from operations .................... 348,219 148,306 2,323
------------ ---------------- ---------------
From accumulation unit transactions
Participant deposits .................................................... 537,771 1,162,846 190,675
Participant transfers ................................................... 1,009,485 3,078,265 937,753
Participant withdrawals ................................................. (5,358) (18,488) (910)
------------ ---------------- ---------------
Net increase in net assets resulting from participant transactions ...... 1,541,898 4,222,623 1,127,518
------------ ---------------- ---------------
Net increase in net assets .............................................. 1,890,117 4,370,929 1,129,841
Net assets
Beginning of period ..................................................... 237,655 -- --
------------ ---------------- ---------------
End of period ........................................................... $ 2,127,772 $ 4,370,929 $ 1,129,841
============ ================ ===============
</TABLE>
(1)From inception February 15, 1996 to December 31, 1996
(2)From inception September 19, 1996 to December 31, 1996
See Notes to Financial Statements
B-12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- --------------
<S> <C> <C>
From operations
Net investment loss ..................................................... $ (84,060) $ (125,132)
Net realized gain (loss) ................................................ (7,606) 2,035
Net unrealized appreciation ............................................. 1,063,766 2,984,536
----------- -----------
Net increase in net assets resulting from operations .................... 972,100 2,861,439
----------- -----------
From accumulation unit transactions
Participant deposits .................................................... 4,661,212 5,084,461
Participant transfers ................................................... 8,094,139 13,945,437
Participant withdrawals ................................................. (70,544) (74,992)
----------- -----------
Net increase in net assets resulting from participant transactions ...... 12,684,807 18,954,906
----------- -----------
Net increase in net assets .............................................. 13,656,907 21,816,345
Net assets
Beginning of period ..................................................... 280,053 1,249,361
----------- -----------
End of period ........................................................... $13,936,960 $23,065,706
=========== ===========
</TABLE>
See Notes to Financial Statements
B-13
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
PHL Variable Accumulation Account (the "Account") is a separate investment
account of PHL Variable Insurance Company (PHL Variable). The Account is
organized as a unit investment trust and currently consists of sixteen
Sub-Accounts, and invests in corresponding series of The Phoenix Edge Series
Fund, Wanger Advisors Trust and the Templeton Variable Products Series Fund
(the "Funds"). The Account is offered as The Big Edge Choice to individuals
(VA4).
Each Series has distinct investment objectives. The Money Market Series is
a pooled short-term investment fund. The Growth Series is a growth common stock
fund. The Multi-Sector Fixed Income Series is a long-term debt fund. The
Strategic Allocation Series (formerly Total Return) invests in equity
securities and long and short-term debt. The International Series invests
primarily in an internationally diversified portfolio of equity securities. The
Balanced Series is a balanced fund which invests in growth stocks and at least
25% of its assets in fixed income senior securities. The Real Estate Series
invests in marketable securities of publicly traded Real Estate Investment
Trusts ("REITs") and companies that are principally engaged in the real estate
industry. The Strategic Theme Series invests in securities of companies
believed to benefit from specific trends. The Aberdeen New Asia Series invests
primarily in diversified equity securities of issuers organized and principally
operating in Asia, excluding Japan. The Research Enhanced Index ("Enhanced
Index") Series invests in a broadly diversified portfolio of equity securities
of large and medium capitalization companies within market sectors reflected in
the S&P 500. The Wanger International Small Cap Series invests in securities of
non-U.S. companies with a stock market capitalization of less than $1 billion
and the Wanger U.S. Small Cap Series invests in growth common stock of U.S.
companies with stock market capitalization of less than $1 billion. The
Templeton Stock Fund invests primarily in common stocks issued by companies,
large and small, in various nations throughout the world, the Templeton Asset
Allocation Fund invests in stocks of companies in any nation, debt obligations
of companies and governments of any nation, and money market instruments, the
Templeton International Fund invests in stocks and debt obligations of
companies and governments outside the United States, and the Templeton
Developing Markets Fund invests primarily in equity securities of issuers in
countries having developing markets. Contract owners may also direct the
allocation of their investments between the Account and the Guaranteed Interest
Account of the general account of PHL Variable through participant transfers.
Note 2--Significant Accounting Policies
A. Valuation of investments: Investments are made exclusively in the Funds and
are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses
on sales of shares in the Funds determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from PHL Variable and,
under current federal income tax law, income arising from the Account is not
taxed since reserves are established equivalent to such income. Therefore, no
provision for related federal taxes is required.
D. Distributions: Distributions are recorded on the ex-dividend date.
Note 3--Purchases and Sales of Shares of the Funds
Purchases and sales of shares of the Funds for the period ended December
31, 1997 aggregated the following:
<TABLE>
<CAPTION>
Sub-Account Purchases Sales
- ---------------------------------------- -------------- --------------
<S> <C> <C>
The Phoenix Edge Series Fund:
Money Market .......................... $59,319,372 $47,653,079
Growth ................................ 64,028,560 1,317,675
Multi-Sector Fixed Income ............. 25,926,738 3,843,969
Strategic Allocation .................. 16,527,484 1,667,324
International ......................... 7,223,324 1,357,413
Balanced .............................. 8,271,880 1,133,483
Real Estate ........................... 10,491,621 715,566
Strategic Theme ....................... 9,248,006 713,531
Aberdeen New Asia ..................... 4,136,551 1,773,084
Enhanced Index ........................ 4,241,748 166,172
Wanger Advisors Trust:
International Small Cap ............... 17,971,146 2,327,346
U.S. Small Cap ........................ 29,926,534 1,813,775
Templeton Variable Products Series Fund:
Stock ................................. 6,700,544 124,178
Asset Allocation ...................... 5,119,234 65,115
International ......................... 4,929,691 444,113
Developing Markets .................... 3,087,876 134,655
</TABLE>
B-14
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
-------------------------------------------------------------------------------------------
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
--------------- ----------------------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
VA4
Units outstanding, beginning of period.. 22,142,319 42,365,475 13,251,869 13,248,885 3,094,533 5,615,835
Participant deposits ................... 121,050,392 14,236,566 5,397,535 3,630,810 1,546,058 2,395,837
Participant transfers .................. (110,248,527) 23,428,243 11,448,849 5,665,807 2,563,105 2,484,161
Participant withdrawals ................ (924,861) (2,211,260) (853,559) (460,924) (114,425) (472,304
------------ ---------- ---------- ---------- --------- ---------
Units outstanding, end of period ....... 32,019,323 77,819,024 29,244,694 22,084,578 7,089,271 10,023,529
============ ========== ========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger
Strategic Aberdeen Enhanced International
Real Estate Theme New Asia Index Small Cap
------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... 1,543,156 4,053,646 1,132,687 -- 9,834,236
Participant deposits ........................... 1,964,393 1,772,054 1,113,053 1,636,488 4,131,765
Participant transfers .......................... 4,316,625 4,568,384 1,471,124 2,339,793 7,065,542
Participant withdrawals ........................ (87,204) (225,396) (62,245) (17,868) (670,980)
--------- --------- --------- --------- ---------
Units outstanding, end of period ............... 7,736,970 10,168,688 3,654,619 3,958,413 20,360,563
========= ========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Templeton Templeton
Wanger U.S. Templeton Asset Templeton Developing
Small Cap Stock Allocation International Markets
--------------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... 16,756,995 -- -- -- --
Participant deposits ........................... 5,895,771 1,884,079 2,706,808 1,929,062 1,428,502
Participant transfers .......................... 13,394,539 4,251,937 1,944,708 2,165,760 1,857,056
Participant withdrawals ........................ (1,081,311) (36,217) (29,437) (22,705) (10,831)
---------- --------- --------- --------- ---------
Units outstanding, end of period ............... 34,965,994 6,099,799 4,622,079 4,072,117 3,274,727
========== ========= ========= ========= =========
</TABLE>
Note 5--Investment Advisory Fees and Related Party Transactions
PHL Variable and its affiliate, Phoenix Equity Planning Corporation, a
registered broker/dealer in securities, provide all services to the Account.
PHL Variable assumes the risk that annuitants as a class may live longer
than expected (necessitating a greater number of annuity payments) and that its
expenses may be higher than its deductions for such expenses. In return for the
assumption of these mortality and expense risks, PHL Variable charges the
Sub-Accounts the daily equivalent of 0.40%, 0.85% and 0.125% on an annual basis
for mortality, expense risks and daily administrative fees, respectively.
As compensation for administrative services provided to the Account, PHL
Variable additionally receives $35 per year from each contract, which is
deducted from the Sub-Account holding the assets of the participant, or on a
pro rata basis from two or more Sub-Accounts in relation to their values under
the contract. Such fees aggregated $130,179 for the period ended December 31,
1997.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. PHL Variable reimburses Phoenix Equity Planning
Corporation for expenses incurred as underwriter.
On surrender of a contract, contingent deferred sales charges, which vary
from 0-7% depending upon the duration of each contract deposit, are deducted
from the proceeds and are paid to PHL Variable as reimbursement for services
provided. Contingent deferred sales charges deducted and paid to PHL Variable
aggregated $235,977 for the period ended December 31, 1997.
Note 6--Distribution of Net Income
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of withdrawals of amounts in the form of surrenders, death
benefits, transfers or annuity payments in excess of net purchase payments.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
"Code"), a variable annuity contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
an annuity contract for federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations
issued by the Secretary of the Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. PHL Variable believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will continue
to meet such requirements.
B-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Price Waterhouse LLP logotype] [LOGO]
To the Board of Directors of PHL Variable Insurance Company and
Participants of PHL Variable Accumulation Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub-Account, Multi-Sector Fixed Income Sub-Account,
Strategic Allocation Sub-Account, International Sub-Account, Balanced
Sub-Account, Real Estate Sub-Account, Strategic Theme Sub-Account, Aberdeen New
Asia Sub-Account, Enhanced Index Sub-Account, Wanger International Small Cap
Sub-Account, Wanger U.S. Small Cap Sub-Account, Templeton Stock Sub-Account,
Templeton Asset Allocation Sub-Account, Templeton International Sub-Account and
Templeton Developing Markets Sub-Account (constituting the PHL Variable
Accumulation Account, hereafter referred to as the "Account") at December 31,
1997 and the results of each of their operations and the changes in each of
their net assets for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 by
correspondence with the Funds' custodians, provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 19, 1998
B-16
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
PHL Variable Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series, Aberdeen New Asia Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series, Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
<PAGE>
PHL VARIABLE
INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
B-18
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Report of Independent Accountants ..........................................B-20
Balance Sheet at December 31, 1997 and 1996 ................................B-21
Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 .........................................B-22
Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 .........................................B-23
Notes to Financial Statements ........................................B-24-B-32
B-19
<PAGE>
[LOGO] PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1998
To the Board of Directors
and Stockholder of
PHL Variable Insurance Company
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of PHL Variable
Insurance Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
B-20
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 3,144 $ 1,827
Available-for-sale debt securities, at fair value 21,859 15,279
Other invested assets 1,024
-------------- --------------
Total investments 26,027 17,106
Cash and cash equivalents 1,714 1,822
Accrued investment income 257 208
Deferred policy acquisition costs 21,010 9,557
Deferred income taxes 1,259 363
Other assets 1,051 239
Goodwill 660 756
Separate account assets 376,046 159,418
-------------- --------------
Total assets $ 428,024 $ 189,469
============== ==============
LIABILITIES
Contractholders' funds at interest $ 27,667 $ 11,569
Other liabilities 1,517 1,678
Separate account liabilities 376,046 159,418
-------------- --------------
Total liabilities 405,230 172,665
-------------- --------------
EQUITY
Common stock, $5,000 par value, 1,000 shares
authorized, 500 shares issued and outstanding 2,500 2,500
Additional paid-in-capital 18,864 13,864
Unrealized investment gains, net 81 44
Retained earnings 1,349 396
-------------- --------------
Total equity 22,794 16,804
-------------- --------------
Total liabilities and equity $ 428,024 $ 189,469
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
B-21
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENT OF INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 230
Insurance and investment product fees 5,050 $ 1,491 $ 133
Net investment income 1,543 1,097 828
Net realized investment losses (18)
---------------------- ------------------- --------------------
Total revenues 6,823 2,570 961
---------------------- ------------------- --------------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits and payments 1,092 397 54
Policy acquisition expenses 1,356 578 (42)
Other operating expenses 2,869 1,124 965
---------------------- ------------------- --------------------
Total benefits, losses and expenses 5,317 2,099 977
---------------------- ------------------- --------------------
INCOME BEFORE INCOME TAXES 1,506 471 (16)
Income taxes 553 171 (23)
---------------------- ------------------- --------------------
NET INCOME 953 300 7
Capital contributions 5,000 6,000
Change in net unrealized investment
gains (losses), net of income taxes 37 (177) 331
---------------------- ------------------- --------------------
Net increase in equity 5,990 123 6,338
EQUITY, BEGINNING OF YEAR 16,804 16,681 10,343
---------------------- ------------------- --------------------
EQUITY, END OF YEAR $ 22,794 $ 16,804 $ 16,681
====================== =================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
B-22
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 953 $ 300 $ 7
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY (USED IN) OPERATIONS
Net realized investment losses 18
Amortization 96 106 108
Deferred income taxes (916) (319) (71)
Increase in accrued investment income (49) (43) (7)
Increase in deferred policy acquisition costs (11,453) (8,496) (1,061)
Decrease (increase) in other assets/liabilities (973) 116 (120)
Other, net (209) (131) 1,184
----------------- ---------------- ----------------
Net cash (used in) provided by operating activities (12,551) (8,449) 40
----------------- ---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales, maturities or repayments of
available-for-sale debt securities 4,665 3,219 1,532
Proceeds from sales, maturities or repayments of
held-to-maturity debt securities 212
Purchase of available-for-sale debt securities (11,003) (7,638) (2,714)
Purchase of held-to-maturity debt securities (1,529) (1,827)
Investment in separate accounts (1,000)
----------------- ---------------- ----------------
Net cash used for investing activities (8,655) (6,246) (1,182)
----------------- ---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES
Capital contributions from parent 5,000 6,000
Increase in contractholder funds 16,098 8,072 3,497
----------------- ---------------- ----------------
Net cash provided by financing activities 21,098 8,072 9,497
----------------- ---------------- ----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (108) (6,623) 8,355
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,822 8,445 90
----------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,714 $ 1,822 $ 8,445
================= ================ ================
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 2,044 $ 569 $ 13
</TABLE>
The accompanying notes are an integral part of these statements.
B-23
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
PHL Variable Insurance Company ("PHL Variable" or the "Company") offers
variable annuity products in the United States designed for individual
purchasers and a group product offered to employees to fund qualified
pension plan deposits. During the fourth quarter of 1997, the Company
began offering an individual term product containing level premiums for
ten years and annual changes thereafter. PHL Variable is a wholly-owned
subsidiary of PM Holdings, Inc. ("PM Holdings"). PM Holdings is a
wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company
("Phoenix").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates used in determining
contractholder liabilities, taxes and valuation allowances are discussed
throughout the Notes to Financial Statements. Certain reclassifications
have been made to the 1996 and 1995 amounts to conform with the 1997
presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds and asset-backed securities,
including collateralized mortgage obligations. PHL Variable classifies its
debt securities as either held-to-maturity or available-for-sale
investments. Debt securities held-to-maturity consist of private placement
bonds reported at amortized cost, net of impairments, that management
intends and has the ability to hold until maturity. Debt securities
available-for-sale are reported at fair value with unrealized gains or
losses included in equity and consist of public bonds that management may
not hold until maturity. Debt securities are considered impaired when a
decline in value is considered to be other than temporary.
Short-term investments are carried at amortized cost, which approximates
fair value.
Realized investment gains and losses, other than those related to separate
accounts for which PHL Variable does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation reserve is determined. Valuation reserves are netted
against the asset categories to which they apply and changes in the
valuation reserves are included in realized investment gains and losses.
Unrealized investment gains and losses on debt securities
available-for-sale are included as a separate component of equity, net of
deferred income taxes and deferred policy acquisition costs.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, money market instruments
and short-term investments purchased with a maturity of less than three
months.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, distribution
and policy issue expenses, all of which vary with and are primarily
related to the production of revenues, are deferred. Deferred policy
acquisition costs are subject to recoverability testing at the time of
policy issue and loss recognition at the end of each accounting period.
B-24
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred policy acquisition costs are amortized in proportion to total
estimated gross profits over the expected average life of the contracts
using estimated gross margins arising principally from investment,
mortality and expense margins and surrender charges based on historical
and anticipated experience, updated at the end of each accounting period.
OTHER ASSETS
Other assets primarily consist of prepaid expenses.
GOODWILL
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. The costs are amortized on the
straight-line method over a period of 10 years, the expected period of
benefit from the acquisition. Management periodically reevaluates the
propriety of the carrying value of assets. Assets are considered impaired
if the carrying value exceeds the expected future undiscounted cash flows.
Such analyses are performed at least annually or more frequently if
warranted by events or circumstances affecting the Company's business. At
this time, management believes that no significant impairment of the
remaining goodwill asset has occurred and that no reduction of the
estimated useful lives is warranted.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts
to meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of PHL Variable. The assets and liabilities are carried at market
value. Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and the related
liability increases are excluded from benefits and expenses. Amounts
assessed to the contractholders for management services are included in
revenues.
CONTRACTHOLDERS' FUNDS AT INTEREST
Contractholder deposit funds consist of deposits received from customers
and investment earnings on their fund balances, less administrative
charges.
INVESTMENT PRODUCT FEES
Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit
expenses primarily consist of net investment income credited to the fund
values after deduction for investment and risk charges.
INCOME TAXES
For the tax year ended December 31, 1997, PHL Variable will file a
separate federal income tax return. The Company filed separate federal
income tax returns for the years ended December 31, 1996 and 1995.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities, accruals and surrenders, policy acquisition expenses and
unrealized gains or losses on investments.
B-25
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
Phoenix sponsors pension and savings plans for its employees and agents,
and those of its subsidiaries. The multiemployer qualified plans comply
with requirements established by the Employee Retirement Income Security
Act of 1974 (ERISA) and excess benefit plans provide for that portion of
pension obligations which is in excess of amounts permitted by ERISA.
Phoenix also provides certain health care and life insurance benefits for
active and retired employees. PHL Variable incurs applicable employee
benefit expenses through the process of cost allocation by Phoenix.
Applicable information regarding the actuarial present value of vested and
nonvested accumulated plan benefits, and the net assets of the plans
available for benefits is omitted, as the information is not separately
calculated for the Company's participation in the plans. The amount of
such allocated benefits is immaterial to the financial statements.
However, with respect to the Phoenix employee pension plan, the total
assets of the plan exceeded the actuarial present value of vested benefits
at January 1, 1997, the date of the most recent actuarial valuation.
3. INVESTMENTS
Information pertaining to the Company's investments, net investment income
and realized and unrealized investment gains and losses follows:
DEBT SECURITIES
The amortized cost and fair value of investments in debt securities as of
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
Corporate securities $ 3,144 $ 13 $ (187) $ 2,970
================== =================== ================ ==============
AVAILABLE-FOR-SALE:
U.S. government and agency bonds $ 5,997 $ 190 $ 6,187
State and political subdivision bonds 3,020 12 3,032
Corporate securities 3,480 4 $ (19) 3,465
Mortgage-backed securities 9,127 48 9,175
------------------ ------------------ ---------------- --------------
Total $ 21,624 $ 254 $ (19) $ 21,859
================== ================== ================= ==============
</TABLE>
B-26
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt securities as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
Corporate securities $ 1,827 $ (337) $ 1,490
================== ================== ===============
AVAILABLE-FOR-SALE:
U.S. government and agency bonds $ 7,816 $ 167 $ (1) $ 7,982
State and political subdivision bonds 2,635 6 (1) 2,640
Mortgage-backed securities 4,679 (22) 4,657
------------------ ------------------- ------------------ ---------------
Total $ 15,130 $ 173 $ (24) $ 15,279
================== =================== ================== ===============
</TABLE>
The amortized cost and fair value of debt securities, by contractual
maturity, as of December 31, 1997 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties,
or PHL Variable may have the right to put or sell the obligations back to
the issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 920 $ 921
Due after one year through five years $ 1,529 $ 1,542 8,544 8,681
Due after five years through ten years 1,615 1,428 1,945 2,011
Due after ten years 1,088 1,071
Mortgage-backed securities 9,127 9,175
------------------ ------------------- ------------------ ---------------
Total $ 3,144 $ 2,970 $ 21,624 $ 21,859
================== =================== ================== ===============
</TABLE>
The Company's investment in mortgage-backed securities at December 31,
1997 and 1996 were in sequential pay bonds.
B-27
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 1,301 $ 949 $ 595
Short-term investments 269 167 233
---------------------- ------------------ ----------------------
1,570 1,116 828
Less investment expenses 27 19
---------------------- ------------------ ----------------------
Net investment income $ 1,543 $ 1,097 $ 828
====================== ================== ======================
</TABLE>
INVESTMENT GAINS AND LOSSES
Unrealized gains and losses on investments carried at fair value at
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized investment gains (losses):
Debt securities $ 87 $ (233) $ 551
Deferred policy acquisition costs (30) (40) (42)
Deferred income taxes (benefits) 20 (96) 178
--------------- --------------- --------------
Net unrealized investment gains (losses) $ 37 $ (177) $ 331
=============== =============== ==============
</TABLE>
The proceeds from sales and repayments of available-for-sale debt
securities for the years ended December 31, 1997, 1996 and 1995 were $4.7
million, $3.2 million and $1.5 million, respectively. The gross realized
losses associated with these sales were $0, $18,044 and $0 in 1997, 1996
and 1995, respectively.
B-28
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. GOODWILL
Goodwill was as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 1,055 $ 1,055
Accumulated amortization (395) (299)
---------------- -----------------
Total $ 660 $ 756
================ =================
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements (insurance contracts are excluded) are carried in the
financial statements at amounts that approximate fair value. The fair
values presented for certain financial instruments are estimates which, in
many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow
analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
INVESTMENT CONTRACTS
Contractholders' funds at interest have guarantees of less than one year
for which interest credited is closely tied to rates earned on owned
assets. For such liabilities, fair value is equal to the stated liability
balances. The contract liability balances for December 31, 1997 and 1996
were $27.7 million and $11.6 million, respectively.
B-29
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. INCOME TAXES
A summary of income taxes (benefits) in the Statement of Income and Equity
for the year ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes:
Current $ 1,469 $ 490 $ 48
Deferred (916) (319) (71)
------------------ ---------------- ---------------
Total $ 553 $ 171 $ (23)
================== ================ ===============
</TABLE>
The income taxes attributable to the results of operations are different
than the amounts determined by multiplying income before taxes by the
statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit) at
statutory rate $ 527 35% $ 165 35% $ (6) 35%
Dividend received deduction and
tax-exempt interest 1 0% (4) (1%) (2) 11%
State income tax expense 6 1% 3 (17%)
Other, net 25 2% 4 1% (18) 114%
----------------- ------------------- ---------------
Income taxes (benefit) $ 553 37% $ 171 36% $ (23) 143%
----------------- ------------------- ---------------
</TABLE>
The deferred income tax asset (liability) represents the tax effects of
temporary differences. The components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ (6,770) $ (3,374)
Surrender charges 6,291 3,538
Investments (51) (59)
Future policyholder benefits 1,793 252
Other 39 29
---------------- ---------------
1,302 386
Net unrealized investment losses (43) (23)
---------------- ---------------
Deferred tax asset, net $ 1,259 $ 363
================ ===============
</TABLE>
B-30
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Gross deferred income tax assets totaled $8.1 million and $3.8 million at
December 31, 1997 and 1996, respectively. Gross deferred income tax
liabilities totaled $6.9 million and $3.5 million at December 31, 1997 and
1996, respectively. It is management's assessment, based on the Company's
earnings and projected future taxable income, that it is more likely than
not that the deferred tax assets at December 31, 1997 and 1996, will be
realized.
The Internal Revenue Service is currently examining the Company's tax
return for 1995 and 1996. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
7. REINSURANCE
Beginning in January 1996, PHL Variable entered into a reinsurance treaty
that cedes death benefits to a reinsurer in excess of account balances on
variable contracts. Premiums paid during 1997 and 1996 were $259 thousand
and $49 thousand, respectively. Under this treaty, claims recovered were
$1 thousand in 1997. No claims were recoverable in 1996.
In connection with the Company's term product introduced in 1997,
automatic treaties have been established with four reinsurers, covering
90% of the net amount at risk, on a first-dollar basis. No claims were
recoverable in 1997.
8. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year $ 9,557 $ 1,061
Acquisition expense deferred 12,838 9,114
Amortized to expense during the year (1,356) (578)
Adjustment to equity during the year (29) (40)
----------------- ----------------
Balance at end of year $ 21,010 $ 9,557
================= ================
</TABLE>
9. RELATED PARTY TRANSACTIONS
Phoenix and its affiliates provide services and facilities to the Company
and are reimbursed through a cost allocation process. Investment related
expenses are allocated to PHL Variable from PM Holdings.
10. STATUTORY FINANCIAL INFORMATION
Insurance companies are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities. As of December 31, 1997, there were no
material practices not prescribed by the Insurance Department of the State
of Connecticut. Statutory equity differs from stockholder's equity
reported in accordance with GAAP for life insurance companies primarily
because policy acquisition costs are expensed when incurred, investment
reserves are based on different assumptions, postretirement benefit costs
are based on different assumptions and reflect a different method of
adoption, life
B-31
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable.
The following reconciles the statutory net income of PHL Variable as
reported to regulatory authorities to the net income as reported in these
financial statements for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 938 $ 1,073 $ 247
Deferred policy acquisition costs 11,482 8,536 1,103
Future policy benefits (12,271) (9,515) (1,313)
Deferred income taxes 899 310 67
Other, net (95) (104) (97)
----------------- ---------------- -----------------
Net income, as reported $ 953 $ 300 $ 7
================= ================ =================
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of PHL Variable as reported to regulatory authorities to equity as
reported in these financial statements:
<TABLE>
<CAPTION>
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus and AVR $ 22,727 $ 16,790
Deferred policy acquisition costs, net 21,121 9,639
Future policy benefits (23,098) (10,828)
Investment valuation allowances 125 44
Deferred income taxes 1,259 403
Other, net 660 756
----------------- ----------------
Equity, as reported $ 22,794 $ 16,804
================= ================
</TABLE>
The Connecticut Insurance Holding Act limits the maximum amount of annual
dividends or other distributions available to stockholders of Connecticut
insurance companies without prior approval of the Insurance Commissioner.
Under current law, the maximum dividend distribution which may be made by
PHL Variable during 1998 without prior approval is subject to restrictions
relating to statutory surplus.
B-32
<PAGE>
PART C
OTHER INFORMATION
Registrant hereby represents that, in imposing certain restrictions upon
withdrawals from some annuity contracts, it is relying upon the no-action letter
given to the American Council of Life Insurance (publicly available November 28,
1988) (Ref. No. 1P-6-88) regarding compliance with Section 403(b) (ii) of the
Internal Revenue Code and that it is in compliance with the conditions for
reliance upon that letter set forth therein.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The financial statements are included in Part B and condensed
financial information is included in Part A.
(b) Exhibits
(1) Resolution of the Board of Directors of PHL Variable
Insurance Company establishing the PHL Variable Accumulation
Account is incorporated by reference to registrant's
Registration Statement on Form N-4 dated December 14, 1994.
(2) Not Applicable.
(3) Distribution of Policies
(a) Master Service and Distribution Compliance Agreement
between registrant and Phoenix Equity Planning
Corporation dated December 31, 1996 is incorporated by
reference to Registrant's Post-Effective Amendment No.
3, filed via Edgar on April 30, 1997.
(b) Form of Agreement between Phoenix Equity Planning
Corporation and Registered Broker-Dealers with respect
to the sale of Contracts is incorporated by reference
to registrant's Pre-Effective Amendment No. 1 to its
Form N-4 Registration Statement dated July 20, 1995.
(4) Form of Variable Annuity Contract is incorporated by
reference to registrant's Registration Statement on Form N-4
dated December 14, 1994.
(5) Form of Application is incorporated by reference to
registrant's Pre-Effective Amendment No. 1 to its
Form N-4 Registration Statement dated July 20, 1995.
(6) (a) Charter of PHL Variable Insurance Company is incorporated
by reference to registrant's Registration Statement on
Form N-4 dated December 14, 1994.
(b) By-Laws of PHL Variable Insurance Company is
incorporated by reference to registrant's Registration
Statement on Form N-4 dated December 14, 1994.
(7) Not Applicable.
(8) Not Applicable.
(9) See Exhibit 10(a).
(10) (a) Written Opinion and Consent of Edwin L. Kerr, Esq. filed
via Edgar .*
(10) (b) Written Consent of Price Waterhouse LLP filed via
Edgar.*
(11) Not Applicable.
(12) Not Applicable.
------------------
* Filed herewith.
C-1
<PAGE>
(13) (a) Explanation of Yield and Effective Yield Calculation
is incorporated by reference to registrant's
Post-Effective Amendment No. 1 to its Form N-4
Registration Statement filed via Edgar on April 19,
1996.
(b) Explanation of Total Return Calculation is incorporated
by reference to registrant's Post-Effective Amendment
No. 1 to its Form N-4 Registration Statement filed via
Edgar on April 19, 1996.
(14) Not Applicable.
(15) (a) Powers of Attorney of Messrs. Booth, Chipkin,
Fiondella, Kelleher, McLoughlin, Paydos, Searfoss and
Tan, and Ms. Young filed via Edgar.*
- ------------------
* Filed herewith.
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- -------------------------- -----------------------
<S> <C> <C> <C>
Richard H. Booth* Director and Executive
Vice President
Robert G. Chipkin* Director
Robert W. Fiondella* Director, Chairman and
President
Joseph E. Kelleher** Director and Senior
Vice President
Philip R. McLoughlin* Director and Executive
Vice President
Charles J. Paydos** Director and Executive
Vice President
David W. Searfoss* Director, Executive Vice President
and Chief Financial Officer
Simon Y. Tan* Director and Senior Vice
President
Dona D. Young* Director and Executive
Vice President
Bruce M. Jones* Senior Vice President
Robert G. Lautensack, Jr.* Senior Vice President
Michael J. Puckley* Senior Vice President
</TABLE>
* The principal business address of each of these individuals is PHL Variable
Insurance Company, One American Row, Hartford, Connecticut 06115.
** The principal business address of each of these individuals is PHL
Variable Insurance Company, 100 Bright Meadow Boulevard, P.O. Box 2200,
Enfield, Connecticut 06083-2200.
C-2
<PAGE>
ITEM 26. NOT APPLICABLE
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, 12,426 Contracts have been sold.
C-3
<PAGE>
ITEM 28. INDEMNIFICATION
Section 5.9 of the Connecticut Corporation Law & Practice, provides that a
corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article III Section 14 of the By-Laws of the Company provides: "Each
Director, officer or employee of the Company, and his heirs, executors or
administrators, shall be indemnified or reimbursed by the Company for all
expenses necessarily incurred by him in connection with the defense or
reasonable settlement of any action, suit or proceeding in which he is made a
party by reason of his being or having been a Director, officer or employee of
the Company, or of any other company which he was serving as a Director or
officer at the request of the Company, except in relation to matters as to which
such Director, officer or employee is finally adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of his
duties as such Director, officer or employee. The foregoing right of
indemnification or reimbursement shall not be exclusive of any other rights to
which he may be entitled under any statute, by-law, agreement, vote of
shareholders or otherwise."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
1. Phoenix Equity Planning Corporation ("PEPCO")
(a) PEPCO currently distributes securities of the Phoenix Duff &
Phelps Funds, Phoenix Funds, and Phoenix Home Life Variable
Universal Life Account, Phoenix Home Life Variable Accumulation
Account and Phoenix Life and Annuity Variable Universal Life
Account in addition to those of the Registrant.
(b) Directors and Officers of PEPCO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
<S> <C> <C>
Michael E. Haylon*** Director
Philip R. McLoughlin* Director and President
William R. Moyer** Director, Senior Vice President and Chief Financial Officer
John F. Sharry* Executive Vice President, Retail Distribution
Paul Atkins*** Senior Vice President and Sales Manager
Leonard J. Saltiel** Managing Director, Operations and Service
G. Jeffrey Bohne**** Vice President, Mutual Fund Customer Service
Eugene A. Charon** Vice President and Corporate Controller
Nancy G. Curtiss*** Vice President and Treasurer, Fund Accounting
Thomas N. Steenburg* Vice President, Counsel and Secretary
</TABLE>
* The principal business address of each of these individuals is One
American Row, Hartford, Connecticut 06102-5056.
** The principal business address of each of these individuals is 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
*** The principal business address of each of these individuals is 56
Prospect Street, Hartford, Connecticut 06115-0480.
**** The principal business address is 101 Munson Street, Greenfield,
Massachusetts 01302-0810.
C-4
<PAGE>
(c) Compensation received by PEPCO during Registrant's last fiscal
year:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION BROKERAGE
PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- --------------------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $11,883,955 0 0 0
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are maintained at the administrative
offices of PHL Variable Insurance Company located at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-2200 and 101 Munson Street, Greenfield,
Massachusetts 01302-0810.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements contained therein are never more than 16 months old for so
long as payments under the Contracts may be accepted;
(b) to include as part of any application to purchase a Contract offered
by the Prospectus, a space that an applicant can check to request a
Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly
upon written or oral request.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, PHL Variable Insurance Company represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred and the risks to be
assumed thereunder by PHL Variable Insurance Company.
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Registration Statement and has caused
this Amendment to its Registration Statement to be signed on its behalf, in the
City of Hartford and State of Connecticut on this 30th day of April, 1998.
PHL VARIABLE INSURANCE COMPANY
By: *Robert W. Fiondella
------------------------------------
Robert W. Fiondella
President
PHL VARIABLE ACCUMULATION ACCOUNT
By: *Robert W. Fiondella
------------------------------------
Robert W. Fiondella
President
of PHL Variable Insurance Company
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities indicated with PHL Variable Insurance Company on this 30th day of
April, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
- ----------------------------- Director
*Richard H. Booth
- ----------------------------- Director
*Robert G. Chipkin
Director, Chairman and
President
- ----------------------------- (Principal Executive Officer)
*Robert W. Fiondella
- ----------------------------- Director
*Joseph E. Kelleher
- ----------------------------- Director
*Philip R. McLoughlin
- ----------------------------- Director
*Charles J. Paydos
- ----------------------------- Director
*David W. Searfoss
- ----------------------------- Director
*Simon Y. Tan
/s/ Dona D. Young
- ----------------------------- Director
*Dona D. Young
</TABLE>
By:/s/ Dona D. Young
- ------------------------------------------------
*DONA D. YOUNG, as Attorney in Fact pursuant to Powers of Attorney, copies of
which are filed herewith.
S-1(c)
EXHIBIT 24(b)(10)(a)
WRITTEN OPINION AND CONSENT OF
EDWIN L. KERR, ESQUIRE
<PAGE>
April 30, 1998
Board of Directors
PHL Variable Insurance Company
One American Row
Hartford, CT 06115
RE: Opinion of Counsel
PHL Variable Accumulation Account
Dear Members of the Board of Directors:
You have requested my Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 5 to
a Registration Statement on Form N-4 (File Nos. 33-87376 and 811-8914) with
respect to certain variable annuity contracts (the "Contracts") to be issued by
PHL Variable Insurance Company and its separate account, PHL Variable
Accumulation Account.
I have made such examination of the law and have examined such records
and documents as in my judgment are necessary or appropriate to enable me to
render the following opinion:
Upon the acceptance of purchase payments made by an Owner pursuant to a
Contract issued in accordance with the prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully paid, non-assessable
contractual interest under such Contract.
This opinion is limited solely to its use as an exhibit to your
Post-Effective Amendment No. 5 to Form N-4 (File Nos. 33-87376 and 811-8914).
I consent to the references to me under the captions "Legal Matters" in
the Prospectus and "Experts" in the Statement of Additional Information which
form a part of the Registration Statement.
Sincerely,
/s/ Edwin L. Kerr
Edwin L. Kerr
Counsel
EXHIBIT 24(B)(10)(B)
WRITTEN CONSENT OF PRICE WATERHOUSE LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the Registration
Statement on Form N-4 (the "Registration Statement") of our reports dated
February 19, 1998 and February 11, 1998, relating to the financial
statements of PHL Variable Accumulation Account and the financial statements
of PHL Variable Insurance Company, respectively, which appear in such
Statement of Additional Information, and to the incorporation by reference
of our reports into the Prospectus which constitutes part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 29, 1998
EXHIBIT 24(B)(15)(A)
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/Richard H. Booth , Director March 23, 1998
- ------------------------------
Richard H. Booth
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Robert G. Chipkin , Director March 25, 1998
- ------------------------------
Robert G. Chipkin
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Robert W. Fiondella , Director March 24, 1998
- ------------------------------
Robert W. Fiondella
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Joseph E. Kelleher , Director March 24, 1998
- ------------------------------
Joseph E. Kelleher
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Philip R. McLoughlin , Director March 24, 1998
- ------------------------------
Philip R. McLoughlin
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Charles J. Paydos , Director March 25, 1998
- ------------------------------
Charles J. Paydos
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ David W. Searfoss , Director March 23, 1998
- ------------------------------
David W. Searfoss
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Simon Y. Tan , Director March 26, 1998
- ------------------------------
Simon Y. Tan
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of PHL Variable
Insurance Company, hereby constitute and appoint John H. Beers, Donald E.
Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true and
lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to variable annuity contracts
issued or sold by PHL Variable Insurance Company or any of its separate accounts
and any and all periodic reports required to be filed by PHL Variable Insurance
Company with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
I hereby further revoke any and all powers of attorney previously given
by me with respect to said PHL Variable Insurance Company, provided that this
revocation shall not affect the exercise of such prior powers prior to the date
hereof.
WITNESS my hand and seal on the date set forth below.
/s/ Dona D. Young , Director March 26, 1998
- ------------------------------
Dona D. Young
