PHL VARIABLE INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO"):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
PROSPECTUS
May 1, 1998
As Supplemented November 2, 1998 and February 1, 1999
This Prospectus describes a variable accumulation deferred annuity contract (the
"Contract" or "Contracts"), offered by PHL Variable Insurance Company. The
Contract is designed to give the Contract Owner a retirement income in the
future. Purchase payments made to the Contract accumulate on a tax-deferred
basis which later may be distributed under a variety of options designed to suit
your financial needs. You decide the timing and amount of purchase payments and
allocations of Contract Value to the Guaranteed Interest Account ("GIA"), the
Market Value Adjusted Guaranteed Interest Account ("MVA") and/or one or more of
the Subaccounts of the PHL Variable Accumulation Account (the "Account"). The
assets of the Subaccounts are used to purchase, at Net Asset Value, shares of a
designated underlying mutual fund (collectively, the "Funds") in the following
series or portfolios ("Series") of the Funds of underlying Account options:
<TABLE>
<CAPTION>
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SERIES ADVISER
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<S> <C>
THE PHOENIX EDGE SERIES FUND
[bullet] Aberdeen New Asia [square] Phoenix-Aberdeen International Advisors, LLC
[bullet] Balanced [square] Phoenix Investment Counsel, Inc.
[bullet] Engemann Nifty Fifty [square] Phoenix Investment Counsel, Inc.
[bullet] Growth [square] Phoenix Investment Counsel, Inc.
[bullet] International [square] Phoenix Investment Counsel, Inc.
[bullet] Money Market [square] Phoenix Investment Counsel, Inc.
[bullet] Multi-Sector Fixed Income [square] Phoenix Investment Counsel, Inc.
[bullet] Phoenix Growth & Income [square] Phoenix Investment Counsel, Inc.
[bullet] Phoenix Value Equity [square] Phoenix Investment Counsel, Inc.
[bullet] Real Estate Securities [square] Duff & Phelps Investment Management Co.
[bullet] Research Enhanced Index [square] Phoenix Investment Counsel, Inc.
[bullet] Schafer Mid-Cap Value [square] Phoenix Investment Counsel, Inc.
[bullet] Seneca Mid-Cap Growth [square] Phoenix Investment Counsel, Inc.
[bullet] Strategic Allocation [square] Phoenix Investment Counsel, Inc.
[bullet] Strategic Theme [square] Phoenix Investment Counsel, Inc.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
[bullet] Mutual Shares Investments [square] Franklin Mutual Advisers, Inc.
[bullet] Templeton Asset Allocation [square] Templeton Investment Counsel, Inc.
[bullet] Templeton Developing Markets [square] Templeton Asset Management, Ltd.
[bullet] Templeton International [square] Templeton Investment Counsel, Inc.
[bullet] Templeton Stock [square] Templeton Investment Counsel, Inc.
WANGER ADVISORS TRUST
[bullet] Wanger Foreign Forty [square] Wanger Asset Management, L.P.
[bullet] Wanger International Small Cap [square] Wanger Asset Management, L.P.
[bullet] Wanger Twenty [square] Wanger Asset Management, L.P.
[bullet] Wanger U.S. Small Cap [square] Wanger Asset Management, L.P.
==============================================================================================================
</TABLE>
The Contract Value allocated to the Account is not guaranteed and will vary with
the investment performance of the underlying Fund. The Contract Value allocated
to the GIA and MVA will accumulate at rates we determine. The guaranteed rates
offered will, in no event, be less than 4% for allocations made to the GIA.
You may select from a number of different variable annuity and fixed annuity
payout options, some of which offer retirement income payments which you cannot
outlive. See "The Annuity Period--Annuity Options."
The Contract has a "free look" period during which you may return the Contract
if you are not satisfied for any reason. See "Free Look Period."
1
<PAGE>
It may not be advantageous to purchase a Contract as a replacement for an
existing annuity contract or life insurance policy. You should recognize that a
contract that has been in existence for a period of time might have certain
advantages to you over a new contract. On the other hand, the proposed Contract
may offer new features which are more important to you.
It is in your best interest to have adequate information before a decision to
replace your present annuity contract becomes final so that you may understand
the basic features of both the proposed Contract and your existing contract.
If you are replacing a life insurance policy, it is important to understand that
the proposed Contract would provide limited, if any, life insurance coverage,
and that annuities and life insurance are treated differently under the tax
laws.
In all cases, it is important to know if the replacement will result in current
tax liability.
This Prospectus provides information about the Contract that prospective
investors should know before investing and is valid only if accompanied by or
preceded by current prospectuses for the Funds and MVA. This Prospectus and the
prospectuses for the Funds and MVA should be read and retained for future
reference.
A Statement of Additional Information ("SAI"), dated May 1, 1998, which is part
of the registration statement filed with the Securities and Exchange Commission
("SEC") for the Account, is available free of charge upon request by writing to
VPMO or by calling our service center, Variable Products Operations ("VPO") toll
free at (800) 541-0171. The SAI has been incorporated by reference into this
Prospectus, and its Table of Contents appears at the back of this Prospectus.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE FLUCTUATION OF CONTRACT
VALUE AND THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
Heading Page
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SPECIAL TERMS............................................. 4
SUMMARY OF EXPENSES....................................... 5
SUMMARY................................................... 9
FINANCIAL HIGHLIGHTS...................................... 11
PERFORMANCE HISTORY....................................... 12
THE VARIABLE ACCUMULATION ANNUITY......................... 13
PHL VARIABLE AND THE ACCOUNT ............................. 13
INVESTMENTS OF THE ACCOUNT................................ 13
The Phoenix Edge Series Fund........................... 13
Wanger Advisors Trust.................................. 14
Templeton Variable Products Series Fund................ 15
Investment Advisers.................................... 15
Services of the Advisers............................... 16
MVA....................................................... 16
PURCHASE OF CONTRACTS..................................... 16
DEDUCTIONS AND CHARGES.................................... 16
Premium Tax............................................ 16
Sales Charges.......................................... 16
Charges for Mortality and Expense Risks................ 17
Charges for Administrative Services.................... 17
Market Value Adjustment................................ 17
Other Charges.......................................... 17
THE ACCUMULATION PERIOD................................... 17
Accumulation Units..................................... 17
Accumulation Unit Values............................... 18
Transfers ............................................. 18
Surrender of Contract; Partial Withdrawals............. 19
Lapse of Contract...................................... 19
Payment Upon Death Before Maturity Date ............... 19
THE ANNUITY PERIOD ....................................... 20
Variable Accumulation Annuity Contracts................ 20
Annuity Options ....................................... 20
Option A--Life Annuity With Specified Period Certain. 20
Option B--Non-Refund Life Annuity.................... 21
Option D--Joint and Survivor Life Annuity............ 21
Option E--Installment Refund Life Annuity............ 21
Option F--Joint and Survivor Life Annuity with
10-Year Period Certain .......................... 21
Option G--Payments for Specified Period.............. 21
Option H--Payments of Specified Amount............... 21
Option I--Variable Payment Life Annuity with 10-Year
Period Certain .................................. 21
Option J--Joint Survivor Variable Payment Life Annuity
with 10-Year Period Certain ..................... 21
Option K--Variable Payment Annuity for a Specified
Period .......................................... 21
Option L--Variable Payment Life Expectancy Annuity... 21
Option M--Unit Refund Variable Payment Life Annuity.. 21
Option N--Variable Payment Non-Refund Life Annuity... 21
Other Options and Rates.............................. 21
Other Conditions..................................... 21
Payment Upon Death After Maturity Date................. 22
VARIABLE ACCOUNT VALUATION PROCEDURES..................... 22
MISCELLANEOUS PROVISIONS.................................. 22
Assignment............................................. 22
Deferment of Payment .................................. 22
Free Look Period....................................... 23
Amendments to Contracts................................ 23
Substitution of Fund Shares............................ 23
Ownership of the Contract.............................. 23
FEDERAL INCOME TAXES...................................... 23
Introduction........................................... 23
Tax Status............................................. 23
Taxation of Annuities in General--Non-Qualified Plans.. 23
Surrenders or Withdrawals Prior to the Contract
Maturity Date..................................... 23
Surrenders or Withdrawals On or After the Contract
Maturity Date..................................... 24
Penalty Tax on Certain Surrenders and Withdrawals.... 24
Additional Considerations.............................. 24
Diversification Standards ............................. 25
Qualified Plans........................................ 26
Tax Sheltered Annuities ("TSAs") .................... 26
Keogh Plans.......................................... 27
Individual Retirement Accounts....................... 27
Corporate Pension and Profit-Sharing Plans........... 27
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations.......................... 27
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts.......................... 27
Seek Tax Advice...................................... 28
SALES OF VARIABLE ACCUMULATION CONTRACTS ................. 28
STATE REGULATION ......................................... 28
REPORTS .................................................. 28
VOTING RIGHTS ............................................ 29
TEXAS OPTIONAL RETIREMENT PROGRAM ........................ 29
LEGAL MATTERS ............................................ 29
SAI....................................................... 29
APPENDIX A ............................................... 30
APPENDIX B ............................................... 31
3
<PAGE>
SPECIAL TERMS
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As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: PHL Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Subaccount
used in determining the value of a Contract and the interest in the Subaccounts
prior to the commencement of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
ANNUITANT: The person whose life is used as the measuring life under the
Contract. The primary Annuitant as shown on the Contract's Schedule Page while
the primary Annuitant is living, and then the contingent Annuitant designated on
the application for the Contract or as later changed by the Owner, if the
contingent Annuitant is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as Life Annuity with Ten Years Certain.
See "Annuity Options."
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable income payment under the variable payment Annuity Options I, J, K, M
and N.
CONTRACT: The deferred variable accumulation annuity contract described in this
Prospectus.
CONTRACT OWNER (OWNER, YOU, YOUR): The person or entity, usually the one to whom
the Contract is issued, who has the sole right to exercise all rights and
privileges under the Contract except as otherwise provided in the Contract. The
Owner may be the Annuitant, an employer, a trust or any other individual or
entity specified in the application for the Contract. However, under Contracts
used with certain tax qualified plans, the Owner must be the Annuitant. A
husband and wife may be designated as joint owners, and if such a joint owner
dies, the other joint owner becomes the sole Owner of the Contract. If no Owner
is named in the application, the Annuitant will be the Owner.
CONTRACT VALUE: Prior to the Maturity Date, the sum of all Accumulation Units
held in the Subaccounts of the Account and the value held in the GIA and/or MVA.
For 403(b) plans with loans, the Contract Value is the sum of all Accumulation
Units held in the Subaccounts of the Account and the value held in the GIA
and/or MVA plus the value held in the Loan Security Account, and less any Loan
Debt.
FIXED PAYMENT ANNUITY: A benefit providing periodic payments of a fixed dollar
amount throughout the Annuity Period that does not vary with or reflect the
investment performance of any Subaccount.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GIA: An allocation option under which premium amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial purchase payment is invested under a
Contract.
LOAN DEBT: Loan Debt is equal to the sum of the outstanding loan balance plus
any accrued loan interest.
LOAN SECURITY ACCOUNT: The Loan Security Account is part of the general account
and is the sole security for 403(b) loans. It is increased with all loan amounts
taken and reduced by all repayments of loan principal.
MVA: An account that pays interest at a guaranteed rate if held to maturity. If
amounts are withdrawn, transferred or applied to an annuity option before the
end of the guarantee period, a market value adjustment will be made. Assets
allocated to the MVA are not part of the assets allocated to the Account or the
general account of PHL Variable.
MATURITY DATE: The date elected by the Owner pursuant to the Contract as of
which annuity payments will commence. The Maturity Date shall be no earlier than
the fifth Contract anniversary and no later than the Annuitant's 95th birthday.
The election is subject to certain conditions described in "The Annuity Period."
MINIMUM INITIAL PURCHASE PAYMENT: The amount which must be paid when a Contract
is purchased. Minimum initial purchase payments of $1,000, $1,000, $25 and
$1,000 annually are required for non-qualified, IRA, bank draft program and
qualified plan contracts, respectively.
MINIMUM SUBSEQUENT PAYMENT: The amount which must be paid when any subsequent
payments are made, after the minimum initial purchase payment has been made (see
above). The minimum subsequent payment for all Contracts is $25.
NET ASSET VALUE: Net asset value of a Series' shares is computed by dividing the
value of the net assets of the Series by the total number of Series shares
outstanding.
PAYMENT UPON DEATH: The obligation of PHL Variable under a Contract to make a
payment on the death of the Owner or Annuitant at any time before the Maturity
Date of a Contract (see "Payment Upon Death Before Maturity Date") or after the
Maturity Date of a Contract (see "Payment Upon Death After Maturity Date").
PHL VARIABLE (OUR, US, WE, COMPANY): PHL Variable Insurance Company.
SERIES: A separate investment portfolio of a Fund.
VALUATION DATE: A Valuation Date is every day the New York Stock Exchange
("NYSE") is open for trading and PHL Variable is open for business.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amount
after the first payment is made, in accordance with the investment experience of
the selected Subaccounts.
VPMO: The Variable Products Mail Operation division of PHL Variable that
receives and processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
4
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charges Imposed on Purchases.................................................. None
Deferred Sales Charges (as a percentage of amount withdrawn):(1)
Age of Payment in Complete Years 0-1............................................ 7%
Age of Payment in Complete Years 1-2............................................ 6%
Age of Payment in Complete Years 2-3............................................ 5%
Age of Payment in Complete Years 3-4............................................ 4%
Age of Payment in Complete Years 4-5............................................ 3%
Age of Payment in Complete Years 5-6............................................ 2%
Age of Payment in Complete Years 6-7............................................ 1%
Age of Payment in Complete Years 7 and thereafter............................... None
Exchange Fee -- Maximum Allowable Charge Per Exchange............................... $10
ANNUAL ADMINISTRATIVE CHARGE
Maximum......................................................................... $35
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fee................................................... 1.25%
Daily Administrative Fee......................................................... 0.125%
Total Separate Account Annual Expenses.............................................. 1.375%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
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OTHER EXPENSES(2)
RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL(2)
SERIES MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PHOENIX EDGE SERIES FUND
Aberdeen New Asia............................................... 1.00% N/A .25% 1.25%
Balanced........................................................ .55% N/A .15% .70%
Engemann Nifty Fifty(3)......................................... .90% N/A .15% 1.05%
Growth.......................................................... .63% N/A .11% .74%
International .................................................. .75% N/A .26% 1.01%
Money Market.................................................... .40% N/A .15% .55%
Multi-Sector Fixed Income....................................... .50% N/A .15% .65%
Phoenix Growth & Income(3)...................................... .70% N/A .15% .85%
Phoenix Value Equity(3)......................................... .70% N/A .15% .85%
Real Estate Securities.......................................... .75% N/A .25% 1.00%
Research Enhanced Index......................................... .45% N/A .10% .55%
Schafer Mid-Cap Value(3)........................................ 1.05% N/A .15% 1.20%
Seneca Mid-Cap Growth(3)........................................ .80% N/A .25% 1.05%
Strategic Allocation ........................................... .58% N/A .13% .71%
Strategic Theme................................................. .75% N/A .25% 1.00%
(1) A sales charge is taken from the proceeds when a Contract is surrendered or when an amount is withdrawn, if assets have not been
held under the Contract for a certain period of time. An amount up to 10% of the Contract Value as of the end of the previous
Contract year may be withdrawn each year without a sales charge. See "Deductions and Charges--Sales Charges."
(2) Each Series pays a portion or all of its total annual expenses other than the management fee. The Research Enhanced Index Series
will pay up to .10%; the Growth, Multi-Sector Fixed Income, Strategic Allocation, Money Market, Balanced, Engemann Nifty Fifty,
Phoenix Growth & Income, Phoenix Value Equity and Schafer Mid-Cap Series will pay up to .15%; the Real Estate Securities,
Strategic Theme, Aberdeen New Asia, and Seneca Mid-Cap Series will pay up to .25%; and the International Series will pay up to
.40%. Absent expense reimbursement, Total Annual Expenses were .66% for Multi-Sector, 1.05% for Research Enhanced Index, 1.07%
for Real Estate Securities, 1.14% for Strategic Theme and 2.00% for Aberdeen New Asia. Expenses may be higher or lower than
those shown but are subject to expense limitations as noted.
(3) Inclusion of this Subaccount began on March 2, 1998. Accordingly, annualized expenses have been projected for the fiscal period
ending December 31, 1998. Without reimbursement, the Total Annual Expenses are estimated to be approximately 1.35%, 1.68%,
1.10%, 1.10% and 1.31% of the average net assets of the Engemann Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Growth & Income,
Phoenix Value Equity and Schafer Mid-Cap Value Series, respectively.
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES(1)
RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL(1)
SERIES MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Mutual Shares Investments -- Class 2(4)......................... .40% .25% .60% 1.25%
Templeton Stock -- Class 2(2)................................... .69% .25% .19% 1.13%
Templeton Asset Allocation -- Class 2(2)........................ .60% .25% .18% 1.03%
Templeton International -- Class 2(2)........................... .69% .25% .19% 1.13%
Templeton Developing Markets -- Class 2(3)...................... 1.25% .25% .33% 1.83%
WANGER ADVISORS TRUST
Wanger Foreign Forty(5)......................................... 1.00% N/A .45% 1.45%
Wanger International Small Cap.................................. 1.28% N/A .32% 1.60%
Wanger Twenty(5)................................................ .95% N/A .40% 1.35%
Wanger U.S. Small Cap........................................... .97% N/A .09% 1.06%
(1) Each Series pays a portion or all of its total annual expenses other than the management fee. The Wanger Foreign Forty
will pay up to .45%, the Wanger U.S. Small Cap Series will pay up to .50%, the Wanger International Small Cap Series will pay
up to .60%, and the Wanger Twenty will pay up to .40%. Absent expense reimbursement, Total Annual Expenses are estimated to be
approximately 3.51% for Wanger Foreign Forty and 1.63% for Wanger Twenty for the fiscal year ending December 31, 1999. Expenses
may be higher or lower than those shown but are subject to expense limitations as noted.
(2) 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. Because Class 2 shares were not offered until May 1, 1997, the figures (other than "12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1 shares for the fiscal year ended December 31, 1997,
except that Management Fees and Total Annual Expenses have been restated to reflect the management fee schedule which was
approved by shareholders and effective on May 1, 1997. Actual Management Fees and Total Annual Expenses during 1997 were lower.
See Fund prospectus for details.
(3) 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. Because Class 2 shares were not offered until May 1, 1997, the figures (other than "12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1 shares for the fiscal year ended December 31, 1997.
(4) 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. Because Class 2 shares are new, the Investment Manager has agreed in advance to waive a portion of the
management fees and make certain payments to reduce expenses as necessary so that Total Annual Expenses do not exceed 1.25%.
Absent any waivers, Total Annual Expenses are estimated to be 1.45%.
(5) Inclusion of this Subaccount began on February 1, 1999. Accordingly, annualized expenses have been projected for the fiscal
period ending December 31, 1999. Without reimbursement, the Total Annual Expenses are estimated to be approximately 1.63% for
Wanger Twenty and 3.51% for Wanger Foreign Forty.
</TABLE>
6
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
EXAMPLES
If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
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SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth $ 88 $ 122 $ 156 $ 268
Multi-Sector Fixed Income....................................... 88 119 152 259
Strategic Allocation............................................ 88 121 155 265
Money Market.................................................... 87 116 147 249
International................................................... 91 130 169 295
Balanced........................................................ 88 121 154 264
Real Estate Securities.......................................... 91 129 169 294
Strategic Theme................................................. 91 129 169 294
Aberdeen New Asia............................................... 93 136 181 318
Research Enhanced Index......................................... 87 116 N/A N/A
Engemann Nifty Fifty(1) ........................................ 91 131 N/A N/A
Phoenix Growth & Income(1)...................................... 89 125 N/A N/A
Phoenix Value Equity(1)......................................... 89 125 N/A N/A
Seneca Mid-Cap Growth(1)........................................ 91 131 N/A N/A
Schafer Mid-Cap Value(1)........................................ 93 135 N/A N/A
Wanger Foreign Forty(3)......................................... 95 142 190 337
Wanger Twenty(3)................................................ 94 139 185 328
Wanger U.S. Small Cap........................................... 91 131 172 300
Wanger International Small Cap.................................. 96 146 197 351
Templeton Stock -- Class 2...................................... 92 133 175 307
Templeton Asset Allocation -- Class 2........................... 91 130 170 297
Templeton International -- Class 2.............................. 92 133 175 307
Templeton Developing Markets -- Class 2......................... 99 153 208 372
Mutual Shares Investments -- Class 2(2)......................... 93 136 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you annuitize your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth.......................................................... $ 88 $ 122 $ 125 $ 268
Multi-Sector Fixed Income....................................... 88 119 121 259
Strategic Allocation............................................ 88 121 124 265
Money Market.................................................... 87 116 116 249
International................................................... 91 130 139 295
Balanced........................................................ 88 121 123 264
Real Estate Securities.......................................... 91 129 138 294
Strategic Theme................................................. 91 129 138 294
Aberdeen New Asia............................................... 93 136 151 318
Research Enhanced Index......................................... 87 116 N/A N/A
Engemann Nifty Fifty(1) ........................................ 91 131 N/A N/A
Phoenix Growth & Income(1)...................................... 89 125 N/A N/A
Phoenix Value Equity(1)......................................... 89 125 N/A N/A
Seneca Mid-Cap Growth(1)........................................ 91 131 N/A N/A
Schafer Mid-Cap Value(1)........................................ 93 135 N/A N/A
Wanger Foreign Forty(3)......................................... 95 142 160 337
Wanger Twenty(3)................................................ 94 139 155 328
Wanger U.S. Small Cap........................................... 91 131 141 300
Wanger International Small Cap.................................. 96 146 168 351
Templeton Stock -- Class 2...................................... 92 133 145 307
Templeton Asset Allocation -- Class 2........................... 91 130 140 297
Templeton International -- Class 2.............................. 92 133 145 307
Templeton Developing Markets -- Class 2......................... 99 153 179 372
Mutual Shares Investments -- Class 2(2)......................... 93 136 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
7
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth.......................................................... $ 24 $ 73 $ 125 $ 268
Multi-Sector Fixed Income....................................... 23 70 121 259
Strategic Allocation............................................ 23 72 124 265
Money Market.................................................... 22 67 116 249
International................................................... 26 81 139 295
Balanced........................................................ 23 72 123 264
Real Estate Securities.......................................... 26 81 138 294
Strategic Theme................................................. 26 81 138 294
Aberdeen New Asia............................................... 29 88 151 318
Research Enhanced Index......................................... 22 67 N/A N/A
Engemann Nifty Fifty(1) ........................................ 27 82 N/A N/A
Phoenix Growth & Income(1)...................................... 25 77 N/A N/A
Phoenix Value Equity(1)......................................... 25 77 N/A N/A
Seneca Mid-Cap Growth(1)........................................ 27 82 N/A N/A
Schafer Mid-Cap Value(1)........................................ 28 87 N/A N/A
Wanger Foreign Forty(3)......................................... 31 94 160 337
Wanger Twenty(3)................................................ 30 91 155 328
Wanger U.S. Small Cap........................................... 27 83 141 300
Wanger International Small Cap.................................. 32 99 168 351
Templeton Stock -- Class 2...................................... 28 85 145 307
Templeton Asset Allocation -- Class 2........................... 27 82 140 297
Templeton International -- Class 2.............................. 28 85 145 307
Templeton Developing Markets -- Class 2......................... 35 105 179 372
Mutual Shares Investments -- Class 2(2)......................... 29 88 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. It is based on historical Fund expenses, as a percentage
of net assets for the year ended December 31, 1997, except as indicated. The
tables reflect expenses of the Account as well as the Funds. See "Deductions and
Charges" in this Prospectus and in the Fund Prospectuses.
Premium taxes, which are not reflected in the table above, may apply. Any
premium or other taxes levied by any governmental entity with respect to the
Contract will be charged against the Contract Values based on a percentage of
premiums paid. Premium taxes are currently imposed by certain states on the
Contracts and range from 0% to 3.5% of premiums paid. See "Deductions and
Charges--Premium Tax" and Appendix B.
The Example should not be considered a representation of future expenses and
actual expenses may be greater or less than those shown. See "Deductions and
Charges."
8
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The following summary of Prospectus information of the Contract should be
read with the detailed information appearing elsewhere in this Prospectus. See
"Table of Contents" and "Special Terms."
OVERVIEW
The Contract offers a dynamic concept in retirement planning designed to
give you maximum flexibility in obtaining your investment goals. There are no
deductions from your purchase payments so that your entire investment is put to
work in one or more of the Subaccounts, GIA and/or the MVA. The Contract offers
a combination of investment options, both variable and fixed. Investments in the
Subaccounts provide returns which are variable and are contingent upon the
performance of the underlying Fund. Allocations to either the GIA or MVA
produces guaranteed interest earnings subject to certain conditions. Please
refer to "Appendix A" for detailed information regarding the GIA and to the MVA
prospectus before allocating payments to these options. You also may select from
a number of different variable annuity and fixed annuity payout options, some of
which offer retirement income payments which you cannot outlive. See "The
Annuity Period--Annuity Options." Contracts are available to fund both non-tax
qualified and certain tax qualified retirement plans. The Contract is designed
to provide retirement income at a future date by the investment of funds on a
tax-deferred basis. Generally, any earnings on your investment will accumulate
without being subject to annual income tax until withdrawn. The Contract
provides for payment upon the death of either the Owner or the Annuitant anytime
before the Maturity Date. Contracts may not be available for sale in all states.
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
You may make payments any time until the Maturity Date that you select
subject to certain limitations. You can vary the amount and frequency of your
purchase payments. Other than the Minimum Initial Purchase Payment there is no
scheduled or required purchase payment.
CONTRIBUTIONS
For non-tax qualified plans and Individual Retirement Annuities ("IRAs")
including SEP IRAs and SIMPLE IRAs, you must make a Minimum Initial Purchase
Payment of at least $1,000 to put a Contract in effect. Minimum purchase
payments to the MVA must be at least $1,000. If your payments are made by our
monthly bank draft investment program, you are allowed to pay a reduced Minimum
Initial Purchase Payment amount of at least $25.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
Your purchase payment will be invested in one or more of the Subaccounts,
GIA and/or the MVA. The assets of the Subaccounts are used to purchase, at Net
Asset Value, shares of a designated Fund. You also may change your allocation to
the various investment options by changing your allocation percentages or by
making transfers among the Subaccounts, GIA and/or the MVA. Transfers into the
GIA, MVA and/or among the Subaccounts of the Account may be made anytime prior
to the annuity date.
In general, you can only make one transfer per year from the GIA. The amount
that can be transferred out is limited to the greater of $1,000 or 25% of the
Contract Value in the GIA as of the date of the transfer. If you elect the
Systematic Transfer Program, approximately equal amounts may be transferred out
of the GIA. Also, the total Contract Value allocated to the GIA may be
transferred out of the GIA to one or more of the Subaccounts and/or MVA.
Transfers from the GIA are subject to the rules discussed in Appendix A and in
"The Accumulation Period--Transfers."
Transfers from the MVA may be subject to market value adjustments and are
subject to certain rules. See the MVA prospectus.
The Contract Value allocated to the Account is not guaranteed and will vary
with the investment performance of the underlying Fund. The Contract Value
allocated to the GIA will depend on deductions taken from the GIA and will
accumulate at rates we determine (4% minimum for GIA).
WITHDRAWALS
You may partially or fully surrender the Contract anytime for its Contract
Value less any applicable sales charge and premium tax. Prior to the Maturity
Date, you may withdraw up to 10% of the Contract Value as of the end of the
previous year in a Contract year after the first Contract year without a sales
charge. See "Surrender of Contract; Partial Withdrawals."
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
at any time prior to the Maturity Date of the Contract. The amount payable will
be different depending on whether the Annuitant or Owner/Annuitant has attained
age 85. If the Annuitant and Owner are not the same, the amount payable upon the
death of the Owner will be equal to the greater of: (a) 100% of purchase
payments made, less withdrawals or (b) the Contract Value (no surrender charge
is imposed), less any deferred premium tax. See "Payment Upon Death Before
Maturity." The Contract also provides for payment upon death after the Contract
Maturity Date. See "Payment Upon Death Before Maturity Date" and "Payment Upon
Death After Maturity Date."
DEDUCTIONS AND CHARGES
GENERALLY
No deductions are made from purchase payments. A deduction for sales charges
may be taken from the proceeds when a Contract is surrendered or when an amount
is withdrawn, if assets have not been held under the Contract for a certain
period of time. However, no deduction for sales charges will be taken after the
Annuity Period has begun, unless unscheduled withdrawals are made under Annuity
Options K or L. If a sales charge is imposed, it is imposed on a first-in,
first-out basis. No sales charge will be imposed in the event that the Annuitant
or Owner dies before the date that annuity payments will commence. The total
deferred sales charges on a Contract will never exceed 9% of the total purchase
payments. See "Sales Charges."
9
<PAGE>
FROM THE ACCOUNT
There is a mortality and expense risk fee and a daily administrative fee
assessed against the Account. The mortality and expense risk fee is 1.25%. See
"Charges for Mortality and Expense Risks." The daily administrative fee is equal
to 0.125% on an annual basis. See "Charges for Administrative Services."
OTHER CHARGES OR DEDUCTIONS
In most states, premium taxes are imposed when a Contract is annuitized
rather than when purchase payments are made by the Contract Owner. PHL Variable
will reimburse itself for such taxes on the date of a partial withdrawal,
surrender of the Contract, Maturity Date or payment of death proceeds. See
"Premium Tax." To cover its fixed cost of administration, PHL Variable generally
charges each Contract $35 each year.
In addition, certain charges are deducted from the assets of the Funds. For
investment management services, each Series of a Fund pays the investment
manager a separate monthly fee calculated on the basis of its average daily net
assets during the year.
For a more complete description of the fees chargeable under the Contract,
see "Deductions and Charges."
VARIATIONS
PHL Variable is subject to laws and regulations in every state in which the
Contract is sold. As a result, the terms of the Contract may vary from state to
state.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the 10-day period, unless
the Contract is issued with a Temporary Money Market Allocation Amendment, in
which case the initial purchase payment is refunded. See "Free Look Period."
LAPSE
If on any Valuation Date the total Contract Value equals zero, or, the
premium tax reimbursement due on a surrender or partial withdrawal is greater
than or equal to the Contract Value, the Contract will immediately terminate and
lapse without value.
10
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(SELECTED DATA FOR AN ACCUMULATION UNIT
OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are financial highlights for the period indicated.
<TABLE>
<CAPTION>
MONEY MARKET MULTI-SECTOR
SUBACCOUNT GROWTH SUBACCOUNT SUBACCOUNT
---------- ----------------- ----------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.051525 $1.014954 $1.000000 $1.202623 $1.082876 $1.000000 $1.166339 $1.051781 $1.000000
Unit value, end of period...... $1.091039 $1.051525 $1.014954 $1.436490 $1.202623 $1.082876 $1.276756 $1.166339 $1.051781
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 32,019 22,142 5,893 77,819 42,365 3,037 29,245 13,252 319
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION SUBACCOUNT INTERNATIONAL SUBACCOUNT BALANCED SUBACCOUNT
--------------------- ------------------------ -------------------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.120864 $1.042018 $1.000000 $1.181847 $1.009660 $1.000000 $1.142528 $1.047597 $1.000000
Unit value, end of period...... $1.334927 $1.120864 $1.042018 $1.306260 $1.181847 $1.009660 $1.329181 $1.142528 $1.047597
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 22,085 13,249 2,919 7,089 3,095 133 10,024 5,616 719
</TABLE>
<TABLE>
<CAPTION>
WANGER INT'L SMALL CAP WANGER U.S. SMALL CAP
REAL ESTATE SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------- ---------------------- ---------------------
FROM FROM FROM
YEAR ENDED INCEPTION YEAR ENDED INCEPTION YEAR ENDED INCEPTION
DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO DECEMBER 31, 7/31/95 TO
1997 1996 12/31/95 1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.378845 $1.050105 $1.000000 $1.417188 $1.088168 $1.000000 $1.376482 $0.951679 $1.000000
Unit value, end of period...... $1.660307 $1.378845 $1.050105 $1.377428 $1.417188 $1.088168 $1.757439 $1.376482 $0.951679
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 7,737 1,543 226 20,361 9,834 257 34,966 16,757 1,313
</TABLE>
<TABLE>
<CAPTION>
ENHANCED INDEX
THEME SUBACCOUNT ASIA SUBACCOUNT SUBACCOUNT
---------------- --------------- --------------
FROM FROM FROM
INCEPTION INCEPTION INCEPTION
YEAR ENDED 1/29/96 TO YEAR ENDED 1/29/96 TO 5/1/97 TO
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.078271 $1.000000 $0.997488 $1.000000 $1.000000
Unit value, end of period...... $1.246377 $1.078271 $0.665071 $0.997488 $1.040992
========= ========= ========= ========= =========
Number of units outstanding
(000)........................ 10,169 4,054 3,655 1,133 3,958
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON TEMPLETON
STOCK ASSET ALLOCATION INTERNATIONAL DEVELOPING MARKETS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ----------
FROM FROM FROM FROM
INCEPTION INCEPTION INCEPTION INCEPTION
5/1/97 TO 5/1/97 TO 5/1/97 TO 5/1/97 TO
12/31/97 12/31/97 12/31/97 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.000000 $1.000000 $1.000000 $1.000000
Unit value, end of period...... $1.044077 $1.064886 $1.075133 $0.662660
========= ========= ========= =========
Number of units outstanding
(000)........................ 6,100 4,622 4,072 3,275
</TABLE>
ENGEMANN NIFTY FIFTY SUBACCOUNT, PHOENIX GROWTH & INCOME SUBACCOUNT,
PHOENIX VALUE EQUITY SUBACCOUNT,
SENECA MID-CAP GROWTH SUBACCOUNT, SCHAFER MID-CAP VALUE SUBACCOUNT
These Subaccounts commenced operations on March 2, 1998; accordingly, data
for these Subaccounts is not yet available.
MUTUAL SHARES INVESTMENTS SUBACCOUNT
This Subaccount commenced operations on November 2, 1998; accordingly, data
for this Subaccount is not yet available.
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.
11
<PAGE>
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
From time to time, the Account may include the performance history of any or
all Subaccounts in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUBACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the
Multi-Sector Subaccount and as total return of any Subaccount. For the
Multi-Sector Subaccount, quotations of yield will be based on all investment
income per unit earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing the net investment income by the maximum offering price
per unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $1,000 investment in the Subaccount at the
beginning of the relevant period to the value of the investment at the end of
the period, assuming the reinvestment of all distributions at net asset value
and the deduction of all applicable Contract charges except for premium taxes
(which vary by state) at the beginning of the relevant period.
For those Subaccounts within the Account that have not been available for
one of the quoted periods, the standardized average annual total return
quotations may show the investment performance such Subaccount would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED 12/31/97
---------------------------------------------------------
COMMENCEMENT SINCE
SUBACCOUNT DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------- ---- ------ ------- -------- ---------
Multi-Sector..... 1/1/83 2.50% 8.81% 9.21% 9.40%
Balanced......... 5/1/92 8.83% 8.89% N/A 9.38%
Allocation....... 9/17/84 11.42% 8.97% 10.56% 11.55%
Growth........... 1/1/83 11.74% 14.37% 15.81% 16.84%
International.... 5/1/90 3.39% 12.77% N/A 7.34%
Money Market..... 10/10/82 (2.95%) 2.36% 4.10% 4.84%
Real Estate...... 5/1/95 12.64% N/A N/A 23.04%
U.S. Small Cap... 5/1/95 19.45% N/A N/A 29.68%
Int'l. Small Cap. 5/1/95 (9.08%) N/A N/A 19.01%
Theme............ 1/29/96 8.13% N/A N/A 8.82%
Asia............. 9/20/96 (37.65%) N/A N/A (30.87%)
Enhanced Index... 7/15/97 N/A N/A N/A (1.52%)
TPT Allocation(1) 11/28/88 6.41% 12.94% N/A 10.79%
TPT Stock(1)..... 11/4/88 3.00% 14.95% N/A 11.22%
TPT Int'l(1)..... 5/1/92 4.88% 16.03% N/A 12.56%
TPT Dev. Mkts.(1) 9/15/96 (34.86%) N/A N/A (28.36%)
(1) Returns shown prior to 5/1/97, the inception date of the Class 2 shares, are
derived from the historical performance of Class 2 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually.
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.56% N/A N/A 31.10% N/A 6.85%
1984.... 9.82% N/A (1.51%) 9.16% N/A 8.72%
1985.... 18.97% N/A 25.61% 33.09% N/A 6.56%
1986.... 17.67% N/A 14.11% 18.83% N/A 5.06%
1987.... (0.30%) N/A 11.02% 5.47% N/A 5.05%
1988.... 8.98% N/A 0.94% 2.50% N/A 5.98%
1989.... 6.76% N/A 18.28% 34.35% N/A 7.71%
1990.... 3.78% N/A 4.32% 2.62% (8.98%) 6.74%
1991.... 17.96% N/A 27.56% 40.81% 18.11% 4.53%
1992.... 8.58% 8.43% 9.15% 8.79% (14.03%) 2.16%
1993.... 14.35% 7.13% 9.50% 18.08% 36.59% 1.47%
1994.... (6.78%) (4.17%) (2.75%) 0.08% (1.31%) 2.42%
1995.... 21.89% 21.69% 16.63% 29.13% 8.12% 4.23%
1996.... 10.89% 9.06% 7.57% 11.06% 17.05% 3.60%
1997.... 9.57% 16.34% 19.10% 19.45% 10.53% 3.76%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.75%(3) N/A N/A N/A 14.97%(3) 33.35%(3)
1996.... 31.31% 8.98%(3) (0.23%)(3) N/A 44.64% 30.24%
1997.... 20.41% 15.59% (33.33%) 5.19%(3) 27.68% (2.81%)
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L(2) DEV. MKTS.(2)
- ---- ------------- -------- -------- -------------
1989.... 11.49% 12.83% N/A N/A
1990.... (9.47%) (12.50%) N/A N/A
1991.... 25.70% 25.50% N/A N/A
1992.... 6.36% 5.41% (7.15%)(3) N/A
1993.... 24.15% 31.92% 45.01% N/A
1994.... (4.55%) (3.80%) (3.83%) N/A
1995.... 20.60% 23.26% 13.91% N/A
1996.... 16.96% 20.47% 22.06% 0.90%(3)
1997.... 13.74% 10.10% 12.12% (30.35%)
(1) Sales charges have not been deducted from the Annual Total Returns.
(2) Returns shown prior to 1997, the inception year of the Class 2 shares, are
derived from the historical performance of Class 1 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually. Past fee waivers by
the Investment Manager of the Templeton Developing Markets Fund increased
total returns.
(3) From inception.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
Current yield for the Money Market Subaccount is based upon the income
earned by the Subaccount over a seven-day period and then annualized, i.e., the
income earned in the period is assumed to be earned every seven days over a
52-week period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Subaccount Units and thus compounded in the course
of a 52-week period. Yield and effective yield reflect the recurring charges on
the Account level excluding the annual administrative fee.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical Contract Owner's
account having a balance of exactly one Unit at the beginning of a 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 Money Market
Subaccount based on a 7-day period ending December 31, 1997.
12
<PAGE>
Example:
Value of hypothetical pre-existing account with
exactly one unit
at the beginning of the period:................... 1.090370
Value of the same account (excluding capital
changes) at the
end of the 7-day period:......................... 1.091039
Calculation:
Ending account value.............................. 1.091039
Less beginning account value...................... 1.090370
Net change in account value....................... 0.000669
Base period return:
(adjusted change/beginning account value)......... 0.000614
Current yield = return x (365/7) =................. 3.20%
Effective yield = [(1 + return)(365/7)] -1 =........ 3.25%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), and the Europe Australia Far East Index, and also may be compared to the
performance of the other variable annuity accounts as reported by services such
as Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA") and Morningstar, Inc. or in other various publications. Lipper and
CDA are widely recognized independent rating/ranking services. A Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the S&P
500, Dow Jones Industrial Average, First Boston High Yield Index and Solomon
Brothers Corporate and Government Bond Indices.
Each Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by PHL Variable may be significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who assume the risk of investment gain or loss rather
than PHL Variable. To the extent that payments are not allocated to the GIA or
MVA, the amounts which will be available for annuity payments under a Contract
will depend on the investment performance of the amounts allocated to the
Subaccounts of the Account. Upon the maturity of a Contract, the amounts held
under a Contract will continue to be invested in the Account or the GIA and
monthly annuity payments will vary in accordance with the investment experience
of the investment options selected. However, a fixed annuity may be elected, in
which case PHL Variable will guarantee specified monthly annuity payments.
The Owner selects the investment objective of each Contract on a continuing
basis by directing the allocation of purchase payments and Contract Value among
the Subaccounts, GIA or MVA.
PHL VARIABLE AND THE ACCOUNT
- --------------------------------------------------------------------------------
PHL Variable is a wholly-owned indirect subsidiary of Phoenix Home Life
Mutual Insurance Company. Its executive office is located at One American Row,
Hartford, Connecticut 06102 and its main administrative office is located at 100
Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. PHL Variable is a
Connecticut stock company formed on April 24, 1981. On December 31, 1997, it had
assets of $428 million. PHL Variable sells variable annuity contracts through
its own field force of agents and through brokers. Its operations are currently
conducted in 45 states.
On December 7, 1994, PHL Variable established the Account, a separate
account created under the insurance laws of Connecticut. The Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act") and it meets the definition of a "separate account"
under the 1940 Act. Registration under the 1940 Act does not involve supervision
of the management or investment practices or policies of the Account or PHL
Variable.
Under Connecticut law, all income, gains or losses of the Account, whether
realized or not, must be credited to or charged against the amounts placed in
the Account without regard to the other income, gains and losses of PHL
Variable. The assets of these accounts may not be charged with liabilities
arising out of any other business that PHL Variable may conduct. Obligations
under the Contracts are obligations of PHL Variable.
Contributions to the GIA are not invested in the Account; rather, they
become part of the general account of PHL Variable (the "General Account"). The
General Account supports all insurance and annuity obligations of PHL Variable
and is made up of all of its general assets other than those allocated to any
separate account such as the Account. For more complete information concerning
the GIA, see Appendix A.
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:
MONEY MARKET SERIES: The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity. The Money Market Series invests exclusively in high quality money
market instruments.
13
<PAGE>
GROWTH SERIES: The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return. The Multi-Sector
Series seeks to achieve its investment objective by investing in a diversified
portfolio of high yield and high quality fixed income securities.
STRATEGIC ALLOCATION ("ALLOCATION") SERIES: The investment objective of the
Allocation 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
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.
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International 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 International Series provides a means for investors to invest
a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series invests based on combined considerations of risk, income,
capital enhancement and protection of capital value.
REAL ESTATE SECURITIES ("REAL ESTATE") SERIES: The investment objective of
the Real Estate Series is to seek capital appreciation and income with
approximately equal emphasis. 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.
STRATEGIC THEME ("THEME") SERIES: The investment objective of the Theme
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
Theme Series invests primarily in common stocks believed to have substantial
potential for capital growth.
ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the Asia
Series is to seek long-term capital appreciation. The Asia Series invests
primarily in a diversified portfolio of equity securities of issuers organized
and principally operating in Asia, excluding Japan.
RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES: The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the S&P 500. The
Enhanced Index 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.
ENGEMANN NIFTY FIFTY ("NIFTY FIFTY") SERIES: The investment objective of the
Nifty Fifty Series is to seek long-term capital appreciation by investing in
approximately 50 different securities which offer the best potential for
long-term growth of capital. At least 75% of the Series' assets will be invested
in common stocks of high quality growth companies. The remaining portion will be
invested in common stocks of small corporations with rapidly growing earnings
per share or common stocks believed to be undervalued.
SENECA MID-CAP GROWTH ("SENECA MID-CAP") SERIES: The investment objective of
the Seneca Mid-Cap Series is to seek capital appreciation primarily through
investments in equity securities of companies that have the potential for above
average market appreciation. The Series seeks to outperform the Standard &
Poor's Mid-Cap 400 Index.
PHOENIX GROWTH AND INCOME ("GROWTH & INCOME") SERIES: The investment
objective of the Growth & Income Series is to seek dividend growth, current
income and capital appreciation by investing in common stocks. The Growth &
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 VALUE EQUITY ("VALUE") SERIES: The primary investment objective of
the Value Series is long-term capital appreciation, with a secondary investment
objective of current income. The Value 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.
SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary investment
objective of the Schafer Mid-Cap Series is to seek long-term capital
appreciation, with current income as the secondary investment objective. The
Schafer Mid-Cap 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.
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 U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
Series invests primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series invests primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
WANGER TWENTY (TWENTY) SERIES: The investment objective of the Twenty
Series is to seek long-term capital growth. The Twenty Series
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invests primarily in the stocks of U.S. companies with market capitalizations
of $1 billion to $10 billion and ordinarily focuses its investments in 20 to
25 U.S. companies.
WANGER FOREIGN FORTY (FOREIGN) SERIES: The investment objective of the
Foreign Series is to seek long-term capital growth. The Foreign Series invests
primarily in equity securities of foreign companies with market capitalizations
of $1 billion to $10 billion and focuses its investments in 40 to 60 companies
in the developed markets.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of the
Templeton Variable Products Series Fund. The following Series are currently
available through the Contracts:
TEMPLETON STOCK ("STOCK") SERIES: The investment objective of the Stock
Series is to provide capital growth. The Stock Series invests primarily in
common stocks issued by companies, large and small, in various nations
throughout the world.
TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES: The investment
objective of the TPT Allocation Series is to seek a high level of total return
through a flexible investment policy. The TPT 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 INTERNATIONAL ("TPT INTERNATIONAL") SERIES: The investment
objective of the TPT International Series is to seek long-term capital growth
through a flexible policy of investing. The TPT 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 convertible bonds which are rated in any category by S&P or
Moody's or which are unrated by any rating agency.
TEMPLETON DEVELOPING MARKETS ("DEVELOPING MARKETS") SERIES: The investment
objective of the Developing Markets Series is to seek long-term capital
appreciation. The Developing Markets Series invests primarily in equity
securities of issuers in countries having developing markets.
MUTUAL SHARES INVESTMENTS ("SHARES") SERIES: The primary investment
objective of the Shares Series is to seek capital appreciation with income as a
secondary objective. The Shares Series invests in domestic equity securities and
domestic debt obligations.
Each Series will be subject to market fluctuations and risks inherent in the
ownership of any security and there can be no assurance that the stated
investment objective of any Series will be realized.
In addition to being sold to the Account, shares of the Funds also are
sold to the PHLVIC Variable Universal Life Account, a separate account used by
PHL Variable to receive and invest premiums paid under certain variable
universal life policies issued by PHL Variable. Shares of the Funds also may be
sold to other separate accounts of PHL Variable or its affiliates or of other
insurance companies.
It is conceivable 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
thereto. Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in federal income tax laws, (3) changes in the
investment management of any portfolio of 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 Real Estate and Asia Series.
Based on subadvisory agreements with the Fund, PIC delegates certain investment
decisions and research functions to subadvisers for the following Series:
Enhanced Index Series J.P. Morgan Investment Management, Inc.
Nifty Fifty Series Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and Aberdeen Fund Managers, Inc.
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P.
The investment adviser for the Stock, TPT Asset Allocation and TPT
International Series is Templeton Investment Counsel, Inc.
Templeton Asset Management, Ltd. is the investment adviser for the
Developing Markets Series.
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Franklin Mutual Advisers, Inc. is the investment adviser for the Shares
Series.
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
MVA
- --------------------------------------------------------------------------------
The MVA is an account that pays interest at a guaranteed rate if held to
maturity. If amounts are withdrawn, transferred or applied to an annuity option
before the end of the guarantee period, a market value adjustment will be made.
Assets allocated to the MVA are not part of the assets allocated to the Account
or the general account of PHL Variable.
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS AND THE MVA, PLEASE SEE THE
ACCOMPANYING PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
The minimum initial purchase payment for each Contract purchased is $1,000.
However, for contracts purchased in connection with tax-qualified or employer
sponsored plans, a minimum annual payment of $1,000 is required. In addition, a
Contract Owner may authorize his or her bank to draw $25 or more from his or her
personal checking account monthly to purchase Units in any available Subaccount,
or for deposit in the GIA or MVA. The amount the Contract Owner designates will
be automatically invested on the date the bank draws on his or her account. If
this "check-o-matic" privilege is elected, the minimum initial purchase payment
is $25. This payment must accompany the application. Each subsequent purchase
payment under a Contract must be at least $25.
Generally, a Contract may not be purchased with respect to a proposed
Annuitant who is 81 years of age or older. Total purchase payments in excess of
$1,000,000 cannot be made without the permission of PHL Variable. While the
Annuitant is living and the Contract is in force, purchase payments may be
resumed at any time before the Maturity Date of a Contract.
Purchase payments received under the Contracts will be allocated in any
combination to any Subaccount, GIA or MVA, in the proportion specified in the
application for the Contract or as indicated by the Owner from time to time.
Initial purchase payments may, under certain circumstances, be allocated to the
Money Market Subaccount. See "Free Look Period." Changes in the allocation of
purchase payments will be effective as of receipt by VPMO of notice of election
in a form satisfactory to PHL Variable and will apply to any purchase payments
accompanying such notice or made subsequent to the receipt of the notice, unless
otherwise requested by the Contract Owner.
DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
PREMIUM TAX
Whether or not a premium tax is imposed will depend upon, among other
things, the Owner's state of residence, the Annuitant's state of residence, the
status of PHL Variable within those states and the insurance tax laws of those
states. PHL Variable will pay any premium tax due and will reimburse itself only
upon the earlier of partial withdrawal, surrender of the Contract, Maturity Date
or payment of death proceeds. For a list of states and premium taxes, see
Appendix B to this Prospectus.
SALES CHARGES
A deduction for sales charges (also referred to in this Prospectus as
"surrender charges") for this Contract may be taken from proceeds of withdrawals
from, or complete surrender of, the Contract if assets are not held under the
Contract for a certain period of time. See chart below. No sales charge will be
taken from death proceeds or after the Annuity Period has begun except with
respect to unscheduled withdrawals under Annuity Option K or L below. See
"Annuity Options." Any sales charge is imposed on a first-in, first-out basis.
With respect to withdrawals or surrenders, up to 10% of the Contract Value
may be withdrawn in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders, without the imposition of a sales
charge. During the first Contract year, the 10% withdrawal without a sales
charge is available only on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
withdrawal. In all subsequent years, the 10% will be based on the previous
Contract anniversary value. The deduction for sales charges, expressed as a
percentage of the amount withdrawn in excess of the 10% allowable amount, is as
follows:
AGE OF PURCHASE PAYMENT DEFERRED
IN COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
--------------------- ----------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and over 0%
In the event that the Annuitant or Owner dies before the Maturity Date of
the Contract, the sales charge described in the table above will not apply.
The total deferred sales charges on a Contract will never exceed 9% of the
total purchase payments, and the applicable level of sales charge cannot be
changed with respect to outstanding Contracts. Sales charges imposed in
connection with partial surrenders will be deducted from the Subaccounts, GIA
and MVA on a pro rata basis. Any distribution costs not paid for by sales
charges will be paid by PHL Variable from the assets of the General Account.
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CHARGES FOR MORTALITY AND EXPENSE RISKS
While fixed annuity payments to Annuitants will reflect the investment
performance of the applicable Series of the Funds during the Accumulation
Period, the amount of such payments will not be decreased because of adverse
mortality experience of Annuitants as a class or because of an increase in
actual expenses of PHL Variable over the expense charges provided for in the
Contract. PHL Variable assumes the risk that Annuitants as a class may live
longer than expected (necessitating a greater number of annuity payments) and
that its expenses may be higher than the deductions for such expenses.
In assuming the mortality risk, PHL Variable agrees to continue life annuity
payments, determined in accordance with the annuity tables and other provisions
of the Contract, to the Annuitant or other payee for as long as he or she may
live.
PHL Variable charges each Subaccount the daily equivalent of .40% annually
of the current value of the Subaccount's net assets for mortality risks assumed
and the daily equivalent of .85% annually for expense risks assumed. (See the
Contract Schedule Pages). No mortality and expense risk charge is deducted from
the GIA or MVA. If the charges prove insufficient to cover actual insurance
underwriting costs and excess administrative costs, then the loss will be borne
by PHL Variable; conversely, if the amount deducted proves more than sufficient,
the excess will be a profit to PHL Variable. Any such profit may be used, as
part of PHL Variable's General Account assets, to meet sales expenses, if any,
which are in excess of sales commission revenue generated from any sales
charges. PHL Variable has concluded that there is a reasonable likelihood that
the distribution financing arrangement being used in connection with the
Contract will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
PHL Variable is responsible for administering the Contract. In this
connection, PHL Variable, among other things, maintains an account for each
Owner and Annuitant, makes all disbursements of benefits, furnishes
administrative and clerical services for each Contract, makes disbursements to
pay obligations chargeable to the Account, maintains the accounts, records and
other documents relating to the business of the Account required by regulatory
authorities, causes the maintenance of the registration and qualification of the
Account under laws administered by the SEC, prepares and distributes notices and
reports to Owners, and the like. PHL Variable also reimburses Phoenix Equity
Planning Corporation for any expenses incurred by it as "principal underwriter."
To cover certain of its costs of administration, such as preparation of
billings and statements of account, PHL Variable generally charges each Contract
$35 each year prior to the Contract's Maturity Date. A reduced charge may apply.
This charge is deducted from each Subaccount, GIA and MVA holding the assets of
the Owner or on a pro rata basis from two or more Subaccounts, GIA or MVA in
relation to their values under the Contract, and is not subject to increase but
may be subject to decrease. This charge is deducted on the Contract anniversary
date for services rendered since the preceding Contract anniversary date. Upon
surrender of a Contract, where applicable, the entire annual administrative
charge of $35 is deducted regardless of when the surrender occurs.
If the Owner elects Payment Options I, J, K, M or N, the annual
administrative charge after the Maturity Date will be deducted from each annuity
payment in equal amounts.
PHL Variable may reduce the annual administrative charges for Contracts
issued under tax-qualified plans other than IRAs and group or sponsored
arrangements such as Internal Revenue Code Section 403(b) or 457 Plans.
Generally, administrative costs per Contract vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which the Contracts are
purchased and other factors. The amounts of reductions will be considered on a
case-by-case basis but will be applied in a uniform, nondiscriminatory manner
that reflects the reduced administrative costs expected as a result of sales to
a particular group or sponsored arrangement.
PHL Variable also charges each Subaccount available through a Contract the
daily equivalent of 0.125% on an annual basis of the accumulated value of the
Subaccount to cover its variable costs of administration (such as printing and
distribution of materials pertaining to Contract Owner meetings). This fee is
not deducted from the GIA or MVA.
No sales or annual administrative charges will be deducted for Contracts
sold to registered representatives of the principal underwriter or to officers,
directors and employees of PHL Variable or its affiliates and their spouses; or
to employees or agents who retire from PHL Variable or its affiliates or Phoenix
Equity Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of broker-dealers with whom PEPCO has selling agreements,
regardless as to their state of residence.
MARKET VALUE ADJUSTMENT
Any withdrawal from your MVA will be subject to a market value adjustment.
See the accompanying MVA prospectus for information relating to this option.
OTHER CHARGES
As compensation for investment management services, the Advisers are entitled to
a fee, payable monthly and based on an annual percentage of the average
aggregate daily net asset values of each Series. These Fund charges and other
expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- -------------------------------------------------------------------------------
ACCUMULATION UNITS
Initial purchase payments will be applied within two days if the application
for a Contract is complete. If an incomplete application is completed within
five business days of receipt by VPMO, the initial purchase payment will be
applied within two days of the completion of the application. In the event that
VPMO does not accept the application within five business days or if an order
form is not completed within five business days of receipt by VPMO, then the
purchase payment will be immediately returned. If the GIA or MVA is chosen,
additional purchase payments are deposited on the date of receipt of such
purchase payment at VPMO. If one or more of the Subaccounts is chosen,
additional purchase payments are applied to
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the purchase of Accumulation Units of the Subaccount(s) chosen, at the value of
such Units next determined after the receipt of such purchase payment at VPMO.
The number of Accumulation Units of a Subaccount purchased with a specific
purchase payment will be determined by dividing the applied purchase payment by
the value of an Accumulation Unit in that Subaccount next determined after
receipt of the purchase payment. The value of the Accumulation Units of a
Subaccount will vary depending upon the investment performance of the applicable
Series of the Funds, the expenses charged against the Fund and the charges and
deductions made against the Subaccount.
ACCUMULATION UNIT VALUES
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Subaccount which has been credited under a Contract
can be computed by multiplying the number of such Units by the appropriate value
of an Accumulation Unit in effect for such date. The value of an Accumulation
Unit on a day other than a Valuation Date is the value of the Accumulation Unit
on the next Valuation Date. The number of Accumulation Units in each Subaccount
credited under each Contract and their current value will be reported to the
Owner at least annually.
TRANSFERS
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Subaccounts, the GIA or MVA. Any such transfer from a
Subaccount will result in the redemption of Accumulation Units and, if another
Subaccount is selected, in the purchase of Accumulation Units on the basis of
the respective values next determined after the receipt by VPMO of written
notice of election in a form satisfactory to PHL Variable. A transfer among
Subaccounts, the GIA or MVA does not automatically change the payment allocation
schedule of a contract.
A Contract Owner also may request transfers and changes in payment
allocations among available Subaccounts, the GIA or MVA by calling VPO at
(800) 541-0171 between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless
the Contract Owner elects in writing not to authorize telephone transfers or
allocation changes, telephone transfer orders and allocation changes also will
be accepted on behalf of the Contract Owner from his or her registered
representative. PHL Variable and PEPCO will employ reasonable procedures to
confirm that telephone instructions are genuine. They will require verification
of account information and will record telephone instructions on tape. All
telephone transfers and allocation changes will be confirmed in writing to the
Contract Owner. To the extent that procedures reasonably designed to prevent
unauthorized transfers are not followed, PHL Variable and PEPCO may be liable
for following telephone instructions for transfers that prove to be fraudulent.
However, the Contract Owner would bear the risk of loss resulting from
instructions entered by an unauthorized third party that PHL Variable and PEPCO
reasonably believe to be genuine. These telephone exchange and allocation change
privileges may be modified or terminated at any time and during times of extreme
market volatility, may be difficult to exercise. In such cases a Contract Owner
should submit a written request.
A Contract Owner also may elect to transfer funds automatically among the
Subaccounts or GIA on a monthly, quarterly, 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. A Contract Owner must have an initial value of $2,000 in the
GIA or the Subaccount from which funds will be transferred (sending Subaccount),
and if the value in that Subaccount or the GIA drops below the elected transfer
amount, the entire remaining balance will be transferred and no more systematic
transfers will be processed. Funds may be transferred from only one sending
Subaccount or the GIA but may be allocated to multiple receiving Subaccounts.
Under the Systematic Transfer Program, Contract Owners may transfer
approximately equal amounts from the GIA over a minimum 18-month period. This
program is not available for the MVA.
Upon completion of the Systematic Transfer Program, the Contract Owner must
notify VPO at (800) 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 the respective values as of the first of the month rather than on the
basis of the respective values next determined after receipt of the transfer
request. If the first of the month falls on a holiday or weekend, then the
transfer will be processed on the next succeeding business day.
Unless PHL Variable agrees otherwise or the Systematic Transfer Program has
been elected, a Contract Owner may make only one transfer per Contract year from
the GIA. Non-systematic transfers from the GIA and MVA will be effectuated on
the date of receipt by VPMO except as otherwise may be requested by the Contract
Owner. For non-systematic transfers, the amount that may be transferred from the
GIA at any one time cannot exceed the greater of $1,000 or 25% of the Contract
Value in the GIA at the time of transfer. For non-systematic transfers from the
MVA, the market value adjustment may be applied. See the accompanying MVA
prospectus for more information.
Because excessive trading can hurt Fund performance and harm Contract
Owners, Phoenix reserves the right to temporarily or permanently terminate
exchange privileges or reject any specific order from anyone whose transactions
seem to follow a timing pattern, including those who request more than one
exchange out of a Subaccount within any 30-day period. Phoenix will not accept
batch transfer instructions from registered representatives (acting under powers
of attorney for multiple Contract Owners), unless the registered
representative's broker-dealer firm and Phoenix have entered into a third-party
transfer service agreement.
PHL Variable reserves the right not to accept transfer instructions from
registered representatives acting under powers of attorney for multiple Contract
Owners unless the registered representative's broker-dealer and PHL Variable
have entered into a third-party transfer service agreement.
No sales charge will be assessed when a transfer is made. The date a payment
was credited for the purpose of calculating the sales charge will remain the
same notwithstanding the transfer. Currently,
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<PAGE>
there is no charge for transfers; however, PHL Variable reserves the right to
charge a transfer fee of $10 per transfer after the first two in each Contract
year to defray administrative costs. Currently, unlimited transfers are
permitted; however, PHL Variable reserves the right to limit the number of
transfers made during each Contract year a Contract is in existence. When the
Temporary Money Market Allocation Amendment has been elected, no transfers may
be made until the end of the free look period. See "Free Look Period." However,
Contract Owners will be permitted at least six transfers during each Contract
year. THERE ARE ADDITIONAL RESTRICTIONS ON TRANSFERS FROM THE GIA AS DESCRIBED
ABOVE AND IN APPENDIX A. See the MVA prospectus for information regarding
transfers from the MVA.
PHL Variable reserves the right to limit the number of Subaccounts you may
elect to a total of 18 at any one time and/or over the life of the Contract
unless required to be less to comply with changes in federal and/or state
regulation, including tax, securities and insurance law.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Prior to the Maturity Date, the Contract Owner may
withdraw up to 10% of the Contract Value in a Contract year, either in a lump
sum or by multiple scheduled or unscheduled partial withdrawals, without the
imposition of a sales charge. During the first Contract year, the 10% withdrawal
without a sales charge is available only on Contracts issued on or after May 1,
1996 and will be determined based on the Contract Value at the time of the first
partial withdrawal. In all subsequent years, the 10% will be based on the
previous Contract anniversary value. A signed written request for withdrawal
must be sent to VPMO. If the Contract Owner has not yet reached age 59 1/2, a
10% penalty tax may apply on taxable income withdrawn. See "Federal Income
Taxes." The appropriate number of Accumulation Units of a Subaccount will be
redeemed at their value next determined after the receipt by VPMO of a written
notice in a form satisfactory to PHL Variable. Accumulation Units redeemed in a
partial withdrawal will be redeemed in the same proportion as the value of the
Accumulation Units of the Contract is then allocated among the Subaccounts
unless the Owner designates otherwise. Also, Contract Values in the GIA or MVA
will be withdrawn in a partial withdrawal in the same proportion as the Contract
Value is then allocated to the GIA or MVA, unless the Owner designates
otherwise. Withdrawals from the MVA may be subject to the market value
adjustment. See the MVA prospectus. The redemption value of Accumulation Units
may be more or less than the purchase payments applied under the Contract to
purchase the Accumulation Units, depending upon the investment performance in
each Subaccount. The resulting cash payment will be made in a single sum,
ordinarily within seven days after receipt of such notice. However, redemption
and payment may be delayed under certain circumstances. See "Deferment of
Payment." There may be adverse tax consequences to certain surrenders and
partial withdrawals. See "Surrenders or Withdrawals Prior to the Contract
Maturity Date." Certain restrictions on redemptions are imposed on Contracts
used in connection with Internal Revenue Code Section 403(b) plans. Although
loans are available under 403(b) plans only, certain limitations may apply. See
"Qualified Plans"; "Tax Sheltered Annuities." A deduction for sales charges may
be imposed on partial withdrawals from, and complete surrender of, a Contract.
See "Sales Charges." Any sales charge is imposed on a first-in, first-out basis.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operations, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date the Contract Value is zero, or the premium tax
reimbursement due on surrender or partial withdrawal is greater than or equal to
the Contract Value, unless any Contract Value has been applied under one of the
variable payment options, the Contract will immediately terminate and lapse
without value. Within 30 days after this Valuation Date, PHL Variable will
notify the Contract Owner in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Owner/Annuitant's beneficiary. If
the Owner and the Annuitant are not the same and the Annuitant dies prior to the
Maturity Date, the contingent Annuitant becomes the Annuitant. If there is no
contingent Annuitant, the death benefit will be paid to the Annuitant's
beneficiary. Upon the death of the Annuitant or an Owner/Annuitant who has not
yet attained age 85, the death benefit (less any deferred premium tax) is
calculated according to the following method:
1. Death occurring in the first Contract year -- the greater of:
a. 100% of purchase payments, less any withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
2. Death occurring in the second Contract year or any subsequent Contract
year -- the greater of:
a. the death benefit at the end of the previous Contract year, plus 100%
of purchase payments, less any withdrawals made -- since that
date; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
After the Annuitant's age 85, the death benefit (less any deferred premium
tax) equals the Contract Value (no surrender charge is imposed) next determined
following receipt of a certified copy of the death certificate at VPMO.
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
beneficiary. The amount of death benefit payable is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
If the Owner or Owner/Annuitant's beneficiary elects to defer payment of the
death proceeds for a period longer than one Contract
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year, the death proceeds that will be payable upon distribution is equal to the
greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt at VPMO of both
written authorization for distribution and a certified copy of the
death certificate.
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election. See "Sales Charges." Notwithstanding the foregoing, if the amount
to be paid is less than $2,000, it will be paid in a single sum. See "Annuity
Options." Depending upon state law, the payment to the beneficiary may avoid
probate and the death benefit may be reduced by any premium tax due. See
"Premium Tax." See also "Distribution at Death" under "Federal Income Taxes."
THE ANNUITY PERIOD
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VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will commence on the Contract's Maturity Date if the
Annuitant is then living and the Contract is then in force. On the Maturity Date
and thereafter, investment in the Account is continued unless a Fixed Payment
Annuity is elected. No sales charge is taken. Each Contract will provide, at the
time of its issuance, for a Variable Payment Life Annuity with 10-Year Period
Certain unless a different annuity option is elected by the Owner. See "Annuity
Options." Under a Variable Payment Life Annuity with 10-Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccount selected, are made monthly for life and, if the Annuitant dies within
10 years after the Maturity Date, the Annuitant's beneficiary will be paid the
payments remaining in the 10-year period. A different form of annuity may be
elected by the Owner prior to the Maturity Date. Once annuity payments have
commenced, the Annuity Option may not be changed.
If the amount to be applied on the Maturity Date is less than $2,000, PHL
Variable may pay such amount in one lump sum in lieu of providing an annuity. If
the initial monthly annuity payment under an Annuity Option would be less than
$20, PHL Variable also may make a single sum payment equal to the total Contract
Value on the date the initial payment would be payable, in place of all other
benefits provided by the Contract, or, make periodic payments quarterly,
semiannually or annually in place of monthly payments.
Each Contract specifies a provisional Maturity Date at the time of its
issuance. The Owner may subsequently elect a different Maturity Date. The
Maturity Date shall not be earlier than the fifth Contract anniversary or later
than the Contract anniversary nearest the Annuitant's 95th birthday unless the
Contract is issued in connection with certain qualified plans. Generally, under
qualified plans, the Maturity Date must be such that distributions begin no
later than April 1st of the calendar year following the later of: (a) the year
in which the employee attains age 70 1/2 or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to an IRA.
The Maturity Date election shall be made by written notice and must be
received by VPMO 30 days before the provisional Maturity Date. If a Maturity
Date, which is different from the provisional Maturity Date of the Contract, is
not elected by the Owner, the provisional Maturity Date becomes the Maturity
Date. Particular care should be taken in electing the Maturity Date of a
Contract issued under a Tax Sheltered Annuity (TSA), a Keogh Plan or an IRA
plan. See "Tax Sheltered Annuities," "Keogh Plans" and "Individual Retirement
Accounts."
ANNUITY OPTIONS
Unless an alternative annuity payment option is elected on or before the
Maturity Date, the amounts held under a Contract on the Maturity Date
automatically will be applied to provide a 10-year period certain variable
payment monthly life annuity based on the life of the Annuitant under Option I
described below. Any annuity payments falling due after the death of the
Annuitant during the period certain will be paid to the Annuitant's beneficiary.
Each annuity payment will be based upon the value of the Annuity Units credited
to the Contract. The number of Annuity Units in each Subaccount to be credited
is based on the value of the Accumulation Units in that Subaccount and the
applicable annuity purchase rate. The purchase rate differs according to the
payment option selected and the age of the Annuitant. The value of the Annuity
Units will vary with the investment performance of each Subaccount to which
Annuity Units are credited based on an assumed investment return of 4 1/2% per
year. This rate is a fulcrum return around which variable annuity payments will
vary to reflect whether actual investment experience of the Subaccount is better
or worse than the assumed investment return. The assumed investment return and
the calculation of variable income payments for such 10-year period certain
variable payment life annuity and for Options J and K described below are
described in more detail in the Contract and in the SAI.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with 10-Year Period Certain"), the
Owner may, by written request received by VPMO on or before the Maturity Date of
the Contract, elect any of the other annuity payment options described below. No
surrender charge will be assessed under any annuity option, unless unscheduled
withdrawals are made under Annuity Options K or L.
The level of annuity payments payable under the following options is based
upon the option selected and, depending on the option chosen, such factors as
the age at which payments begin, the form of annuity, annuity purchase rates,
assumed investment return (for variable payment annuities) and the frequency of
payments.
PHL Variable deducts a daily charge for mortality and expense risks and a
daily administrative fee from Contract Values held in the Subaccounts. See
"Charges For Mortality and Expense Risks" and "Charges for Administrative
Services." Therefore, electing Option K will result in a deduction being made
even though PHL Variable assumes no mortality risk under that option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the event of
death of the Annuitant, the annuity income will be paid to the beneficiary until
the end of the specified period certain. For example,
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a 10-year period certain will provide a total of 120 monthly payments. The
certain period may be 5, 10 or 20 years.
OPTION B--NON-REFUND LIFE ANNUITY
Provides a monthly income for the lifetime of the Annuitant. No income is
payable after the death of the Annuitant.
OPTION C--DISCONTINUED
OPTION D--JOINT AND SURVIVOR LIFE ANNUITY
Provides a monthly income for the lifetimes of both the Annuitant and a
joint annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue for the life of
the survivor. The amount to be continued to the survivor is 100% of the amount
of the joint annuity payment, as elected at the time the annuity option is
chosen. No income is payable after the death of the survivor annuitant.
Under Option D, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION E--INSTALLMENT REFUND LIFE ANNUITY
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, the annuity income will continue to the Annuitant's
beneficiary until the amount applied to purchase the annuity has been
distributed.
OPTION F--JOINT AND SURVIVOR LIFE ANNUITY WITH 10-YEAR
PERIOD CERTAIN
Provides a monthly income for the lifetime of both the Annuitant and a joint
annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue to the survivor.
If the survivor dies prior to the end of the 10-year period, the annuity income
will continue to the named beneficiary until the end of the 10-year period
certain.
Under Option F, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION G--PAYMENTS FOR SPECIFIED PERIOD
Provides equal income installments for a specified period of years whether
the Annuitant lives or dies. Any specified whole number of years from 5 to 30
years may be elected.
OPTION H--PAYMENTS OF SPECIFIED AMOUNT
Provides equal installments of a specified amount over a period of at least
five years. The specified amount may not be greater than the total annuity
amount divided by five annual installment payments. If the Annuitant dies prior
to the end of the elected period certain, annuity payments will continue to the
Annuitant's beneficiary until the end of the elected period certain.
OPTION I--VARIABLE PAYMENT LIFE ANNUITY WITH 10-YEAR
PERIOD CERTAIN
Unless another annuity option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
Annuitant's beneficiary until the end of the 10-year period. The 10-year period
provides a total of 120 monthly payments. Payments will vary as to dollar
amount, based on the investment experience of the Subaccounts to which proceeds
are applied.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH
10-YEAR PERIOD CERTAIN
Provides a variable payout monthly annuity while the Annuitant and the
designated joint annuitant are living and continues thereafter during the
lifetime of the survivor or, if later, until the end of a 10-year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Subaccounts to which proceeds are applied. The joint annuitant
must be named at the time the option is elected and cannot be changed. The joint
annuitant must have reached an adjusted age of 40, as defined in the Contract.
This option is not available for payment of any death benefit under the
Contract.
OPTION K--VARIABLE PAYMENT ANNUITY FOR A SPECIFIED PERIOD
Provides variable payout monthly income installments for a specified period
of time, whether the Annuitant lives or dies. The period certain specified must
be in whole numbers of years from 5 to 30. However, the period certain selected
by the beneficiary of any death benefit under the Contract may not extend beyond
the life expectancy of such beneficiary. A Contract Owner may request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred sales charge at any time.
OPTION L--VARIABLE PAYMENT LIFE EXPECTANCY ANNUITY
Provides a variable payout monthly income payable over the Annuitant's
annually recalculated life expectancy or the annually recalculated life
expectancy of the Annuitant and joint annuitant. A Contract Owner may request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred sales charge at anytime. Upon the death
of the Annuitant (and joint annuitant, if there is a joint annuitant), the
remaining Contract Value will be paid in a lump sum to the Annuitant's
beneficiary.
OPTION M--UNIT REFUND VARIABLE PAYMENT LIFE ANNUITY
Provides variable monthly payments as long as the Annuitant lives. If the
Annuitant dies, the Annuitant's beneficiary will receive the value of the
remaining Annuity Units in a lump sum.
OPTION N--VARIABLE PAYMENT NON-REFUND LIFE ANNUITY
Provides a variable monthly income for the life of the Annuitant. No income
or payment to a beneficiary is paid after the death of the Annuitant.
OTHER OPTIONS AND RATES
PHL Variable may offer other annuity options at the Maturity Date of a
Contract. In addition, in the event that current settlement rates for Contracts
are more favorable than the applicable rates guaranteed under the Contract, the
current settlement rates shall be used in determining the amount of any annuity
payment under the Annuity Options above.
OTHER CONDITIONS
Federal income tax requirements currently applicable to most qualified plans
provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse.
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Federal income tax requirements also provide that participants in regular or
SIMPLE IRAs must begin minimum distributions by April 1 of the year following
the year in which they attain age 70 1/2. Minimum distribution requirements do
not apply to Roth IRAs. Distributions from qualified plans generally must begin
by the later of actual retirement or April 1 of the year following the year
participants attain age 70 1/2. Any required minimum distributions must be such
that the full amount in the Contract will be distributed over a period not
greater than the participant's life expectancy, or the combined life expectancy
of the participant and his or her spouse or designated beneficiary.
Distributions made under this method are generally referred to as Life
Expectancy Distributions ("LEDs"). An LED program is available to participants
in qualified plans or IRAs. Requests to elect this program must be made in
writing.
Under the LED program, regardless of Contract year, amounts up to the
required minimum distribution may be withdrawn without a deduction for sales
charges, even if the minimum distribution exceeds the 10% allowable amount. See
"Sales Charges." Also, any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of the greater of the minimum
distribution and the 10% free available amount will be subject to any applicable
sales charge.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, PHL Variable may make a single sum payment equal to the Contract Value
on the date the initial payment would be payable, in place of all other benefits
provided by the Contract, or, may make periodic payments quarterly,
semiannually or annually in place of monthly payments.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who also is the Annuitant dies on or after the Maturity Date,
except as may otherwise be provided under any supplementary contract between the
Owner and PHL Variable, PHL Variable will pay to the Owner/Annuitant's
beneficiary any annuity payments due during any applicable period certain under
the Annuity Option in effect on the Annuitant's death. If the Annuitant who is
not the Owner dies on or after the Maturity Date, PHL Variable will pay any
remaining annuity payments to the Annuitant's beneficiary according to the
payment option in effect at the time of the Annuitant's death. If an Owner who
is not the Annuitant dies on or after the Maturity Date, PHL Variable will pay
any remaining annuity payments to the Owner's beneficiary according to the
payment option in effect at the time of the Owner's death.
VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading
and PHL Variable is open for business. The NYSE is scheduled to be closed for
trading on the following days: New Year's Day, Martin Luther King, Jr. Day,
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 Separate Account is determined at the close of the NYSE
(currently 4:00 p.m. Eastern Time).
VALUATION PERIOD--Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION UNIT VALUE--The value of one Accumulation Unit was set at
$1.0000 on the date assets were first allocated to each Subaccount. The value of
one Accumulation Unit on any subsequent Valuation Date is determined by
multiplying the immediately preceding Accumulation Unit Value by the applicable
Net Investment Factor for the Valuation Period ending on such Valuation Date.
NET INVESTMENT FACTOR--The Net Investment Factor for any Valuation Period is
equal to 1.000000 plus the applicable net investment rate for such Valuation
Period. A Net Investment Factor may be more or less than 1.000000. To determine
the net investment rate for any Valuation Period for the Funds allocated to each
Subaccount, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, whether realized or unrealized, of the
Subaccount for such Valuation Period is computed, (b) the amount in (a) is then
adjusted by the sum of the charges and credits for any applicable income taxes
and the deductions at the beginning of the Valuation Period for mortality and
expense risk charges and daily administration fee, and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Unit Values in the Subaccount at
the beginning of the Valuation Period.
MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with non-tax qualified plans may
assign their interest in the Contract without the consent of the beneficiary. A
written notice of such assignment must be filed with VPMO before it will be
honored.
A pledge or assignment of a Contract is treated as payment received on
account of a partial surrender of a Contract. See "Surrenders or Withdrawals
Prior to the Contract Maturity Date."
In order to qualify for favorable tax treatment, Contracts issued in
connection with tax qualified plans may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation, or for any other purpose, to any person other than PHL Variable.
DEFERMENT OF PAYMENT
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract will ordinarily be made within seven days
after receipt of the written request by VPMO. However, payment of the value of
any Accumulation Units may be postponed at times (a) when the NYSE is closed,
other than customary weekend and holiday closings, (b) when trading on the NYSE
is restricted, (c) when an emergency exists as a result of which disposal of
securities in the Fund is not reasonably practicable or it is not reasonably
practicable to determine the Contract Value or (d) when a governmental body
having jurisdiction by order permits such suspension. Rules and regulations of
the SEC, if any, are applicable and will govern as to whether conditions
described in (b), (c) or (d) exist.
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FREE LOOK PERIOD
PHL Variable may mail the Contract to the Owner or we may deliver it in
person. An Owner may surrender a Contract for any reason within 10 days after
its receipt and receive in cash the adjusted value of the initial purchase
payment. (A longer Free Look Period may be required by the Contract Owner's
state.) The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the Free Look Period. If a
portion or all of the initial purchase payment has been allocated to the GIA, we
also will refund any earned interest. If a portion or all of the initial
purchase payment has been allocated to the MVA, we will apply the Market Value
Adjustment which can increase or decrease the initial purchase payment.
If the Temporary Money Market Allocation Amendment was elected on the
application or the Contract Owner resides in a state that requires the full
refund of premium, we will temporarily allocate those portions of the initial
purchase payment designated for the Subaccounts to the Money Market Subaccount
and those portions designated for the GIA and MVA will be allocated to those
Accounts. If the Contract Owner surrenders the Contract, then the initial
purchase payment is refunded. At the expiration of the Free Look Period, the
value of the Accumulation Units held in the Money Market Subaccount is allocated
among the available Subaccounts in accordance with the Contract Owner's
allocation instructions on the application.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although PHL Variable believes it to be highly unlikely, it is possible that
in the judgment of its management, one or more of the Series of the Funds may
become unsuitable for investment by Contract Owners because of a change in
investment policy, or a change in the tax laws, or because the shares are no
longer available for investment. In that event, PHL Variable may seek to
substitute the shares of another Series or the shares of an entirely different
mutual fund. Before this can be done, the approval of the SEC, and possibly one
or more state insurance departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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INTRODUCTION
The Contracts are designed for use with retirement plans which may or may
not be tax-qualified plans ("Qualified Plans") under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments
and on the economic benefits of the Contract Owner, Annuitant or beneficiary
depends on PHL Variable's tax status, on the type of retirement plan for which
the Contract is purchased, and upon the tax and employment status of the
individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any estate or inheritance taxes or any applicable state,
local or other tax laws. Moreover, the discussion is based upon PHL Variable's
understanding of the federal income tax laws as they are currently interpreted.
No representation is made regarding the likelihood of continuation of the
federal income tax laws or the current interpretations by the Internal Revenue
Service (the "IRS"). PHL Variable does not guarantee the tax status of the
Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. For a discussion
of federal income taxes as they relate to the Funds, please see the accompanying
prospectuses for the Funds.
TAX STATUS
PHL Variable is taxed as a life insurance company under Part 1 of Subchapter
L of the Code. Since the Account is not a separate entity from PHL Variable and
its operations form a part of PHL Variable, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized capital gains on the assets of the Account are reinvested and taken
into account in determining the Contract Value. Under existing federal income
tax law, the Account's investment income, including realized net capital gains,
is not taxed to PHL Variable. PHL Variable reserves the right to make a
deduction for taxes should they be imposed with respect to such items in the
future.
TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value of the Units held under a Contract
until some form of distribution is made under the Contract. However, in certain
cases the increase in value may be subject to tax currently. In the case of
Contracts not owned by natural persons, see "Contracts Owned by Non-Natural
Persons." In the case of Contracts not meeting the diversification requirements,
see "Diversification Standards."
1. SURRENDERS OR WITHDRAWALS PRIOR TO THE CONTRACT MATURITY DATE.
Code Section 72 provides that a total or partial surrender from a
Contract prior to the Contract Maturity Date will be treated as taxable
income to the extent the amounts held under the Contract exceed the
"investment in the Contract." The "investment in the Contract" is that
portion, if any, of purchase payments (premiums paid) by or on behalf of an
individual under
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a Contract that is not excluded from the individual's gross income. However,
under certain types of Qualified Plans there may be no investment in the
Contract within the meaning of Code Section 72, so that the total amount of
all payments received will be taxable. The taxable portion is taxed as
ordinary income in an amount equal to the value of the Contract or portion
thereof that is pledged or assigned. For purposes of this rule, a pledge or
assignment of a Contract is treated as a payment received on account of a
partial surrender of a Contract.
2. SURRENDERS OR WITHDRAWALS ON OR AFTER THE CONTRACT MATURITY DATE.
Upon receipt of a lump sum payment under the Contract, the recipient is
taxed on the portion of the payment that exceeds the investment in the
Contract. Ordinarily, such taxable portion is taxed as ordinary income.
Under certain circumstances, the proceeds of a surrender of a Contract may
qualify for "lump sum distribution" treatment under Qualified Plans. See
your tax adviser if you think you may qualify for "lump sum distribution"
treatment. The 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.
3. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS.
With respect to amounts surrendered or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to ten percent (10%) of
the portion of such amount that is includable in gross income. However, the
penalty tax will not apply to withdrawals: (i) made on or after the death of
the Contract Owner (or where the Contract Owner is not an individual, the
death of the "Primary Annuitant," who is defined as the individual the
events in whose life are of primary importance in affecting the timing and
amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments made (not less frequently than annually) for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies)
of the taxpayer and his or her beneficiary; (iv) from certain qualified
plans (such distributions may, however, be subject to a similar penalty
under Code Section 72(t) relating to distributions from qualified retirement
plans and to a special penalty of 25% applicable specifically to SIMPLE IRAs
or other special penalties applicable to Roth IRAs); (v) allocable to
investment in the Contract before August 14, 1982; (vi) under a qualified
funding asset (as defined in Code Section 130(d)); (vii) under an immediate
annuity contract (as defined in Code Section 72(u)(4)); or (viii) that are
purchased by an employer on termination of certain types of qualified plans
and which are held by the employer until the employee separates from
service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the
first year when the modification occurs will be increased by an amount
(determined by the Treasury regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral
period, but only if the modification takes place: (a) before the close of
the period which is 5 years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
Separate tax withdrawal penalties apply to Qualified Plans. See "Penalty
Tax on Surrenders and Withdrawals from Qualified Contracts."
ADDITIONAL CONSIDERATIONS
1. DISTRIBUTION-AT-DEATH RULES.
In order to be treated as an annuity contract for federal income tax
purposes, a Contract must provide the following two distribution rules: (a)
if the Contract Owner dies on or after the Contract Maturity Date, and
before the entire interest in the Contract has been distributed, the
remainder of the Contract Owner's interest will be distributed at least as
quickly as the method in effect on the Contract Owner's death; and (b) if a
Contract Owner dies before the Contract Maturity Date, the Contract Owner's
entire interest generally must be distributed within five (5) years after
the date of death, or if payable to a designated beneficiary, may be
annuitized over the life of that beneficiary or over a period not extending
beyond the life expectancy of that beneficiary, and must commence within one
(1) year after the Contract Owner's date of death. If the beneficiary is the
spouse of the Contract Owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the
name of the spouse as Contract Owner. Similar distribution requirements
apply to annuity contracts under Qualified Plans (other than Code Section
457 Plans). However, a number of restrictions, limitations and special rules
apply to qualified plans and Contract Owners should consult with their tax
adviser.
If the Annuitant, who is not the Contract Owner, dies before the
Maturity Date and there is no Contingent Annuitant, the Annuitant's
beneficiary must elect within 60 days whether to
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receive the death benefit in a lump sum or in periodic payments commencing
within one (1) year.
If the Contract Owner is not an individual, the death of the primary
Annuitant is treated as the death of the Contract Owner. In addition, when
the Contract Owner is not an individual, a change in the primary Annuitant
is treated as the death of the Contract Owner. Finally, in the case of
non-spousal joint Contract Owners the distribution will be required at the
death of the first of the Contract Owners.
If the Contract Owner or a Joint Contract Owner dies on or after the
Maturity Date, the remaining payments, if any, under the Annuity Option
selected will be made at least as rapidly as under the method of
distribution in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of non-qualified Contracts prior to the Maturity Date for less
than full and adequate consideration to the Contract Owner at the time of
such transfer, will trigger tax on the gain in the Contract, with the
transferee getting a step-up in basis for the amount included in the
Contract Owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
3. CONTRACTS OWNED BY NON-NATURAL PERSONS.
If the Contract is held by a non-natural person (for example, a
corporation) the income on that Contract (generally the increase in the net
surrender value less the premium paid) is includable in income each year.
The rule does not apply where the non-natural person is the nominal owner of
a Contract and the beneficial owner is a natural person. The rule also does
not apply where the annuity contract is acquired by the estate of a
decedent, where the Contract is held under a qualified plan, a TSA program
or an IRA, where the Contract is a qualified funding asset for structured
settlements, where the Contract is purchased on behalf of an employee upon
termination of a qualified plan, and in the case of an immediate annuity.
4. SECTION 1035 EXCHANGES.
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A
replacement contract obtained in a tax-free exchange of contracts generally
succeeds to the status of the surrendered contract. If the surrendered
contract was issued prior to August 14, 1982, the tax rules that formerly
provided that the surrender was taxable only to the extent the amount
received exceeds the Contract Owner's investment in the Contract, will
continue to apply. In contrast, Contracts issued on or after January 19,
1985, in a Code Section 1035 exchange, are treated as new Contracts for
purposes of the distribution-at-death rules. Special rules and procedures
apply to Code Section 1035 transactions. Prospective Contract Owners wishing
to take advantage of Code Section 1035 should consult their tax advisers.
5. MULTIPLE CONTRACTS.
Code Section 72(e)(11)(A)(ii) provides that for Contracts entered into
after October 21, 1988, for purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includable in gross income, all non-qualified deferred annuity
contracts issued by the same insurer (or affiliate) to the same Contract
Owner during any calendar year are to be aggregated and treated as one
contract. Thus, any amount received under any such contract prior to the
Contract Maturity Date, such as a withdrawal, dividend or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
The Treasury Department has specific authority to issue regulations that
prevent the avoidance of Code Section 72(e) through the serial purchase of
annuity contracts or otherwise. In addition, there may be situations where
the Treasury may conclude that it would be appropriate to aggregate two or
more contracts purchased by the same Contract Owner. Accordingly, a Contract
Owner should consult a competent tax adviser before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
1. DIVERSIFICATION REGULATIONS.
To comply with the diversification regulations under Code Section 817(h)
("Diversification Regulations"), after a start-up period, each Series of the
Funds will be required to diversify its investments. The Diversification
Regulations generally require that, on the last day of each quarter of a
calendar year no more than 55% of the value of the assets of a Series are
represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments
and no more than 90% is represented by any four investments. A
"look-through" rule applies to treat a pro rata portion of each asset of a
Series as an asset of the Account, and each Series of the Funds are tested
for compliance with the percentage limitations. All securities of the same
issuer are treated as a single investment. As a result of the 1988 Act, each
government agency or instrumentality will be treated as a separate issuer
for purposes of these limitations.
The Treasury Department has indicated that the Diversification
Regulations do not provide guidance regarding the circumstances in which
Contract Owner control of the investments of the Account will cause the
Contract Owner to be treated as the owner of the assets of the Account,
thereby resulting in the loss of favorable tax treatment for the Contract.
At this time, it cannot be determined whether additional guidance will be
provided and what standards may be contained in such guidance. The amount of
Contract Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published
rulings issued by the IRS in which was held that the policyowner was not the
owner of the assets of the separate account. It is unknown whether these
differences, such as the Contract Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the Owner of the assets
of the Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling generally will be applied only
prospectively. However, if such
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ruling or guidance was not considered to set forth a new position, it may be
applied retroactively resulting in the Contract Owner being retroactively
determined to be the Owner of the assets of the Account.
Due to the uncertainty in this area, PHL Variable reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
PHL Variable has represented that it intends to comply with the
Diversification Regulations to assure that the Contracts continue to be
treated as annuity contracts for federal income tax purposes.
2. DIVERSIFICATION REGULATIONS AND QUALIFIED PLANS.
Code Section 817(h) applies to a variable annuity contract other than a
pension plan contract. The Diversification Regulations reiterate that the
diversification requirements do not apply to a pension plan contract. All of
the Qualified Plans (described below) are defined as pension plan contracts
for these purposes. Notwithstanding the exception of Qualified Plan
Contracts from application of the diversification rules, all investments of
the PHL Variable Qualified Plan Contracts (i.e., the Funds) will be
structured to comply with the diversification standards because the Funds
serve as the investment vehicle for non-qualified Contracts as well as
Qualified Plan Contracts.
QUALIFIED PLANS
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-Sharing Plans and State Deferred
Compensation Plans will be treated, for purposes of this discussion, as
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan and the terms and conditions of the
plan itself. No attempt is made herein to provide more than general information
about the use of the Contracts with the various types of Qualified Plans.
Participants under such Qualified Plans as well as Contract Owners, Annuitants
and beneficiaries, are cautioned that the rights of any person to any benefits
under such Qualified Plans may be subject to the terms and conditions of the
plans themselves or limited by applicable law, regardless of the terms and
conditions of the Contract issued in connection therewith. For example, PHL
Variable will accept beneficiary designations and payment instructions under the
terms of the Contract without regard to any spousal consents that may be
required under the Retirement Equity Act (REA). Consequently, a Contract Owner's
beneficiary designation or elected payment option may not be enforceable.
Effective January 1, 1993, Section 3405 of the Internal Revenue Code was
amended to change the roll-over rules applicable to the taxable portions of
distributions from qualified pension and profit-sharing plans and Section 403(b)
TSA arrangements. Taxable distributions eligible to be rolled over generally
will be subject to 20 percent income tax withholding. Mandatory withholding can
be avoided only if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
qualified plans or 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.
1. TAX SHELTERED ANNUITIES ("TSAs").
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3) to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of purchase payments from gross income
for federal income tax purposes. These annuity contracts are commonly
referred to as TSAs.
For taxable years beginning after December 31, 1988, Code Section
403(b)(11) imposes certain restrictions on a Contract Owner's ability to
make partial withdrawals from, or surrenders of, Code Section 403(b)
Contracts, if the cash withdrawn is attributable to purchase payments made
under a salary reduction agreement. Specifically, Code Section 403(b)(11)
allows a Contract Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies or
becomes disabled (as defined in the Code), or (b) in the case of hardship.
In the case of hardship, the amount distributable cannot include any income
earned under the Contract.
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution restrictions do not apply to assets held as of December 31,
1988.
In addition, in order for certain types of contributions under a Code
Section 403(b) Contract to be excluded from taxable income, the employer
must comply with certain nondiscrimination requirements. Contract Owners
should consult their employers to determine whether the employer has
complied with these rules. Contract Owner loans are not allowed under the
Contracts.
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Effective May 4, 1998, loans may be made available under Internal
Revenue Code Section 403(b) tax-sheltered annuity programs. If the program
permits loans, a loan from the participant's contract value may be
requested. The loan must at least $1,000 and the maximum loan amount is the
greater of: (a) 90% of the first $10,000 of Contract Value minus any
contingent deferred sales charge; and (b) 50% of the Contract Value minus
any contingent deferred sales charge. The maximum loan amount is $50,000. If
loans are outstanding from any other tax-qualified plan then the maximum
loan amount of the contract may be reduced from the amount stated above in
order to comply with the maximum loan amount requirements under Section
72(p) of the Internal Revenue Code. Amounts borrowed from the GIA are
subject to the same limitations as applies to transfers from the GIA; thus
no more than the greater of $1000 and 25% of the contract value in the GIA
may be borrowed at any one time. Amounts borrowed from the Market Value
Adjustment ("MVA") account are subject to the same market value adjustment
as applies to transfers from the MVA.
Loan repayments will first pay any accrued loan interest. The balance
will be applied to reduce the outstanding loan balance and will also reduce
the amount of the Loan Security Account by the same amount that the
outstanding loan balance is reduced. The balance of loan repayments, after
payment of accrued loan interest, will be credited to the 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 interest 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.
2. KEOGH PLANS.
The Self-Employed Individual Tax Retirement Act of 1962, as amended,
permits self-employed individuals to establish "Keoghs" or qualified plans
for themselves and their employees. The tax consequences to participants
under such a plan depend upon the terms of the plan. In addition, such plans
are limited by law with respect to the maximum permissible contributions,
distribution dates, nonforfeitability of interests, and tax rates applicable
to distributions. In order to establish such a plan, a plan document must be
adopted and implemented by the employer, as well as approved by the IRS.
3. INDIVIDUAL RETIREMENT ACCOUNTS.
Code Sections 408 and 408A permit eligible individuals to contribute to
an individual retirement program known as an "IRA." These IRAs are subject
to limitations on the amount which may be contributed, the persons who may
be eligible and on the time when distributions may commence. In addition,
distributions from certain other types of Qualified Plans may be placed on a
tax-deferred basis into an IRA. Effective January 1, 1997, employers may
establish a new type of IRA called SIMPLE (Savings Incentive Match Plan for
Employees). Special rules apply to participants' contributions to and
withdrawals from SIMPLE IRAs. Also effective January 1, 1997, salary
reduction IRAs (SARSEP) no longer may be established. Effective January 1,
1998, individuals may establish Roth IRAs. Special rules also apply to
contributions to and withdrawals from Roth IRAs.
4. CORPORATE PENSION AND PROFIT-SHARING PLANS.
Code Section 401(a) permits corporate employers to establish various
types of retirement plans for employees. Such retirement plans may permit
the purchase of Contracts to provide benefits thereunder.
These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit
of employees will not be includible in the gross income of the employee
until distributed from the Plan. The tax consequences to participants may
vary depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amount of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. Participant loans are not allowed
under the Contracts purchased in connection with these Plans. Purchasers of
Contracts for use with Corporate Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
5. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS.
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other
entities. The Contracts may be used in connection with these plans; however,
under these plans if issued to tax exempt organizations, the Contract Owner
is the plan sponsor, and the individual participants in the plans are the
Annuitants. Under such Contracts, the rights of individual plan participants
are governed solely by their agreements with the plan sponsor and not by the
terms of the Contracts. Effective in 1997 for new state and local government
plans, such plans must be funded through a tax exempt annuity contract held
for the exclusive benefit of plan participants.
6. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED PLANS.
In the case of a withdrawal under a Qualified Plan, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain
distributions from a Qualified Plan. Section 72(t) of the Code imposes a 10%
penalty tax on the taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified under Code
Sections 401 (Keogh and Corporate Pension and Profit-Sharing Plans),
Tax-Sheltered Annuities and Individual Retirement Annuities other than Roth
IRAs. The penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two
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years of the Contract Owner's participation in the SIMPLE IRA. To the extent
amounts are not includible in gross income because they have been properly
rolled over to an IRA or to another eligible Qualified Plan, no tax penalty
will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Contract Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Contract Owner or
Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) after separation from service,
distributions that are part of substantially equal periodic payments made
not less frequently than annually for the life (or life expectancy) of the
Contract Owner or Annuitant (as applicable) or the joint lives (or joint
life expectancies) of such Contract Owner or Annuitant (as applicable) and
his or her designated beneficiary; (d) distributions to a Contract Owner or
Annuitant (as applicable) who has separated from service after he has
attained age 55; (e) distributions made to the Contract Owner or Annuitant
(as applicable) to the extent such distributions do not exceed the amount
allowable as a deduction under Code Section 213 to the Contract Owner or
Annuitant (as applicable) for amounts paid during the taxable year for
medical care; (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order; (g) distributions from an IRA for the
purchase of medical insurance (as described in Section 213(d)(1)(D) of the
Code) for the Contract Owner and his or her spouse and dependents if the
Contract Owner has received unemployment compensation for at least 12 weeks;
and (h) distributions from IRAs for first-time home purchase expenses
(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.
Generally, distributions from a Qualified Plan must commence no later
than April 1 of the calendar year following the later of: (a) the year in
which the employee attains age 70 1/2 or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to a regular or
SIMPLE IRA and the required distribution rules do not apply to Roth IRAs.
Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount
not distributed.
7. SEEK TAX ADVICE.
The above description of federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contracts
offered by this Prospectus is only a brief summary and is not intended as
tax advice. The rules governing the provisions of Qualified Plans are
extremely complex and often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are subject to change,
may have adverse tax consequences. A prospective Contract Owner considering
adoption of a Qualified Plan and purchase of a Contract in connection
therewith should first consult a qualified tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
SALES OF VARIABLE ACCUMULATION CONTRACTS
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The principal underwriter of the Contracts is PEPCO. Contracts may be
purchased through registered representatives of W.S. Griffith & Company, Inc.
("WSG") licensed to sell PHL Variable annuity contracts. WSG is an indirect
wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company. PEPCO is
an indirect, majority owned subsidiary of Phoenix Home Life Mutual Insurance
Company. Contracts also may be purchased through other broker-dealers or
entities registered under or exempt under the Securities Exchange Act of 1934,
whose representatives are authorized by applicable law to sell Contracts under
terms of agreement provided by PEPCO and terms of agreement provided by PHL
Variable.
In addition to reimbursing PEPCO for its expenses, PHL Variable pays PEPCO
an amount equal to up to 7.25% of the purchase payments made under the Contract.
PEPCO pays any qualified distribution organization an amount which may not
exceed up to 7.25% of the purchase payments under the Contract. Any such amount
paid with respect to Contracts sold through other broker-dealers will be paid by
PHL Variable to or through PEPCO. The amounts paid are not deducted from the
purchase payments. Deductions for sales charges (as described under "Sales
Charges") may be used as reimbursement for commission payments.
Although the Glass-Steagall Act prohibits banks and bank affiliates from
engaging in the business of underwriting securities, banking regulators have not
indicated that such institutions are prohibited from purchasing variable annuity
contracts upon the order and for the account of their customers.
STATE REGULATION
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PHL Variable is subject to the provisions of the Connecticut insurance laws
applicable to life insurance companies and to regulation and supervision by the
Connecticut Superintendent of Insurance. PHL Variable also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of PHL Variable includes certain limitations on the
investments which may be made for its General Account and separate accounts,
including the Account. It does not include, however, any supervision over the
investment policies of the Account.
REPORTS
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Reports showing the Contract Value and containing the financial statements
of the Account will be furnished at least annually to Contract Owners.
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VOTING RIGHTS
- --------------------------------------------------------------------------------
As stated above, all of the assets held in an available Subaccount will be
invested in shares of a corresponding Series of the Funds. PHL Variable is the
legal owner of those shares and as such has the right to vote to elect the Board
of Trustees of the Funds, to vote upon certain matters that are required by the
Investment Company Act of 1940 ("1940 Act") to be approved or ratified by the
shareholders of a mutual fund and to vote upon any other matter that may be
voted upon at a shareholders' meeting. However, PHL Variable intends to vote the
shares of the Funds at regular and special meetings of the shareholders of the
Funds in accordance with instructions received from Owners of the Contracts.
PHL Variable currently intends to vote Fund shares attributable to any PHL
Variable assets and Fund shares held in each Subaccount for which no timely
instructions from Owners are received in the same proportion as those shares in
that Subaccount for which instructions are received. In the future, to the
extent applicable federal securities laws or regulations permit PHL Variable to
vote some or all shares of the Fund in its own right, it may elect to do so.
Matters on which Owners may give voting instructions may include the
following: (1) election of the Board of Trustees of a Fund; (2) ratification of
the independent accountant for a Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund corresponding to the
Owner's selected Subaccount(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of a Fund. With respect to amendment of any
investment advisory agreement or any change in a Series' fundamental investment
policy, Owners participating in such Series will vote separately on the matter,
pursuant to the requirements of the 1940 Act.
The number of votes that a Contract Owner has the right to cast will be
determined by applying the Contract Owner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized. The number of votes for
which each Owner may give PHL Variable instructions will be determined as of the
record date for Fund shareholders chosen by the Board of Trustees of a Fund. PHL
Variable will furnish Owners with proper forms and proxies to enable them to
give these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
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Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a Contract, or apply
them to provide annuity options prior to retirement except in the case of
termination of employment in the Texas public institutions of higher education,
death or total disability. Such proceeds, however, may be used to fund another
eligible retirement vehicle.
LEGAL MATTERS
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Edwin L. Kerr, Counsel, Phoenix Home Life Mutual Insurance Company, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the Contracts described in this Prospectus.
SAI
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The SAI contains more specific information and financial statements relating
to the Account and PHL Variable. The Table of Contents of the SAI is set forth
below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed, in
writing, to Phoenix Variable Products Mail Operations at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 541-0171.
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APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Contract and transfers to the GIA become
part of the general account of PHL Variable Insurance Company (the "General
Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the 1940 Act. Accordingly,
neither the General Account nor any interest therein is specifically subject to
the provisions of the 1933 or 1940 Acts and the staff of the SEC has not
reviewed the disclosures in this Prospectus concerning the GIA. Disclosures
regarding the GIA and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of PHL Variable
Insurance Company other than those allocated to any separate account. Purchase
payments will be allocated to the GIA and, therefore, the General Account, as
elected by the Owner at the time of purchase or as subsequently changed. PHL
Variable will invest the assets of the General Account in assets chosen by it
and allowed by applicable law. Investment income from General Account assets is
allocated between PHL Variable and the Contracts participating in the General
Account, in accordance with the terms of such Contracts.
Fixed annuity payments made to Annuitants under the Contract will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. PHL Variable assumes this "mortality
risk" by virtue of annuity rates incorporated in the Contract that cannot be
changed. In addition, PHL Variable guarantees that it will not increase charges
for maintenance of the Contracts regardless of its actual expenses.
Investment income from the General Account allocated to PHL Variable
includes compensation for mortality and expense risks borne by it in connection
with General Account contracts.
The amount of investment income allocated to the Contracts will vary from
year to year in the sole discretion of PHL Variable. However, PHL Variable
guarantees that it will credit interest at a rate of not less than 4% per year
compounded annually, to amounts allocated to the GIA. PHL Variable may credit
interest at a rate in excess of these rates; however, it is not obligated to
credit any interest in excess of these rates.
Biweekly, PHL Variable will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by PHL Variable based on
information as to expected investment yields. Some of the factors that PHL
Variable may consider in determining whether to credit excess interest to
amounts allocated to the GIA and the amount thereof, are general economic
trends, rates of return currently available and anticipated on investments,
regulatory and tax requirements and competitive factors. ANY INTEREST CREDITED
TO AMOUNTS ALLOCATED TO THE GIA IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF PHL VARIABLE AND WITHOUT REGARD TO ANY SPECIFIC FORMULA.
THE CONTRACT OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO GIA ALLOCATIONS
MAY NOT EXCEED THE MINIMUM GUARANTEE FOR ANY GIVEN YEAR.
PHL Variable is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in PHL Variable's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders, Contract Owners and shareholders.
Excess interest, if any, will be credited on the GIA Contract Value. PHL
Variable guarantees that, at any time, the GIA Contract Value will not be less
than the amount of purchase payments allocated to the GIA, plus interest at the
rate of 4% per year, compounded annually, plus any additional interest which PHL
Variable may, in its discretion, credit to the GIA, less the sum of all annual
administrative or surrender charges, any applicable premium taxes, and less any
amounts surrendered. If the Owner surrenders the Contract, the amount available
from the GIA will be reduced by any applicable surrender charge and annual
administration charge. See "Deductions and Charges."
For 403(b) plans with loans, amounts borrowed from the GIA will be treated
as transfers to the Loan Security Account and subject to the same limitations as
applies to transfers from the GIA (see "Qualified Plans").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE
AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF
THE CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
30
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
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, the
Company reserves the right to deduct premium tax when necessary to
reflect changes in state tax laws or interpretation.
For a more detailed explanation of the assessment of Premium Taxes, see
"Deductions and Charges, Premium Tax."
(1) "Purchase" in this chart refers to the earlier of partial withdrawal,
surrender of the Contract, payment of death proceeds or Maturity Date.
31
