THE BIG EDGE CHOICE
VARIABLE ANNUITY
Issued by
PHL VARIABLE INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT:
[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
This Prospectus describes a variable accumulation deferred annuity contract. The
Contract is designed to provide you with retirement income in the future. The
Contract offers a variety of variable and fixed investment options.
The Contract is not a deposit or obligation of, underwritten or guaranteed by,
any financial institution, credit union or affiliate. It is not federally
insured by the Federal Deposit Insurance Corporation or any other state or
federal agency. Contract investments are subject to risk, including the
fluctuation of Contract Values and possible loss of principal.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities, nor passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix Research Enhanced Index
[diamond] Phoenix-Aberdeen International
[diamond] Phoenix-Engemann Nifty Fifty
[diamond] Phoenix-Goodwin Balanced
[diamond] Phoenix-Goodwin Growth
[diamond] Phoenix-Goodwin Money Market
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income
[diamond] Phoenix-Goodwin Strategic Allocation
[diamond] Phoenix-Goodwin Strategic Theme
[diamond] Phoenix-Hollister Value Equity
[diamond] Phoenix-Oakhurst Growth and Income
[diamond] Phoenix-Schafer Mid-Cap Value
[diamond] Phoenix-Seneca Mid-Cap Growth
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation
[diamond] Templeton International
[diamond] Templeton Stock
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets
MANAGED BY FRANKLIN MUTUAL ADVISERS, LLC
[diamond] Mutual Shares Investments
WANGER ADVISORS TRUST
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MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
It may not be in your best interest to purchase a Contract to replace an
existing annuity contract or life insurance policy. You must understand the
basic features of the proposed Contract and your existing coverage before you
decide to replace your present coverage. You must also know if the replacement
will result in any taxes.
This Prospectus is valid only if accompanied or preceded by current
prospectuses for the Funds and the MVA. You should read and keep these
prospectuses for future reference.
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<PAGE>
TABLE OF CONTENTS
Heading Page
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SPECIAL TERMS.............................................. 3
SUMMARY OF EXPENSES........................................ 5
CONTRACT SUMMARY........................................... 9
FINANCIAL HIGHLIGHTS....................................... 11
PERFORMANCE HISTORY........................................ 15
THE VARIABLE ACCUMULATION ANNUITY.......................... 15
PHL VARIABLE AND THE ACCOUNT .............................. 15
INVESTMENTS OF THE ACCOUNT................................. 15
The Phoenix Edge Series Fund............................ 15
Templeton Variable Products Series Fund................. 16
Wanger Advisors Trust................................... 17
Investment Advisers..................................... 17
Services of the Advisers................................ 18
MVA........................................................ 18
PURCHASE OF CONTRACTS...................................... 18
DEDUCTIONS AND CHARGES..................................... 18
Premium Tax............................................. 18
Surrender Charges....................................... 18
Charges for Mortality and Expense Risks................. 19
Charges for Administrative Services..................... 19
Market Value Adjustment................................. 20
Other Charges........................................... 20
THE ACCUMULATION PERIOD.................................... 20
Accumulation Units...................................... 20
Accumulation Unit Values................................ 20
Transfers .............................................. 20
Surrender of Contract; Partial Withdrawals.............. 21
Lapse of Contract....................................... 21
Payment Upon Death Before Maturity Date ................ 22
THE ANNUITY PERIOD ........................................ 22
Variable Accumulation Annuity Contracts................. 22
Annuity Options ........................................ 23
Option A--Life Annuity with Specified Period Certain.. 23
Option B--Non-Refund Life Annuity..................... 23
Option D--Joint and Survivor Life Annuity............. 23
Option E--Installment Refund Life Annuity............. 23
Option F--Joint and Survivor Life Annuity with
10-Year Period Certain ........................... 24
Option G--Payments for Specified Period............... 24
Option H--Payments of Specified Amount................ 24
Option I--Variable Payment Life Annuity with
10-Year Period Certain ........................... 24
Option J--Joint Survivor Variable Payment Life
Annuity with 10-Year Period Certain .............. 24
Option K--Variable Payment Annuity for a
Specified Period ................................. 24
Option L--Variable Payment Life Expectancy
Annuity........................................... 24
Option M--Unit Refund Variable Payment Life
Annuity........................................... 24
Option N--Variable Payment Non-Refund Life
Annuity............................................ 24
Other Options and Rates............................... 24
Other Conditions...................................... 24
Payment Upon Death After Maturity Date.................. 25
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 25
Valuation Date.......................................... 25
Valuation Period........................................ 25
Accumulation Unit Value................................. 25
Net Investment Factor................................... 25
MISCELLANEOUS PROVISIONS................................... 25
Assignment.............................................. 25
Deferment of Payment ................................... 26
Free Look Period........................................ 26
Amendments to Contracts................................. 26
Substitution of Fund Shares............................. 26
Ownership of the Contract............................... 26
FEDERAL INCOME TAXES....................................... 26
Introduction............................................ 26
Tax Status.............................................. 26
Taxation of Annuities in General--Non-Qualified Plans... 27
Surrenders or Withdrawals Prior to the Contract
Maturity Date...................................... 27
Surrenders or Withdrawals On or After the Contract
Maturity Date...................................... 27
Penalty Tax on Certain Surrenders and Withdrawals..... 27
Additional Considerations............................... 28
Diversification Standards .............................. 29
Qualified Plans......................................... 29
Tax Sheltered Annuities ("TSAs") ..................... 30
Keogh Plans........................................... 30
Individual Retirement Accounts........................ 31
Corporate Pension and Profit-Sharing Plans............ 31
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations........................... 31
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Plans............................... 31
Seek Tax Advice....................................... 32
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 32
STATE REGULATION .......................................... 32
REPORTS ................................................... 32
VOTING RIGHTS ............................................. 32
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 33
LEGAL MATTERS ............................................. 33
SAI........................................................ 33
APPENDIX A ................................................ 34
APPENDIX B ................................................ 37
APPENDIX C................................................. 38
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SPECIAL TERMS
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The following is a list of terms and their meanings when used in this
prospectus.
ACCOUNT: PHL Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement for each Subaccount used to
determine the value of a Contract and the interest in the Subaccounts prior to
the start of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.000000
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 annuitant will be the primary Annuitant as shown on the Contract's
Schedule Page while that person is living, and will then be the contingent
Annuitant, if that person is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which we make a series of annuity payments
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
periodic payment under the variable payment Annuity Options I, J, K, M and N.
CLAIM DATE: The Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
CONTRACT: The deferred variable accumulation annuity contract described in this
Prospectus.
CONTRACT OWNER (OWNER, YOU, YOUR): Usually the person or entity, to whom we
issue the Contract. The Contract Owner has the sole right to exercise all rights
and privileges under the Contract as provided in the Contract. The Owner may be
the Annuitant, an employer, a trust or any other individual or entity specified.
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 Tax-sheltered Annuity plans (as described in Internal Revenue Code (IRC)
403(b)) 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. This benefit does not vary with or reflect
the investment performance of any Subaccount.
FUNDS: The Phoenix Edge Series Fund, Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GIA: An investment option under which premium amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial 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 Tax-sheltered Annuity (as described in IRC 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 we will make a market adjustment to the value of
that account. Assets allocated to the MVA are not part of the assets allocated
to the Account or the general account of PHL Variable. The MVA is described in a
separate prospectus.
MATURITY DATE: The date elected by the Owner when annuity payments will begin.
The Maturity Date will not be any 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 PAYMENT: The amount that you pay when you purchase a Contract.
We require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
[diamond] Qualified plans--$1,000 annually
MINIMUM SUBSEQUENT PAYMENT: The least amount that you may pay when you make any
subsequent payments, after the minimum initial payment (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' outstanding
shares.
PAYMENT UPON DEATH: The obligation of PHL Variable under a Contract to make a
payment on the death of
3
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the Owner or Annuitant anytime: (a) before the Maturity Date of a Contract (see
"Payment Upon Death Before Maturity Date") or (b) 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 amounts,
according to 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>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
Sales Charges Imposed on Purchases.................................................. None
Deferred Surrender 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%
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
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RULE 12B-1 OTHER EXPENSES(2) TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES (BEFORE EXPENSE REIMBURSEMENT) EXPENSES(2)
- ------------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index .45% N/A .37% .82%
Phoenix-Aberdeen International .75% N/A .23% .98%
Phoenix-Aberdeen New Asia 1.00% N/A 1.50% 2.50%
Phoenix-Duff & Phelps Real Estate Securities .75% N/A .26% 1.61%
Phoenix-Engemann Nifty Fifty .90% N/A 1.68% 2.58%
Phoenix-Goodwin Balanced .55% N/A .13% .68%
Phoenix-Goodwin Growth .62% N/A .07% .69%
Phoenix-Goodwin Money Market .40% N/A .15% .55%
Phoenix-Goodwin Multi-Sector Fixed Income .50% N/A .14% .64%
Phoenix-Goodwin Strategic Allocation .58% N/A .10% .68%
Phoenix-Goodwin Strategic Theme .75% N/A .24% .99%
Phoenix-Hollister Value Equity .70% N/A 1.76% 2.46%
Phoenix-Oakhurst Growth and Income .70% N/A .76% 1.46%
Phoenix-Schafer Mid-Cap Value 1.05% N/A 1.72% 2.77%
Phoenix-Seneca Mid-Cap Growth .80% N/A 2.01% 2.81%
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</TABLE>
(1) A surrender charge is taken from the proceeds when a Contract is surrendered
or when an amount is withdrawn, if the payments have not been held under
the Contract for a certain period of time. However, each year an amount up
to 10% of the Contract Value as of the end of the previous Contract year may
be withdrawn without a surrender charge. See "Deductions and
Charges--Surrender Charges."
(2) Each Series pays a portion or all of its expenses other than the management
fee. The Phoenix Research Enhanced Index Series will pay up to .10%; the
Phoenix-Goodwin Growth, Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Goodwin Strategic Allocation, Phoenix-Goodwin Money Market,
Phoenix-Goodwin Balanced, Phoenix-Engemann Nifty Fifty, Phoenix-Oakhurst
Growth and Income, Phoenix-Hollister Value Equity and Phoenix-Schafer
Mid-Cap Value Series will pay up to .15%; the Phoenix-Duff & Phelps Real
Estate Securities, Phoenix-Goodwin Strategic Theme, Phoenix-Aberdeen New
Asia, and Phoenix-Seneca Mid-Cap Growth Series will pay up to .25%; and the
Phoenix-Aberdeen International Series will pay up to .40%. For those Series
with expense reimbursement, the Actual Total Annual Expenses for the year
ending December 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
.55% Phoenix Research Enhanced Index .85% Phoenix-Oakhurst Growth and Income
1.25% Phoenix-Aberdeen New Asia 1.20% Phoenix-Schafer Mid-Cap Value
1.00% Phoenix-Duff & Phelps Real Estate Securities 1.05% Phoenix-Seneca Mid-Cap Growth
.85% Phoenix-Hollister Value Equity
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
RULE 12B-1 TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES(1) OTHER EXPENSES EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
<S> <C> <C> <C> <C>
Mutual Shares Investments-- Class 2(1,2) .60% .25% 2.27% 3.12%
Templeton Asset Allocation-- Class 2(1) .60% .25% .18% 1.03%
Templeton Developing Markets-- Class 2(1) 1.25% .25% .41% 1.91%
Templeton International-- Class 2(1) .69% .25% .17% 1.11%
Templeton Stock-- Class 2(1) .70% .25% .19% 1.14%
WANGER ADVISORS TRUST
Wanger Foreign Forty .95% N/A .50% 1.45%
Wanger International Small Cap 1.27% N/A .28% 1.55%
Wanger Twenty .90% N/A .45% 1.35%
Wanger U.S. Small Cap .96% N/A .06% 1.02%
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</TABLE>
(1) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "12b-1 Plan" which is described in the Fund's
prospectus.
(2) Figures reflect expenses from the Fund's inception on May 7, 1998 and are
annualized. The Adviser agreed in advance to limit Management Fees and make
certain payments to reduce Fund expenses so that the Actual Total Annual
Expenses did not exceed 1.25% in 1998 for the Mutual Shares Investments
Fund. The Adviser is contractually obligated to continue this arrangement.
See the Fund prospectus for details.
It is impossible to show you what expenses you would incur if you purchased
a Contract because there are so many different factors that affect expenses.
However, the following three tables are meant to help demonstrate how certain
decisions or choices by you could result in different levels of expense.
EXAMPLES:
If you surrender your Contract at the end of one of these time periods, you
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 89 $ 124 $ 159 $ 275
Phoenix-Aberdeen International.................................. 91 128 167 291
Phoenix-Aberdeen New Asia....................................... 105 171 238 429
Phoenix-Duff & Phelps Real Estate Securities.................... 91 129 169 294
Phoenix-Engemann Nifty Fifty.................................... 105 173 241 435
Phoenix-Goodwin Balanced........................................ 88 120 153 261
Phoenix-Goodwin Growth.......................................... 88 120 153 262
Phoenix-Goodwin Money Market.................................... 87 116 146 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 87 119 151 257
Phoenix-Goodwin Strategic Allocation............................ 88 120 153 261
Phoenix-Goodwin Strategic Theme................................. 91 129 168 292
Phoenix-Hollister Value Equity.................................. 104 170 236 425
Phoenix-Oakhurst Growth and Income.............................. 95 142 190 337
Phoenix-Schafer Mid-Cap Value................................... 107 178 250 451
Phoenix-Seneca Mid-Cap Growth................................... 108 179 251 454
Mutual Shares Investments-- Class 2............................. 110 187 N/A N/A
Templeton Asset Allocation-- Class 2............................ 91 130 170 296
Templeton Developing Markets-- Class 2.......................... 99 155 211 378
Templeton International-- Class 2............................... 92 132 173 304
Templeton Stock-- Class 2....................................... 92 133 175 307
Wanger Foreign Forty(2)......................................... 95 142 N/A N/A
Wanger International Small Cap.................................. 96 145 194 345
Wanger Twenty(2)................................................ 94 139 N/A N/A
Wanger U.S. Small Cap........................................... 91 130 169 295
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</TABLE>
(2) Inclusion of this Subaccount began on February 1, 1999.
6
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you annuitize your Contract the end of the applicable time periods: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 89 $ 124 $ 129 $ 275
Phoenix-Aberdeen International.................................. 91 128 137 291
Phoenix-Aberdeen New Asia....................................... 105 171 209 429
Phoenix-Duff & Phelps Real Estate Securities.................... 91 129 138 294
Phoenix-Engemann Nifty Fifty.................................... 105 173 213 435
Phoenix-Goodwin Balanced........................................ 88 120 122 261
Phoenix-Goodwin Growth.......................................... 88 120 122 262
Phoenix-Goodwin Money Market.................................... 87 116 115 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 87 119 120 257
Phoenix-Goodwin Strategic Allocation............................ 88 120 122 261
Phoenix-Goodwin Strategic Theme................................. 91 129 137 292
Phoenix-Hollister Value Equity.................................. 104 170 208 425
Phoenix-Oakhurst Growth and Income.............................. 95 142 160 337
Phoenix-Schafer Mid-Cap Value................................... 107 178 222 451
Phoenix-Seneca Mid-Cap Growth................................... 108 179 224 454
Mutual Shares Investments-- Class 2............................. 110 187 N/A N/A
Templeton Asset Allocation-- Class 2............................ 91 130 139 296
Templeton Developing Markets-- Class 2.......................... 99 155 182 378
Templeton International-- Class 2............................... 92 132 143 304
Templeton Stock-- Class 2....................................... 92 133 145 307
Wanger Foreign Forty(1)......................................... 95 142 N/A N/A
Wanger International Small Cap.................................. 96 145 165 345
Wanger Twenty(1)................................................ 94 139 N/A N/A
Wanger U.S. Small Cap........................................... 91 130 139 295
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you do not surrender your Contract: You would paid the following expenses
on a $1,000 investment assuming 5% annual return on assets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 24 $ 75 $ 129 $ 275
Phoenix-Aberdeen International.................................. 26 80 137 291
Phoenix-Aberdeen New Asia....................................... 41 125 209 429
Phoenix-Duff & Phelps Real Estate Securities.................... 26 81 138 294
Phoenix-Engemann Nifty Fifty.................................... 42 127 213 435
Phoenix-Goodwin Balanced........................................ 23 71 122 261
Phoenix-Goodwin Growth.......................................... 23 71 122 262
Phoenix-Goodwin Money Market.................................... 22 67 115 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 23 70 120 257
Phoenix-Goodwin Strategic Allocation............................ 23 71 122 261
Phoenix-Goodwin Strategic Theme................................. 26 80 137 292
Phoenix-Hollister Value Equity.................................. 41 123 208 425
Phoenix-Oakhurst Growth and Income.............................. 31 94 160 337
Phoenix-Schafer Mid-Cap Value................................... 44 132 222 451
Phoenix-Seneca Mid-Cap Growth................................... 44 133 224 454
Mutual Shares Investments-- Class 2............................. 47 142 N/A N/A
Templeton Asset Allocation-- Class 2............................ 27 82 139 296
Templeton Developing Markets-- Class 2.......................... 35 108 182 378
Templeton International-- Class 2............................... 27 84 143 304
Templeton Stock-- Class 2....................................... 28 85 145 307
Wanger Foreign Forty(1)......................................... 31 94 N/A N/A
Wanger International Small Cap.................................. 32 97 165 345
Wanger Twenty(1)................................................ 30 91 N/A N/A
Wanger U.S. Small Cap........................................... 26 81 139 295
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on February 1, 1999.
7
<PAGE>
The purpose of the tables above is to assist you in understanding the
various costs and expenses that your Contract will bear directly or indirectly.
It is based on historical Fund expenses, as a percentage of net assets for the
year ended December 31, 1998, except as indicated. The tables reflect expenses
of the Account as well as of 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. We
will charge any premium or other taxes levied by any governmental entity with
respect to your Contract against the Contract Values based on a percentage of
premiums paid. Certain states currently impose premium taxes on the Contracts
and range from 0% to 3.5% of premiums paid. See "Deductions and Charges--Premium
Tax" and Appendix C.
The Examples should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown. See "Deductions and
Charges."
8
<PAGE>
CONTRACT SUMMARY
- --------------------------------------------------------------------------------
You should read the following summary along with the detailed information
appearing elsewhere in this Prospectus.
OVERVIEW
The Contract offers a dynamic idea in retirement planning. It's designed to
give you maximum flexibility in obtaining your investment goals.
The Contract offers a combination of investment options both variable and
fixed. Investments in the Subaccounts provide returns that are variable and
depend upon the performance of the underlying Funds. Allocations to either the
GIA or MVA produce guaranteed interest earnings subject to certain conditions.
You also may select from many different variable and fixed annuity payout
options, some of which offer retirement income payments that you cannot outlive.
See "The Annuity Period--Annuity Options."
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
[diamond] You may make payments anytime until the Maturity Date.
[diamond] You can vary the amount and frequency of your payments.
[diamond] Other than the Minimum Initial Payment, there are no required
payments.
MINIMUM CONTRIBUTION
[diamond] Generally, the Minimum Initial Payment is $1,000.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
[diamond] Payments are invested in one or more of the Subaccounts, the GIA and
the MVA.
[diamond] Transfers between the Subaccounts and into the GIA can be made
anytime. Transfers from the GIA are subject to rules discussed in
Appendix B and in "The Accumulation Period--Transfers."
[diamond] Transfers from the MVA may be subject to market value adjustments and
are subject to certain rules. See the MVA prospectus.
[diamond] The Contract Value varies with the investment performance of the Funds
and is not guaranteed.
[diamond] The Contract Value allocated to the GIA will depend on deductions
taken from the GIA and interest accumulation at rates set by us
(minimum--4%).
WITHDRAWALS
[diamond] You may partially or fully surrender the Contract anytime for its
Contract Value less any applicable surrender charge and premium tax.
[diamond] During the first Contract Year, you may withdraw up to 10% of the
Contract Value as of the date of the first partial surrender without a
surrender charge. After that, you can surrender up to 10% of the
Contract Value as of the last Contract Anniversary without a surrender
charge.
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
anytime before the Maturity Date of the Contract.
DEDUCTIONS AND CHARGES
GENERALLY
[diamond] No deductions are made from payments.
[diamond] A deduction for surrender charges may occur when you surrender your
Contract or request a withdrawal if the assets have not been held
under the Contract for a specified period.
[diamond] No deduction for surrender charges after the Annuity Period has begun,
unless you make unscheduled withdrawals under Annuity Options K or L.
[diamond] If we impose a surrender charge, it is on a first-in, first-out basis.
[diamond] No surrender charge is imposed if the Annuitant or Owner dies before
the date that annuity payments will begin.
[diamond] A declining surrender charge is assessed on withdrawals in excess of
10% of the Account Value, based on the date the payments are
deposited:
- ---------------------------------------------------------------
Percent 7% 6% 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------------
Age of Payment in 0 1 2 3 4 5 6 7+
Complete Years
- ---------------------------------------------------------------
[diamond] The total deferred surrender charges on a Contract will never exceed
9% of the total payments.
See "Deductions and Charges--Surrender Charges" for a detailed discussion.
FROM THE ACCOUNT
[diamond] Mortality and expense risk fee--1.25% annually. See "Charges for
Mortality and Expense Risks."
[diamond] The daily administrative fee--.125% annually. See "Charges for
Administrative Services."
OTHER CHARGES OR DEDUCTIONS
[diamond] Premium Taxes--taken from the Contact Value upon annuitization.
[bullet] 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."
[diamond] Administrative Fee--$35 each year.
See "Deductions and Charges" for a detailed description of Contract
charges."
9
<PAGE>
In addition, certain charges are deducted from the assets of the Funds for
investment management services. See the prospectuses for the Funds for more
information.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
You have the right to review the Contract. If you are not satisfied, you may
return it within 10 days after you receive it and cancel the Contract. You will
receive in cash the adjusted value of the initial payment unless you temporarily
allocated your initial payment to the Phoenix-Goodwin Money Market Subaccount.
In that case, your Contract is issued with a Temporary Money Market
Allocation Amendment and we will refund the initial payment.
See "Free Look Period" for a detailed discussion.
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.
VARIATIONS
The Contract is subject to laws and regulations in every state where the
Contract is sold. Therefore, the terms of the Contract may vary from state to
state.
10
<PAGE>
<TABLE>
<CAPTION>
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(SELECTED DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
The following tables show how the value of one unit of each Subaccount
changed during each of the years 1995 through 1998. As you will note not all
Subaccounts were operating in all of those years. All units began with a value
of 1.000000. Thereafter, the unit value reflects the cumulative investment
experience of the Subaccount. These tables are highlights only, you may obtain
more detailed information in the financial statements contained in the Statement
of Additional Information.
Following are financial highlights for the period indicated.
PHOENIX RESEARCH ENHANCED INDEX SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period.......................................................... $1.040992 $1.000000
Unit value, end of period................................................................ $1.352249 $1.040992
========= =========
Number of units outstanding (000)........................................................ 16,026 3,958
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN INTERNATIONAL SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.306260 $1.181847 $1.009660 $1.000000
Unit value, end of period.................................... $1.648539 $1.306260 $1.181847 $1.009660
========= ========= ========= =========
Number of units outstanding (000)............................ 15,694 7,089 3,095 133
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN NEW ASIA SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 1/29/96 TO
1998 1997 12/31/96
---- ---- --------
<S> <C> <C> <C>
Unit value, beginning of period............................................ $0.665071 $0.997488 $1.000000
Unit value, end of period.................................................. $0.626694 $0.665071 $0.997488
========= ========= =========
Number of units outstanding (000).......................................... 3,949 3,655 1,133
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.660307 $1.378845 $1.050105 $1.000000
Unit value, end of period.................................... $1.290333 $1.660307 $1.378845 $1.050105
========= ========= ========= =========
Number of units outstanding (000)............................ 8,919 7,737 1,543 226
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PHOENIX-ENGEMANN NIFTY FIFTY SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
3/3/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $1.248542
=========
Number of units outstanding (000)......................................................................... 4,057
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN BALANCED SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, INCEPTION
---------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.329181 $1.142528 $1.047597 $1.000000
Unit value, end of period.................................... $1.560490 $1.329181 $1.142528 $1.047597
========= ========= ========= =========
Number of units outstanding (000)............................ 27,300 10,024 5,616 719
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN GROWTH SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.436190 $1.202623 $1.082876 $1.000000
Unit value, end of period.................................... $1.840434 $1.436490 $1.202623 $1.082876
========= ========= ========= =========
Number of units outstanding (000)............................ 135,636 77,819 42,365 3,037
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MONEY MARKET SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.091039 $1.051525 $1.014954 $1.000000
Unit value, end of period.................................... $1.131041 $1.091039 $1.051525 $1.014954
========= ========= ========= =========
Number of units outstanding (000)............................ 48,674 32,019 22,142 5,893
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.276756 $1.166339 $1.051781 $1.000000
Unit value, end of period.................................... $1.208247 $1.276756 $1.166339 $1.051781
========= ========= ========= =========
Number of units outstanding (000)............................ 49,806 29,245 13,252 319
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC ALLOCATION SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.334927 $1.120864 $1.042018 $1.000000
Unit value, end of period.................................... $1.590626 $1.334927 $1.120864 $1.042018
========= ========= ========= =========
Number of units outstanding (000)............................ 38,139 22,085 13,249 2,919
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC THEME SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
---------------------- 1/29/96 TO
1998 1997 12/31/96
---- ---- --------
<S> <C> <C> <C>
Unit value, beginning of period............................................ $1.246377 $1.078271 $1.000000
Unit value, end of period.................................................. $1.779043 $1.246377 $1.078271
========= ========= =========
Number of units outstanding (000).......................................... 15,013 10,169 4,054
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PHOENIX-HOLLISTER VALUE EQUITY SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
3/5/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $1.095185
=========
Number of units outstanding (000)......................................................................... 2,909
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-OAKHURST GROWTH AND INCOME SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
3/3/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $1.191224
=========
Number of units outstanding (000)......................................................................... 14,294
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SCHAFER MID-CAP VALUE SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
3/5/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $0.876259
=========
Number of units outstanding (000)......................................................................... 3,102
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SENECA MID-CAP GROWTH SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
3/3/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $1.208253
=========
Number of units outstanding (000)......................................................................... 1,938
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES INVESTMENTS SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
11/10/98 TO
12/31/98
--------
<S> <C>
Unit value, beginning of period........................................................................... $1.000000
Unit value, end of period................................................................................. $1.013620
=========
Number of units outstanding (000)......................................................................... 281
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period.......................................................... $1.064886 $1.000000
Unit value, end of period................................................................ $1.114519 $1.064886
========= =========
Number of units outstanding (000)........................................................ 9,285 4,622
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period.......................................................... $0.662660 $1.000000
Unit value, end of period................................................................ $0.516071 $0.662660
========= =========
Number of units outstanding (000)........................................................ 5,744 3,275
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period.......................................................... $1.075133 $1.000000
Unit value, end of period................................................................ $1.162057 $1.075133
========= =========
Number of units outstanding (000)........................................................ 11,361 4,072
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TEMPLETON STOCK SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED 5/1/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period.......................................................... $1.044077 $1.000000
Unit value, end of period................................................................ $1.040037 $1.044077
========= =========
Number of units outstanding (000)........................................................ 12,576 6,100
</TABLE>
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.377428 $1.417188 $1.088168 $1.000000
Unit value, end of period.................................... $1.580656 $1.377428 $1.417188 $1.088168
========= ========= ========= =========
Number of units outstanding (000)............................ 28,056 20,361 9,834 257
</TABLE>
<TABLE>
<CAPTION>
WANGER U.S. SMALL CAP SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 7/31/95 TO
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.............................. $1.757439 $1.376482 $0.951679 $1.000000
Unit value, end of period.................................... $1.884220 $1.757439 $1.376482 $0.951679
========= ========= ========= =========
Number of units outstanding (000)............................ 58,568 34,966 16,757 1,313
</TABLE>
WANGER TWENTY SUBACCOUNT AND WANGER FOREIGN FORTY SUBACCOUNT
These Subaccounts commenced operations on February 1, 1999; accordingly, data
for these Subaccounts is not yet available.
14
<PAGE>
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
We may include the performance history of the 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.
See Appendix A for more information.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by PHL Variable is significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who bear 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 that will be available for annuity payments under a Contract
will depend on the investment performance of the amounts allocated to the
Subaccounts. 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.
You select the investment objective of each Contract on a continuing basis
by directing the allocation of payments and the reallocation of the 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. Our executive office is located at One American Row,
Hartford, Connecticut 06102 and our 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 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
by the SEC of the management or investment practices or policies of the Account
or of PHL Variable.
Under Connecticut law, all income, gains or losses of the Account must be
credited to or charged against the amounts placed in the Account without regard
to the other income, gains and losses from any other business or activity of PHL
Variable. The assets of the Account may not be used to pay 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.
INVESTMENTS OF THE ACCOUNT
- -----------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The Fund currently has the following Series available
through the Contracts:
PHOENIX RESEARCH ENHANCED INDEX SERIES: The investment objective of the
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. The Series invests 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.
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
Series is to seek a high total return consistent with reasonable risk. The
Series invests 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. The
Phoenix-Aberdeen International Series provides a means for investors to invest a
portion of their assets outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: The investment objective of the Series is
to seek long-term capital appreciation. The Series invests primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the Series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests 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.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the Series
is to seek long-term capital appreciation by investing in approximately 50
different securities which offer the best potential for long-term
15
<PAGE>
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.
PHOENIX-GOODWIN BALANCED SERIES: The investment objective of the Series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Goodwin Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-GOODWIN GROWTH SERIES: The investment objective of the Series is to
achieve intermediate and long-term growth of capital, with income as a secondary
consideration. The Phoenix-Goodwin Growth Series invests principally in common
stocks of corporations believed by management to offer growth potential.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the Series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the Series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES: The investment objective of the
Series is to realize as high a level of total return over an extended period of
time as is considered consistent with prudent investment risk. The
Phoenix-Goodwin Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Adviser's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-GOODWIN STRATEGIC THEME SERIES: The investment objective of the
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Goodwin Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the Series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity 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.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
Series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income 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.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the Series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value Series will
invest in common stocks of established companies having a strong financial
position and a low stock market valuation at the time of purchase which are
believed to offer the possibility of increase in value.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the 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.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in Class 2 shares of the
corresponding Series of the Templeton Variable Products Series Fund. The
following Series are currently available through the Contracts:
MUTUAL SHARES INVESTMENTS SERIES: The primary investment objective of the
Series is to seek capital appreciation with income as a secondary objective. The
Mutual Shares Investment Series invests in domestic equity securities and
domestic debt obligations.
TEMPLETON ASSET ALLOCATION SERIES: The investment objective of the Series is
to seek a high level of total return through a flexible investment policy. The
Templeton Asset Allocation Series invests in stocks of companies of 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.
TEMPLETON DEVELOPING MARKETS SERIES: The investment objective of the Series
is to seek long-term capital appreciation. The Templeton Developing Markets
Series invests primarily in equity securities of issuers in countries having
developing markets.
TEMPLETON INTERNATIONAL SERIES: The investment objective of the Series is to
seek long-term capital growth through a flexible policy of investing. The
Templeton International Series invests in stocks and debt obligations of
companies and governments outside the United States. Any income realized will be
incidental. Although the Series generally invests in common stock, it also may
invest in preferred stocks and certain debt securities such as
16
<PAGE>
convertible bonds which are rated in any category by S&P or Moody's or which are
unrated by any rating agency.
TEMPLETON STOCK SERIES: The investment objective of the Series is to provide
capital growth. The Templeton Stock Series invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
WANGER ADVISORS TRUST
Certain Subaccounts of the Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Contracts:
WANGER FOREIGN FORTY SERIES: The investment objective of the Series is to
seek long-term capital growth. The Wanger Foreign Forty Series invests primarily
in equity securities of foreign companies with market capitalization of $1
billion to $10 billion and focuses its investments in 40 to 60 companies in the
developed markets.
WANGER INTERNATIONAL SMALL CAP SERIES: The investment objective of the
Series is to provide long-term growth. The Wanger International Small Cap Series
invests primarily in securities of non-U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER TWENTY SERIES: The investment objective of the Series is to seek
long-term capital growth. The Wanger Twenty Series invests primarily in the
stocks of U.S. companies with market capitalization of $1 billion to $10 billion
and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP SERIES: The investment objective of the Series is to
provide long-term growth. The Wanger U.S. Small Cap Series invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each Series will be subject to market fluctuations and the risks that come
with the ownership of any security and there can be no assurance that any Series
will achieve its stated investment objective.
In addition to being sold to the Account, shares of the Funds also may be
sold to other separate accounts of PHL Variable or its affiliates or to the
separate accounts of other insurance companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund(s) simultaneously. Although neither PHL Variable nor the
Fund(s) currently foresees any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance Policyowners and variable annuity Contract
Owners and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from (1) changes in
state insurance laws, (2) changes in federal income tax laws, (3) changes in the
investment management of any portfolio of the Fund(s) or (4) differences in
voting instructions between those given by variable life insurance Policyowners
and those given by variable annuity Contract Owners. PHL Variable will, at its
own expense, remedy such material conflicts including, if necessary, segregating
the assets underlying the variable life insurance policies and the variable
annuity contracts and establishing a new registered investment company.
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to all
Series in The Phoenix Edge Series Fund except the Phoenix-Duff & Phelps Real
Estate Securities and Phoenix-Aberdeen New Asia Series. Based on subadvisory
agreements with the Fund, PIC delegates certain investment decisions and
research functions to subadvisers for the following Series:
[diamond] J.P. Morgan Investment Management, Inc.
[bullet] Phoenix Research Enhanced Index
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
[bullet] Phoenix-Engemann Nifty Fifty
[diamond] Seneca Capital Management, LLC ("Seneca")
[bullet] Phoenix-Seneca Mid-Cap
[diamond] Schafer Capital Management, Inc.
[bullet] Phoenix-Schafer Mid-Cap
The investment adviser to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment adviser to the Phoenix-Aberdeen New 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 Phoenix-Aberdeen New Asia Series to PIC
and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc.
The other investment advisers are:
[diamond] Wanger Asset Management, L.P.
[bullet] Wanger Foreign Forty
[bullet] Wanger International Small Cap
[bullet] Wanger Twenty
[bullet] Wanger U.S. Small Cap
[diamond] Templeton Investment Counsel, Inc.
[bullet] Templeton Asset Allocation
[bullet] Templeton International
[bullet] Templeton Stock
[diamond] Templeton Asset Management, Ltd.
[bullet] Templeton Developing Markets
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[diamond] Franklin Mutual Advisers, LLC
[bullet] Mutual Shares Investments
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
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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 value adjustment will be made.
Assets allocated to the MVA are not part of the assets allocated to the Account
or to the general account of PHL Variable. The MVA is more fully described in a
separate prospectus.
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS AND THE MVA, PLEASE SEE THE
ACCOMPANYING PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
We require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
[bullet] You may authorize your bank to draw $25 or more from your
personal checking account monthly to purchase Units in any
available Subaccount, or for deposit in the GIA or MVA. The
amount you designate will be automatically invested on the
date the bank draws on your account. If Check-o-matic is
elected, the minimum initial payment is $25. This payment
must accompany the application. Each subsequent payment under
a Contract must be at least $25.
[diamond] Qualified plans--$1,000 annually
[bullet] Contracts purchased in connection with tax-qualified or
employer-sponsored plans, a minimum annual payment of $1,000
is required.
Generally, a Contract may not be purchased for a proposed Annuitant who is
81 years of age or older. Total 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, payments may be made anytime before the Maturity Date of a
Contract.
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 otherwise indicated by you from time to time. Initial
payments may, under certain circumstances, be allocated to the Money Market
Subaccount. See "Free Look Period." Changes in the allocation of 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 payments accompanying such notice or made
subsequent to the receipt of the notice, unless otherwise requested by you.
In certain circumstances, we may reduce the initial or subsequent payment
amount we accept for a Contract. Qualifications for such reduction follow:
[diamond] the makeup and size of the prospective group; or
[diamond] the method and frequency of payments; and
[diamond] the amount of compensation to be paid to Registered Representative(s)
on each payment.
Any reduction will not unfairly discriminate against any person. We will
make any such reduction according to our own rules in effect at the time the
payment is received. We reserve the right to change these rules from time to
time.
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. We will pay any premium tax due and will reimburse ourself 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
C to this Prospectus.
SURRENDER CHARGES
A deduction for surrender charges for this Contract may be taken from
proceeds of partial withdrawals from, or complete surrender of the Contract. The
amount (if any) of a surrender charge depends on whether your payments are held
under the Contract for a certain period of time. The surrender charge schedule
is shown in the chart below. No surrender charge will be taken from death
proceeds. No surrender charge will be taken after the Annuity Period has begun
except with respect to unscheduled withdrawals under Annuity Option K or L
below. See "Annuity Options." Any surrender charge is imposed on a first-in,
first-out basis.
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 amounts without the
imposition of a surrender charge. During the first Contract year, the 10%
withdrawal without a surrender charge will be determined based on the Contract
Value at the time of the
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first partial withdrawal. In subsequent years, the 10% will be based on the
previous Contract anniversary value. The deduction for surrender charges,
expressed as a percentage of the amount withdrawn in excess of the 10% allowable
amount, is as follows:
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Percent 7% 6% 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Age of Payment in 0 1 2 3 4 5 6 7+
Complete Years
- --------------------------------------------------------------------------------
If the Annuitant or Owner dies before the Maturity Date of the Contract, the
surrender charge described in the table above will not apply.
The total deferred surrender charges on a Contract will never exceed 9% of
total payments, and the applicable level of surrender charge cannot be changed
with respect to outstanding Contracts. Surrender 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 surrender charges will be
paid by PHL Variable from the assets of the General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While you bear the investment risk of the Series in which you invest, once
the Contract has been converted to a fixed annuity, the annuity payments are
guaranteed by us. We assume the risk that Annuitants as a class may live longer
than expected (necessitating a greater number of annuity payments) and that our
expenses may be higher than the deductions for such expenses.
In assuming the mortality risk, we agree 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.
To compensate for assuming these risks, we charge 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. If the charges prove
insufficient to cover actual insurance underwriting costs and excess
administrative costs, then the loss will be borne by us; 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 our General Account assets, to
meet sales expenses, if any, which are in excess of sales commission revenue
generated from any surrender charges.
We have 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
We are responsible for administering the Contract. In doing so, we maintain
an account for each Owner and Annuitant, make all disbursements of benefits,
furnish administrative and clerical services for each Contract. We also make
disbursements to pay obligations chargeable to the Account, maintain the
accounts, records and other documents relating to the business of the Account
required by regulatory authorities, cause the maintenance of the registration
and qualification of the Account under laws administered by the SEC, prepare and
distribute notices and reports to Owners, and the like. We also reimburse
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
in certain situations. This charge is deducted from each Subaccount, GIA and MVA
in which you are invested on a pro rata basis. This charge may be decreased but
will never increase. This charge is deducted on the Contract anniversary date
for services rendered during the preceding Contract Year. Upon surrender of a
Contract, the entire annual administrative charge of $35 is deducted regardless
of when the surrender occurs.
If you elect 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.
We may reduce the annual administrative charges for Contracts issued under
tax-qualified plans other than IRAs, and for 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 amount of reduction 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.
We also charge each Subaccount the daily equivalent of 0.125% annually 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 surrender 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
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representatives of broker-dealers with whom PEPCO has selling agreements.
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 daily net asset values of each Series. These Fund charges and other Fund
expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
The accumulation period is that time before annuity payments begin that your
payments into the Contract remain invested.
ACCUMULATION UNITS
Your initial payments will be applied within two days of our receipt if the
application for a Contract is complete. If an incomplete application is
completed within five business days of receipt by VPMO, your payment will be
applied within two days of the completion of the application. If 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 your payment will
be immediately returned unless you request us to hold it while the application
is completed. Additional payments allocated to the GIA or MVA are deposited on
the date of receipt of payment at VPMO. Additional payments allocated to
Subaccounts are used to purchase Accumulation Units of the Subaccount(s), at the
value of such Units next determined after the receipt of the payment at VPMO.
The number of Accumulation Units of a Subaccount purchased with a specific
payment will be determined by dividing the payment by the value of an
Accumulation Unit in that Subaccount next determined after receipt of the
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
On any date before the Maturity Date of the Contract, the total value of the
Accumulation Units in a Subaccount can be computed by multiplying the number of
such Units by the value of an Accumulation Unit on that 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
credited to you in each Subaccount and their current value will be reported to
you at least annually.
TRANSFERS
You may, anytime up to 30 days prior to the Maturity Date of your Contract,
elect to transfer all or any part of the Contract Value among one or more
Subaccounts, the GIA or MVA. A transfer from a Subaccount will result in the
redemption of Accumulation Units and, if another Subaccount is selected, in the
purchase of Accumulation Units. The exchange will be based on the values of the
Accumulation Units next determined after the receipt by VPMO of written notice
of election in a form satisfactory to us. A transfer among Subaccounts, the GIA
or MVA does not automatically change the payment allocation schedule of your
contract.
You may also request transfers and changes in payment allocations among
available Subaccounts, the GIA or MVA by calling VPO at 800-541-0171 between the
hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless you elect in writing not
to authorize telephone transfers or allocation changes, telephone transfer
orders and allocation changes also will be accepted on your behalf from your
registered representative. We will employ reasonable procedures to confirm that
telephone instructions are genuine. We 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 you. To the
extent that procedures reasonably designed to prevent unauthorized transfers are
not followed, we may be liable for following telephone instructions for
transfers that prove to be fraudulent. However, you will bear the risk of loss
resulting from instructions entered by an unauthorized third party we reasonably
believe to be genuine. These telephone exchange and allocation change privileges
may be modified or terminated at any time. In particular, during times of
extreme market volatility, telephone privileges may be difficult to exercise. In
such cases you should submit written instructions.
You also may elect to transfer funds automatically among the Subaccounts or
GIA on a monthly, quarterly, semiannual 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 semiannually or $300
annually. You must have an initial value of $2,000 in the GIA or in the
Subaccount from which funds will be transferred (sending Subaccount), and if the
value in that Subaccount or the GIA drops below the amount to be transferred,
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 from the GIA but may be allocated to multiple receiving
Subaccounts. Under the Systematic Transfer Program, you may transfer
approximately equal amounts from the GIA over a minimum 18-month period.
Transfers under the Systematic Transfer Program are not subject to the general
restrictions on transfers from the GIA. This program is not available for the
MVA.
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Upon completion of the Systematic Transfer Program, you must notify VPO at
(800) 541-0171 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 values as of the first of the month rather than on the basis of 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 we otherwise agree or unless the Systematic Transfer Program has been
elected, you may make only one transfer per Contract year from the GIA.
Non-systematic transfers from the GIA and MVA will be made on the date of
receipt by VPMO except as you may otherwise request. 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 all Contract
Owners, we reserve 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. We will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Contract Owners), unless we have entered into a third-party
transfer service agreement with the registered representative's broker-dealer
firm.
No surrender charge will be assessed when a transfer is made. The date a
payment was originally credited for the purpose of calculating the surrender
charge will remain the same. Currently, there is no charge for transfers.
However, we reserve the right to charge a transfer fee of $10 per transfer after
the first two transfers in each Contract year to defray administrative costs.
Currently, unlimited transfers are permitted. However, we reserve the right to
change our policy to limit the number of transfers made to no more than six
during each Contract year. If the Temporary Money Market Allocation Amendment is
in effect, no transfers may be made until the end of the free look period. See
"Free Look Period." There are additional restrictions on transfers from the GIA
as described above and in Appendix B. See the MVA prospectus for information
regarding transfers from the MVA.
We reserve the right to limit the number of Subaccounts you may elect to a
total of 18 over the life of the Contract unless changes in federal and/or state
regulation, including tax, securities and insurance law require us to impose a
lower limit.
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, you may withdraw up to 10%
of the Contract Value in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial withdrawals, without the imposition of a
surrender charge. During the first Contract year, the 10% withdrawal without a
surrender 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 you have 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 us. Accumulation Units redeemed in a partial withdrawal
from multiple Subaccounts will be redeemed on a pro rata basis unless you
designate otherwise. Contract Values in the GIA or MVA will also be withdrawn on
a pro rata basis unless you designate otherwise. Withdrawals from the MVA may be
subject to the market value adjustment. See the MVA prospectus. 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 surrender charges may be imposed on partial withdrawals from,
and complete surrender of, a Contract. See "Surrender Charges." Any surrender
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
The Contract will terminate and lapse without value, if on any Valuation
Date:
[diamond] the Contract Value is zero; or
[diamond] the premium tax reimbursement due on surrender or partial withdrawals
is greater than or equal to the Contract Value (unless any Contract
Value has been applied under one of the variable payment options).
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PHL Variable will notify you in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
DEATH OF AN OWNER/ANNUITANT
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Annuitant's beneficiary.
DEATH OF AN ANNUITANT WHO IS NOT THE OWNER
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.
The death benefit upon the Death of the Annuitant or Owner/Annuitant who has
not yet reached age 85 will be:
1. Death occurring in the first Contract year--the greater of:
a. 100% of payments, less any withdrawals; or
b. the Contract value as of the claim date.
2. Death occurring any subsequent Contract year--the greater of:
a. the death benefit that would have been payable at the end of the
previous Contract year, plus any payments, less any withdrawals made
since that date; or
b. the Contract value as of the claim date.
After the Annuitants' attained age 85, the death benefit equals the contract
value as of the claim date.
DEATH OF AN OWNER WHO IS NOT THE ANNUITANT
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 death benefit is the greater of:
a. 100% of payments, less any withdrawals; or
b. the Contract value as of the claim date.
[diamond] SPOUSAL BENEFICIARY CONTRACT CONTINUANCE. If the spousal beneficiary
continues the Contract at the death of the Owner/Annuitant or Owner
who is not also the Annuitant, the spousal beneficiary becomes the
Annuitant.
[diamond] CONTINGENT ANNUITANT CONTRACT CONTINUANCE. Upon the death of the
Annuitant who is not the Owner provided a contingent Annuitant was
named prior to the death of the Annuitant, the contract will continue
with the contingent Annuitant becoming the Annuitant.
[diamond] QUALIFIED CONTRACTS. Under qualified Contracts, the death benefit is
paid at the death of the participant who is the Annuitant under the
Contract. Death benefit payments must satisfy distribution rules. See
"Federal Income Taxes--Qualified Plans."
[diamond] OWNERSHIP OF THE CONTRACT BY A NON-NATURAL PERSON. If the Owner is not
an individual, the death of the Annuitant is treated as the death of
the Owner.
If the death benefit amount to be paid is less than $2,000, it will be paid
in a single lump sum (see "Annuity Options"). Depending upon state law, the
death benefit payment to the beneficiary may avoid probate and the death benefit
may be reduced by any premium tax due. See "Deductions and Charges--Premium
Tax." See also, "Federal Income Taxes--Distribution at Death."
THE ANNUITY PERIOD
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The annuity period is that period of time beginning after the end of the
accumulation period and during which payments to you are made.
VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will begin on the Contract's Maturity Date if the Annuitant
is alive and the Contract is still in force. Beginning on the Maturity Date,
investment in the Account is continued unless a Fixed Payment Annuity is
elected. No surrender 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 you. 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
you 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, we 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, we may
make a single sum payment equal to the total Contract Value on the date the
initial payment would be payable, or make periodic payments quarterly,
semiannually or annually in place of monthly payments.
Each Contract specifies a provisional Maturity Date at the time of its
issuance. You may subsequently elect a different Maturity Date. The Maturity
Date may 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)
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the calendar year in which the employee retires. The date set forth in (b) does
not apply to an IRA.
The Maturity Date election must 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, is not elected by
you, 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 payment rate. The Contract is issued with guaranteed minimum
annuity payment rates, however, if the current rate is higher, we'll apply the
higher rate. The payment rate differs according to the payment option selected
and the age of the Annuitant. The annuity payment rate is applied and will
determine all payments for the fixed annuity payment options and the first
payment for the variable annuity payment options. The value of the Annuity Units
will vary with the investment performance of each Subaccount to which Annuity
Units are credited. The initial payment will be calculated 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.
Instead of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with 10-Year Period Certain"), you 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. In addition, such factors as the age at which payments
begin, the form of annuity, annuity payment rates, assumed investment rate (for
variable payment annuities) and the frequency of payments will effect the level
of annuity payments. The assumed investment rate is 4.5% per year. We use this
rate to determine the first payment under Variable Payment Annuity Options I, J,
K, M and N.
We deduct 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
we assume no mortality risk under that option.
The following are descriptions of the annuity options available under a
Contract. These descriptions should allow you to understand the basic
differences between the options, however, you should contact VPO well in advance
of the date you wish to elect an option to obtain estimates of payments under
each option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, 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 paid 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 surviving 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 for the life of
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 in which proceeds
are invested.
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 in which proceeds are invested. 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 at anytime request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred surrender charge.
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 at anytime
request unscheduled withdrawals representing part or all of the remaining
Contract Value less any applicable contingent deferred surrender charge. 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
We may offer other annuity options at the time a Contract reaches its
Maturity Date. In addition, in the event that annuity payment rates for
Contracts are at that time more favorable than the applicable rates guaranteed
under the Contract, the current annuity payment 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
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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 surrender
charges, even if the minimum distribution exceeds the 10% allowable amount. See
"Surrender Charges." Any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of both the minimum
distribution and the 10% free available amount will be subject to any applicable
surrender charge.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, we 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, semiannually
or annually in place of monthly payments.
Currently, transfers between Subaccounts are not available for amounts
allocated to any of the variable payment annuity options.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who also is the Annuitant dies on or after the Maturity Date,
except as otherwise may be provided under any supplementary contract between the
Owner and us, we 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, we 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, we 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 we are open
for business. The NYSE is scheduled to be closed on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' 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 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 a 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. After the first Valuation
Period, the Accumulation Unit Value reflects the cumulative investment
experience of that Subaccount.
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 depending on whether the assets gained
or lost value that day. 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 to us.
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DEFERMENT OF PAYMENT
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract ordinarily will be made within seven days
after receipt of the written request by VPMO. However, we may postpone payment
of the value of any Accumulation Units 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 over us 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
We may mail the Contract to you or we may deliver it to you in person. You
may surrender a Contract for any reason within 10 days after you receive it and
receive in cash the adjusted value of your initial payment. (A longer Free Look
Period may be required by your state.) You 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 your initial payment has been
allocated to the GIA, we also will refund any earned interest. If a portion or
all of your initial payment has been allocated to the MVA, we will apply the
Market Value Adjustment which can increase or decrease your initial payment.
If you elected the Temporary Money Market Allocation Amendment or you reside
in a state that requires the full refund of premium, we will temporarily
allocate those portions of your initial payment designated for the Subaccounts
to the Phoenix-Gordon Money Market Subaccount and those portions designated for
the GIA and MVA will be allocated to those Accounts. If you surrender the
Contract, then your initial payment is refunded. At the expiration of the Free
Look Period, the value of the Accumulation Units held in the Phoenix-Gordon
Money Market Subaccount is allocated among the available Subaccounts in
accordance with your allocation instructions.
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 we believe it to be highly unlikely, it is possible that in the
judgment of our 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, we may seek to substitute the shares of
another Series or the shares of an entirely different 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, (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
our 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. The tax rules are complicated and this discussion can only make you
aware of the issues. 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 our 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"). We do 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
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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. We reserve the right to make a deduction for taxes should they
be imposed on us 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. 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."
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 payments
(premiums paid) by or on behalf of an individual under a Contract that have not
been 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 amount received on account of a total or partial surrender of a
Contract. 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.
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 5-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 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 being 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 VPMO of that election.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS
Amounts surrendered or distributed before the taxpayer reaches age 59 1/2
are subject to a penalty tax 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
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interest for the deferral period, but only if the modification takes place: (a)
within 5 years from the date of the first payment, 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
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 or life expectancy of
that beneficiary and payments must begin 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, 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.
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.
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
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, or where the Contract is
purchased on behalf of an employee upon termination of a qualified plan, and nor
if the annuity contract is an immediate annuity.
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 are, in a Code Section 1035 exchange,
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.
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
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consult a competent tax adviser before purchasing more than one Contract or
other annuity contracts.
DIVERSIFICATION STANDARDS
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 calendar quarter
that the Series' assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 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, we reserve 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.
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 and the terms and conditions of the
plan itself. No attempt is made here 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% 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.
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The new mandatory withholding rules apply to all taxable distributions from
qualified plans or TSAs (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.
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 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 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 distribution amount
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 be 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 surrender
charge; and (b) 50% of the Contract Value minus any contingent deferred
surrender 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 $1,000 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 also will 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 Subaccounts of the Separate Account or
the GIA in accordance with the participant's most recent premium allocation on
file with Us, except that no amount will be transferred to the MVA.
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.
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
30
<PAGE>
document must be adopted and implemented by the employer, as well as approved by
the IRS.
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.
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 items such 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.
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.
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
includable 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 (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 reemployed 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.
31
<PAGE>
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.
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 meant to alert you to the issues 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
- --------------------------------------------------------------------------------
The principal underwriter of the Contracts is PEPCO. Contracts may be
purchased through registered representatives of W.S. Griffith & Company, Inc.
("WSG") who are 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, we pay PEPCO an amount
equal to up to 7.25% of the payments made under the Contract. PEPCO pays any
qualified distribution organization an amount which may not exceed 7.25% of the
payments under the Contract. Any such amount paid with respect to Contracts sold
through other broker-dealers will be paid by us to or through PEPCO. The amounts
paid are not deducted from the payments. Deductions for surrender charges (as
described under "Surrender 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
- --------------------------------------------------------------------------------
We are 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. We are also subject to the applicable
insurance laws of all the other states and jurisdictions in which we do
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
- --------------------------------------------------------------------------------
Reports showing the Contract Value and containing the financial statements
of the Account will be furnished to you at least annually.
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. We are the legal
owner of those shares and as such have 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, we intend 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.
We currently intend to vote Fund shares attributable to any of our 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 us 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
32
<PAGE>
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.
The number of votes that you have the right to cast will be determined by
applying your 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 you may give us
instructions will be determined as of the record date for Fund shareholders
chosen by the Board of Trustees of a Fund. We will furnish you with proper forms
and proxies to enable them to give these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
Year 2000 Issue
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed, in
writing, to Phoenix Variable Products Mail Operations at PO Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 541-0171.
33
<PAGE>
APPENDIX A
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 Phoenix-Goodwin Money Market Subaccount, as
yield of the Phoenix-Goodwin Multi-Sector Subaccount and as total return of any
Subaccount. For the Phoenix-Goodwin 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index....................... 7/15/97 21.53% N/A N/A 18.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International........................ 5/1/90 18.08% 10.97% N/A 9.35%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia............................. 9/17/96 -11.88% N/A N/A -20.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities.......... 5/1/95 -27.33% N/A N/A 8.82%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty.......................... 3/2/98 N/A N/A N/A 16.99%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced.............................. 5/1/92 9.83% 10.91% N/A 10.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth................................ 1/1/83 19.86% 16.25% 18.44% 17.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market.......................... 3/2/98 -3.03% 2.80% 3.87% 4.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income............. 10/10/82 -11.57% 4.74% 7.67% 8.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation.................. 1/1/83 11.46% 10.83% 12.42% 12.06%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme....................... 9/17/84 33.53% N/A N/A 19.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity........................ 1/29/96 N/A N/A N/A 2.67%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income.................... 3/2/98 N/A N/A N/A 11.62%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value......................... 3/2/98 N/A N/A N/A -17.89%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth......................... 3/2/98 N/A N/A N/A 12.96%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments ............................ 5/1/98 N/A N/A N/A -4.05%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation............................ 11/28/88 -2.10% 9.14% 10.25% 10.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets.......................... 9/15/96 -27.19% N/A N/A -25.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International............................... 5/1/92 1.11% 9.37% N/A 12.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock....................................... 11/4/88 -6.82% 8.65% 10.31% 10.02%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty.................................. 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap........................ 5/1/95 7.36% N/A N/A 18.11%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty......................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap................................. 5/1/95 0.29% N/A N/A 23.43%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average annual total return is the annual compound return that results
from holding an initial investment of $1,000 for the time period indicated.
Returns are net of investment management fees, daily and annual
administrative fees, and mortality and expense risk charges and deferred
sales charges of 6% and 2% deducted from redemptions after 1 and 5 years,
respectively. Surrender charges are based on the age of the deposit. The
investment return and principal value of the variable contract will
fluctuate so that the accumulated value, when redeemed, may be worth more or
less than the original cost.
34
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1)
- -----------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real
Estate Securities N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Growth 31.10% 9.16% 3.09% 18.83% 5.47% 2.50%
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 6.85% 8.72% 6.56% 5.06% 5.05% 5.98%
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector
Fixed Income 4.56% 9.82% 18.97% 7.67% -0.30% 8.98%
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Strategic
Allocation N/A -1.47% 25.61% 14.11% 11.02% 0.94%
- -----------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and
Income N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Mutual Shares Investments N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Templeton Asset Allocation N/A N/A N/A N/A N/A 0.15%
- -----------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Templeton International N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Templeton Stock N/A N/A N/A N/A N/A -1.08%
- -----------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1) (continued)
- ----------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A N/A 5.19% 29.90%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A -8.98% 18.11% -14.03% 36.59% -1.31% 8.12% 17.05% 10.53% 26.20%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A -0.23% -33.33% -5.77%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real
Estate Securities N/A N/A N/A N/A N/A N/A 16.75% 31.31% 20.41% -22.28%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A N/A N/A 24.85%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A N/A 8.64% 7.13% -4.17% 21.69% 9.06% 16.34% 17.40%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 34.35% 2.62% 40.81% 8.79% 18.08% 0.08% 29.13% 11.06% 19.45% 28.12%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 7.71% 6.74% 4.53% 2.16% 1.47% 2.42% 4.23% 3.60% 3.76% 3.67%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector
Fixed Income 6.76% 3.78% 17.96% 8.58% 14.35% -6.78% 21.89% 10.89% 9.57% -5.46%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic
Allocation 18.28% 4.32% 27.56% 9.15% 9.50% -2.75% 16.63% 7.57% 19.10% 19.15%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A N/A 8.98% 15.59% 42.74%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A N/A 9.57%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and
Income N/A N/A N/A N/A N/A N/A N/A N/A N/A 19.12%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A N/A N/A -12.37%
- ----------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A 20.56%
- ----------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments N/A N/A N/A N/A N/A N/A N/A N/A N/A 2.40%
- ----------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation 11.49% -9.47% 25.70% 6.36% 24.15% -4.55% 20.60% 16.96% 13.74% 4.66%
- ----------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A N/A 0.90% -30.35% -22.12%
- ----------------------------------------------------------------------------------------------------------------------------
Templeton International N/A N/A N/A -7.15% 45.01% -3.83% 13.91% 22.06% 12.12% 8.08%
- ----------------------------------------------------------------------------------------------------------------------------
Templeton Stock 12.83% -12.50% 25.50% 5.41% 31.92% -3.80% 23.26% 20.47% 10.10% -0.39%
- ----------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A 33.35% 30.24% -2.81% 14.75%
- ----------------------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A 15.00% 44.64% 27.68% 7.21%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of the investment management fee, daily administrative fees,
and mortality and expense risk charges of the Subaccounts. Percent change
does not include the effect of the surrender charges or the annual
administrative fees.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
35
<PAGE>
Current yield for the Phoenix-Goodwin Money Market Subaccount is based upon
the income earned by the Subaccount over a 7-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 Phoenix-Goodwin 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 7-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 is an example of this yield quotation for the
Phoenix-Goodwin Money Market Subaccount based on a 7-day period ending December
31, 1998.
Example:
Value of hypothetical pre-existing account with
exactly one unit at the beginning of the period:.. 1.130463
Value of the same account (excluding capital
changes) at the
end of the 7-day period:.......................... 1.131041
Calculation:
Ending account value.............................. 1.131041
Less beginning account value...................... 1.130463
Net change in account value....................... 0.000578
Base period return:
(adjusted change/beginning account value)......... 0.000511
Current yield = return x (365/7) =.................. 2.67%
Effective yield = [(1 + return)(365/7)] -1 =........ 2.70%
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.
36
<PAGE>
APPENDIX B
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. 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. We 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 us 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. We assume this "mortality risk" by virtue
of annuity rates incorporated in the Contract that cannot be changed. In
addition, we guarantee that it will not increase charges for maintenance of the
Contracts regardless of its actual expenses.
Investment income from the General Account allocated to us 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, we guarantee that
it will credit interest at a rate of not less than 4% per year compounded
annually, to amounts allocated to the GIA. We 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.
On the last business day of each calendar week, we 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 us based on information as to
expected investment yields. Some of the factors that we 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 AT OUR SOLE DISCRETION 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.
We are 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. We
guarantee that, at any time, the GIA Contract Value will not be less than the
amount of payments allocated to the GIA, plus interest at the rate of 4% per
year, compounded annually, plus any additional interest which we may, in our
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 will be subject to the same
limitations as applies to transfers from the GIA (see "Qualified Plans").
IN GENERAL, YOU CAN MAKE ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE
AMOUNT THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $2,000 OR 25% OF
THE CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. IF YOU ELECT THE
SYSTEMATIC TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT
OF THE GIA OVER A MINIMUM 18-MONTH PERIOD. ALSO, THE TOTAL CONTRACT VALUE
ALLOCATED TO THE GIA MAY BE TRANSFERRED OUT OF THE GIA TO ONE OR MORE OF THE
SUBACCOUNTS OF THE ACCOUNT OVER A CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE
FOLLOWING ANNUALLY RENEWABLE SCHEDULE:
YEAR ONE: 25% YEAR TWO: 33% YEAR THREE: 50% YEAR FOUR: 100%
37
<PAGE>
APPENDIX C
<TABLE>
<CAPTION>
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
- --------------------------------------------------------------------------------------------------------------------------------
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
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, 1999. 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, we
reserve 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.
38
