[PHOENIX LOGO] Lois L. McGuire - Director
Life & Annuity, SEC Compliance
One American Row Hartford, CT 06102-5056
(860) 403-5878 Fax: (860) 403-5296
Toll Free: 1-800-349-9267
Email: Lois.McGuire@phoenixwm.com
December 2, 2008
Mr. Michael Kosoff
Staff Attorney
Office of Insurance Products
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-4644
Re: PHL Variable Insurance Company
PHL Variable Accumulation Account II
Post-Effective Amendment No. 1 on Form N-4, Filed on July 23, 2008
File Nos. 811-22146 and 333-147565
Dear Mr. Kosoff:
Below please find our responses to the Staff's follow-up comments provided by
telephone on October 22, 2008 regarding the referenced filing. Please note that
we have included a marked prospectus in this response and will include the
changes in our 485(b) post-effective amendment.
Purchase - Allocation of Purchase Payments, p. 16
Comment: DOES THE EARLY-CUT OFF APPLY TO TRANSFERS BETWEEN INVESTMENT OPTIONS
ONLY OR ALSO TO PURCHASES AND REDEMPTIONS OF THE CONTRACT AND TRANSFERS BETWEEN
THE GENERAL ACCOUNT AND THE VARIABLE ACCOUNTS? PLEASE PROVIDE A COMPLETE
DESCRIPTION OF EVERY POSSIBLE TRANSACTION THAT COULD BE IMPACTED BY THE EARLY
CUT-OFF.
Response: The early cut-off applies only to transfers between investment
options involving one of the listed Rydex Investment Portfolios. It does not
apply to purchases or redemptions. (The General Interest Account is not
available as an investment option in this product.) We have added clarifying
disclosure to the prospectus subsection entitled "Allocation of Purchase
Payments" (p. 16).
As noted above, we will make these changes by post-effective amendment and at
that time will include all necessary exhibits, financial statements, consents
and signatures.
Please feel free to contact me with any questions.
Sincerely,
Lois L. McGuire
Phoenix Portfolio Advisor/SM/
Individual Variable Annuity
Issued by: PHL Variable Accumulation Account II and PHL Variable Insurance
Company
PROSPECTUS [ ], 2008
This prospectus describes the Phoenix Portfolio Advisor/SM/ Individual
Variable Annuity Contract (Contract) offered by PHL Variable Insurance Company
(We, Us, Our). This Contract provides for the accumulation of Contract Values
on a variable basis and subsequent Annuity Payments on a fixed basis, a
variable basis or a combination of both. The Contract charges no insurance fees
other than the $20 per month Subscription Fee imposed during the Accumulation
Period and Annuity Period, a fee for the Guaranteed Minimum Withdrawal Benefit
(GMWB), if elected for your contract, and a fee for the Guaranteed Minimum
Death Benefit (GMDB), if elected for your contract. You also pay any applicable
Transaction Fees (described below), as well as the fees of the Investment
Portfolios you select and any Investment Advisor you retain. Under the terms of
the Contract, you may not enter the Annuity Period until two (2) years from the
date you purchase the Contract. This time period may vary by state.
Before purchasing the Contract in most states, you must consent to Our
delivering electronically all documents and reports relating to your Contract
and the Investment Portfolios. You provide your consent by signing the contract
application. The application contains a statement indicating that you agree to
access all information relating to your contract electronically. Paper versions
of these documents will not be sent unless you elect to receive paper documents
after purchasing the Contract, or otherwise request a specific document. Of
course, you can print out any document We make available or transmit to you,
and We encourage you to do so. You may revoke your consent at any time.
The Contract has a variety of investment options that are Sub-accounts of PHL
Variable Accumulation Account II. These Sub-accounts invest in the Investment
Portfolios listed below. You can put your money in any of the Sub-accounts. We
may impose a Transaction Fee for contributions and transfers into and
withdrawals and transfers out of certain Investment Portfolios.
AIM Variable Insurance Funds - Class I Financial Investors Variable
. AIM V.I. Dynamics Fund Insurance Trust - Class II
. AIM V.I. Financial Services Fund . Ibbotson Balanced ETF Asset
. AIM V.I. Global Real Estate Fund Allocation Portfolio
. AIM V.I. High Yield Fund . Ibbotson Growth ETF Asset
. AIM V.I. International Growth Fund Allocation Portfolio
. AIM V.I. Mid Cap Core Equity Fund . Ibbotson Conservative ETF Asset
. AIM V.I. Technology Fund Allocation Portfolio
. AIM V.I. Utilities Fund . Ibbotson Income and Growth ETF
AllianceBernstein(R) Variable Asset Allocation Portfolio
Products Series (VPS) Fund, Inc. - Franklin Templeton Variable Insurance
Class B Products Trust - Class 2
. AllianceBernstein VPS . Franklin Global Communications
International Growth Portfolio Securities Fund
. AllianceBernstein VPS . Franklin High Income Securities
International Value Portfolio Fund
. AllianceBernstein VPS U.S. . Franklin Income Securities Fund
Government High Grade Securities . Franklin Mutual Discovery
Portfolio Securities Fund
Dreyfus Investment Portfolios - . Franklin Small Cap Value
Service Shares Securities Fund
. Dreyfus IP MidCap Stock Portfolio . Franklin Small-Mid Cap Growth
. Dreyfus IP Small Cap Stock Index Securities Fund
Portfolio . Franklin Strategic Income
Dreyfus - Service Shares Securities Fund
. Dreyfus Stock Index Fund . Franklin U.S. Government Fund
Dreyfus Variable Investment Fund - . Templeton Global Income Securities
Service Shares Fund
. Dreyfus VIF International Equity Janus Aspen Series - Service Shares
Portfolio . Janus Aspen Balanced Portfolio
. Dreyfus VIF International Value . Janus Aspen Flexible Bond Portfolio
Portfolio . Janus Aspen Fundamental Equity
Fidelity(R) Variable Insurance Portfolio
Products - Service Class 2 . Janus Aspen Global Technology
. Fidelity VIP Balanced Portfolio Portfolio
. Fidelity VIP Contrafund(R) . Janus Aspen Growth and Income
Portfolio Portfolio
. Fidelity VIP Disciplined Small Cap . Janus Aspen International Growth
Portfolio Portfolio
. Fidelity VIP Dynamic Capital . Janus Aspen Mid Cap Growth
Appreciation Portfolio Portfolio
. Fidelity VIP Equity-Income Lazard Retirement Series - Service
Portfolio Shares
. Fidelity VIP Growth & Income . Lazard Retirement Emerging Markets
Portfolio Portfolio
. Fidelity VIP Growth Opportunities Northern Lights Variable Trust
Portfolio . JNF Balanced Portfolio
. Fidelity VIP Growth Portfolio . JNF Equity Portfolio
. Fidelity VIP High Income Portfolio . JNF Money Market Portfolio
. Fidelity VIP International Capital . JNF Loomis Sayles Bond Portfolio*
Appreciation Portfolio Oppenheimer Variable Account Funds -
. Fidelity VIP Investment Grade Bond Service Shares
Portfolio . Oppenheimer Balanced Fund/VA
. Fidelity VIP Mid Cap Portfolio . Oppenheimer Core Bond Fund/VA
. Fidelity VIP Overseas Portfolio . Oppenheimer Global Securities
. Fidelity VIP Real Estate Portfolio Fund/VA
. Fidelity VIP Strategic Income . Oppenheimer International Growth
Portfolio Fund/VA
. Fidelity VIP Value Leaders . Oppenheimer Main Street Fund(R)/VA
Portfolio . Oppenheimer Value Fund/VA
. Fidelity VIP Value Strategies The Phoenix Edge Series Fund
Portfolio . Phoenix Capital Growth Series
. Fidelity VIP Value Portfolio . Phoenix Growth and Income Series
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
. Phoenix Mid-Cap Growth Series . Rydex VT Inverse Russell 2000(R)
. Phoenix-Aberdeen International Strategy Fund
Series . Rydex VT Inverse S&P 500 Strategy
. Phoenix-Alger Small-Cap Growth Fund
Series . Rydex VT Japan 1.25x Strategy Fund
. Phoenix-Duff & Phelps Real Estate . Rydex VT Large-Cap Growth Fund
Securities Series . Rydex VT Large-Cap Value Fund
PIMCO Variable Insurance Trust - . Rydex VT Leisure Fund
Administrative Class . Rydex VT Mid-Cap 1.5x Strategy Fund
. PIMCO VIT All Asset Portfolio . Rydex VT Mid-Cap Growth Fund
. PIMCO VIT Foreign Bond Portfolio . Rydex VT Mid-Cap Value Fund
(U.S. Dollar-Hedged) . Rydex VT Multi-Cap Core Equity Fund
. PIMCO VIT Long Term U.S. . Rydex VT Nova Fund
Government Portfolio . Rydex VT OTC 2x Strategy Fund
. PIMCO VIT RealEstateRealReturn . Rydex VT NASDAQ - 100(R) Strategy
Strategy Portfolio Fund
. PIMCO VIT Short-Term Portfolio . Rydex VT Precious Metals Fund
PIMCO Variable Insurance Trust - . Rydex VT Real Estate Fund
Advisor Class . Rydex VT Retailing Fund
. PIMCO VIT CommodityRealReturn(TM) . Rydex VT Russell 2000(R) 1.5x
Strategy Portfolio Strategy Fund
. PIMCO VIT Emerging Markets Bond . Rydex VT Russell 2000(R) 2x
Portfolio Strategy Fund
. PIMCO VIT Global Bond Portfolio . Rydex VT S&P 500 2x Strategy Fund
(Unhedged) . Rydex VT Sector Rotation Fund
. PIMCO VIT High Yield Portfolio . Rydex VT Small-Cap Growth Fund
. PIMCO VIT Low Duration Portfolio . Rydex VT Small-Cap Value Fund
. PIMCO VIT Real Return Portfolio . Rydex VT Strengthening Dollar 2x
. PIMCO VIT Total Return Portfolio Strategy Fund
Pioneer Variable Contracts Trust - . Rydex VT Technology Fund
Class I Shares . Rydex VT Telecommunications Fund
. Pioneer Growth Opportunities VCT . Rydex VT Transportation Fund
Portfolio . Rydex VT Utilities Fund
Pioneer Variable Contracts Trust - . Rydex VT Weakening Dollar 2x
Class II Shares Strategy Fund
. Pioneer Cullen Value VCT Portfolio T. Rowe Price Equity Series, Inc. -
. Pioneer Emerging Markets VCT II Class
Portfolio . T. Rowe Price Blue Chip Growth
. Pioneer Equity Income VCT Portfolio Portfolio - II
. Pioneer Fund VCT Portfolio . T. Rowe Price Equity Income
. Pioneer Global High Yield VCT Portfolio - II
Portfolio . T. Rowe Price Limited-Term Bond
. Pioneer High Yield VCT Portfolio Portfolio - II
. Pioneer International Value VCT . T. Rowe Price Health Sciences
Portfolio Portfolio - II
. Pioneer Mid Cap Value VCT Portfolio Third Avenue Variable Series Trust
. Pioneer Strategic Income VCT . Third Avenue Value Portfolio
Portfolio Van Eck Worldwide Insurance Trust -
Royce Capital Fund - Investment Class Initial Class
Shares . Van Eck Worldwide Absolute Return
. Royce Micro-Cap Portfolio Fund
. Royce Small-Cap Portfolio . Van Eck Worldwide Bond Fund
Rydex Variable Trust . Van Eck Worldwide Emerging Markets
. Rydex VT Absolute Return Fund
Strategies Fund . Van Eck Worldwide Real Estate Fund
. Rydex VT Amerigo Fund Van Eck Worldwide Insurance Trust -
. Rydex VT Banking Fund Class S
. Rydex VT Basic Materials Fund . Van Eck Worldwide Hard Assets Fund
. Rydex VT Berolina Fund Vanguard
. Rydex VT Biotechnology Fund . Vanguard Balanced Portfolio
. Rydex VT Clermont Fund . Vanguard Capital Growth Portfolio
. Rydex VT Commodities Strategy Fund . Vanguard Diversified Value
. Rydex VT Consumer Products Fund Portfolio
. Rydex VT Dow 2x Strategy Fund . Vanguard Equity Index Portfolio
. Rydex VT Electronics Fund . Vanguard International Portfolio
. Rydex VT Energy Fund . Vanguard Short-Term Investment
. Rydex VT Energy Services Fund Grade Portfolio
. Rydex VT Europe 1.25x Strategy Fund . Vanguard Small Company Growth
. Rydex VT Financial Services Fund Portfolio
. Rydex VT Government Long Bond 1.2x . Vanguard Total Bond Market Index
Strategy Fund Portfolio
. Rydex VT Health Care Fund . Vanguard Total Stock Market Index
. Rydex VT Hedged Equity Fund Portfolio
. Rydex VT Internet Fund Wanger Advisors Trust
. Rydex VT Inverse Dow 2x Strategy . Wanger International Select
Fund . Wanger International Small Cap
. Rydex VT Inverse Government Long . Wanger Select
Bond Strategy Fund . Wanger U.S. Smaller Companies
. Rydex VT Inverse Mid-Cap Strategy
Fund
. Rydex VT Inverse NASDAQ - 100(R)
Strategy Fund
These Investment Portfolios may not be available in all states. You can view
at Our Website the current prospectus of each Investment Portfolio, which
includes information about each Investment Portfolio's management fees and
other expenses you will bear indirectly.
Money you put in a Sub-account is invested exclusively in a single Investment
Portfolio. Your investments in the Investment Portfolios are not guaranteed.
You could lose your money.
Please read this prospectus before investing. You should keep it for future
reference. It contains important information about the Contract.
To learn more about the Contract, you can obtain a copy of Our Statement of
Additional Information (SAI) dated , 2008. The SAI has been filed with
the Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC has a Web site (http:/www.sec.gov) that contains the SAI,
material incorporated by reference, and other information regarding companies
that file electronically with the SEC. The SAI's Table of Contents is at the
end of this prospectus.
For a free copy of the SAI, call Us at (866) 226-0170 or write Us at:
Address for correspondence sent via U.S. Mail: Address for correspondence sent via courier or
Phoenix Portfolio Advisor/SM/ Service Center overnight mail:
P.O. Box 36740, Phoenix Portfolio Advisor/SM/ Service Center
Louisville, Kentucky 40233; 9920 Corporate Campus Drive, Suite 1000
Louisville, KY 40223.
The Contracts:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed and may be subject to loss of principal
Purchasing the contract as part of a tax qualified plan does not provide any
tax benefit in addition to that resulting from a properly qualified plan.
TABLE OF CONTENTS
Page
- ---------------------------------------------------- --
Definitions of Special Terms........................ 5
Highlights.......................................... 7
Fee Tables.......................................... 9
Guaranteed Minimum Death Benefit Fee............... 10
Guaranteed Minimum Withdrawal Benefit Fee.......... 11
Examples of Fees and Expenses...................... 12
The Company, the Separate Account and the General
Account........................................... 13
The Phoenix Portfolio Advisor/SM/ Annuity Contract. 13
Right to Cancel or "Free Look Period".............. 13
Assignment......................................... 14
Electronic Administration of Your Contract......... 14
Confirmations and Statements....................... 14
Purchase............................................ 15
Purchase Payments.................................. 15
Allocation of Purchase Payments.................... 16
Investment Options.................................. 16
Investment Portfolios.............................. 16
Transfers........................................... 18
Excessive Trading Limits........................... 18
Dollar Cost Averaging Program...................... 20
Rebalancing Program................................ 20
Asset Allocation Programs.......................... 20
Expenses............................................ 21
Subscription Fee................................... 21
Guaranteed Minimum Death Benefit Fee............... 21
Guaranteed Minimum Withdrawal Benefit Fee.......... 21
Transaction Fee.................................... 21
Investment Portfolio Expenses...................... 22
Transfer Fee....................................... 22
Premium Taxes...................................... 22
Income Taxes....................................... 22
Contract Value..................................... 22
Accumulation Units................................. 22
Access to Your Money............................... 23
Systematic Withdrawal Program...................... 23
Suspension of Payments or Transfers................ 23
Page
Guaranteed Minimum Withdrawal Benefit (GMWB).......... 23
Asset Allocation Program Requirement................. 24
How the Benefit Works................................ 24
Important Terms and Conditions....................... 24
Contract Value Decreases to Zero..................... 25
Cancellation......................................... 26
Termination of Benefit............................... 26
Death Benefit......................................... 26
Upon Your Death During the Accumulation Period....... 26
Standard Death Benefit Amount During the
Accumulation Period................................ 26
Optional Guaranteed Minimum Death Benefit Amount
During the Accumulation Period..................... 26
Payment of the Death Benefit During the Accumulation
Period............................................. 27
Death of Contract Owner During the Annuity Period.... 27
Death of Annuitant................................... 28
Annuity Payments (The Annuity Period)................. 28
Annuity Payment Amount............................... 28
Annuity Options...................................... 29
Federal Income Taxes.................................. 29
Introduction......................................... 29
Income Tax Status.................................... 29
Taxation of Annuities in General--Nonqualified
Plans.............................................. 29
Additional Considerations............................ 30
Owner Control........................................ 31
Diversification Standards............................ 32
Taxation of Annuities in General--Qualified Plans.... 32
Spousal Definition................................... 36
Other Information..................................... 36
Legal Proceedings.................................... 36
Distributor.......................................... 37
Financial Statements................................. 37
Experts.............................................. 37
Table of Contents of the Statement of Additional
Information......................................... 38
Appendix A--More Information About the Investment
Portfolios.......................................... A-1
Appendix B--Deductions for Taxes--Qualified and
Nonqualified Annuity Contracts...................... B-1
Appendix C--Guaranteed Minimum Withdrawal Benefit
Examples............................................ C-1
4
Definitions of Special Terms
- --------------------------------------------------------------------------------
Because of the complex nature of the Contract, We have used certain words or
terms in this prospectus, which may need additional explanation. We have
identified the following as some of these words or terms.
Accumulation Period: The period during which you invest money in your Contract.
Accumulation Unit: A measurement We use to calculate the value of the variable
portion of your Contract during the Accumulation Period.
Adjusted Partial Withdrawal: An amount equal to the amount of the partial
withdrawal and any applicable premium taxes withheld; multiplied by the death
benefit immediately prior to the partial withdrawal; and divided by the
Contract Value immediately prior to the withdrawal.
Annuitant(s): The natural person(s) on whose life (lives) We base Annuity
Payments. On or after the Annuity Date, the Annuitant shall also include any
joint Annuitant. In the event of joint Annuitants, the lives of both Annuitants
are used to determine Annuity Payments.
Annuity Date: The date on which Annuity Payments are to begin, as selected by
you, or as required by the Contract or by state or federal law.
Annuity Options: Income plans which can be elected to provide periodic Annuity
Payments beginning on the Annuity Date.
Annuity Payments: Periodic income payments provided under the terms of one of
the Annuity Options.
Annuity Period: The period during which We make income payments to you.
Annuity Unit: A measurement We use to calculate the amount of Annuity Payments
you receive from the variable portion of your Contract during the Annuity
Period.
Beneficiary: The person designated to receive any benefits under the Contract
if you or the Annuitant dies.
Business Day: Generally, any day on which the New York Stock Exchange ("NYSE")
is open for trading. Our Business Day ends at 4:00 PM Eastern Time or the
closing of regular trading on the NYSE, if earlier. Some of the Investment
Options may impose earlier deadlines for trading. These deadlines are described
in further detail under the heading "Purchase - Allocation of Purchase
Payments".
Company: PHL Variable Insurance Company, also referred to as PHL Variable, We,
Us, Our and Company.
Contract: The Phoenix Portfolio Advisor/SM/ individual variable annuity
contract, which provides variable investment options offered by the Company.
Contract Anniversary: The anniversary of the Business Day you purchased the
Contract.
Contract Date: The date that the initial premium payment is invested under a
contract.
Contract Value: Your Contract Value is the sum of amounts held under your
Contract in the various Sub-accounts of the Separate Account.
Death Benefit Amount: The Death Benefit Amount is the amount payable to the
Beneficiary upon the death of the Owner or for a Contract owned by a
non-natural person the death of the Annuitant.
Free Look Period: The Free Look Period is the period of time within which you
may cancel your Contract. This period of time is generally 10 days from
receipt, but certain states require a longer period.
Guaranteed Minimum Death Benefit ("GMDB"): An optional benefit you may select
for an additional fee that guarantees a minimum amount your beneficiary will
receive upon your death, regardless of investment performance.
Guaranteed Minimum Death Benefit ("GMDB") Base: The total of all Purchase
Payments, less the sum of all Adjusted Partial Withdrawals and any premium
taxes, as applicable. An Adjusted Partial Withdrawal is calculated each time a
withdrawal is taken.
Guaranteed Minimum Death Benefit ("GMDB") Fee: The fee deducted by Us from the
Contract Value on each Contract Anniversary date if you select the GMDB
optional benefit.
Guaranteed Minimum Withdrawal Benefit ("GMWB"): An optional benefit you may
select for an additional fee that guarantees a minimum amount that you will be
able to withdraw from your contract, regardless of investment performance.
Guaranteed Minimum Withdrawal Benefit ("GMWB") Fee: The fee deducted by Us from
the Contract Value on each Contract Anniversary date if you select the GMWB
optional benefit.
Insurance Charges: The Insurance Charges compensate Us for assuming certain
insurance risks. The only Insurance Charges under the Contract are the
Subscription Fee, the Guaranteed Minimum Death Benefit fee (if selected) and
the Guaranteed Minimum Withdrawal Benefit fee (if selected).
Investment Advisor: A registered investment adviser, an investment adviser who
is exempt from registration with the Securities and Exchange Commission or
other adviser selected by you to provide asset allocation and investment
advisory services.
Investment Allocations Of Record: The Investment Allocations of Record specify
what percentage of each Purchase Payment is directed to the Sub-accounts you
select. You initially establish your initial Investment Allocations of Record
at the time you apply for the Contract. The Investment Allocations of Record
can be changed by notifying Us in accordance with Our procedures. Any change in
Investment Allocations of Record will apply to Purchase Payments received after
the change of Investment Allocations of Record is processed.
5
Investment Portfolios: The variable investment options available under the
Contract. Each Sub-account has its own investment objective and is invested in
the underlying Investment Portfolio.
Joint Owner: The individual who co-owns the Contract with another person.
Net Contract Value: An amount equal to the Contract Value reduced by any
applicable Transaction Fees, premium taxes and the applicable portion of the
Subscription Fee.
Non-qualified (contract): A Contract purchased with after-tax dollars. These
Contracts are not issued in conjunction with a pension plan, specially
sponsored program or individual retirement account ("IRA").
Owner: You, the purchaser of the Contract are the Owner.
Purchase Payment: The money you give Us to buy the Contract, as well as any
additional money you give Us to invest in the Contract after you own it.
Qualified (Contract): A Contract purchased with pretax dollars. These Contracts
are generally purchased under a pension plan, specially sponsored program or
IRA.
Registered Representative: A person, appointed by Us, who is licensed by the
Financial Industry Regulatory Authority ("FINRA") to sell variable products and
is sponsored by a FINRA member broker/dealer that is party to a selling group
agreement with the Company.
Rider Date: The date the Guaranteed Minimum Withdrawal Benefit rider to the
Contract takes effect. It is the date shown on the Rider Specifications page of
the Contract.
Secure Online Account: Your Secure Online Account is a password protected
electronic account through which you can access personal documents relating to
your Contract, such as transaction confirmations, periodic account statements
and other personal correspondence. You create your Secure Online Account by
going to the Website after you purchase the Contract and We maintain it for you
on the Website thereafter.
Separate Account: PHL Variable Accumulation Account II of PHL Variable
Insurance Company, which invests in the Investment Portfolios.
Sub-Account: A segment within the Separate Account which invests in a single
Investment Portfolio.
Subscription Fee: $20 per month fee charged by Us to issue and administer the
Contract.
Tax Deferral: Benefit provided by an annuity under which earnings and
appreciation on the Purchase Payments in your Contract are not taxed until you
take them out of the Contract either in the form of a withdrawal, income
payments or the payment of a death benefit.
Transaction Fee: Fee imposed by the Company for contributions and transfers
into and withdrawals and transfers out of certain Investment Portfolios. See
"Expenses - Transaction Fee" for further details, including a list of the
Investment Portfolios that impose a Transaction Fee.
Website: www.portfolioadvisorva.com, which is the website for Phoenix Portfolio
Advisor/SM/. You may obtain information about your Contract and request certain
transactions through the Website.
6
Highlights
- --------------------------------------------------------------------------------
The variable annuity Contract that We are offering is a Contract between you
(the Owner) and Us (the insurance company). The Contract provides a way for you
to invest on a tax-deferred basis in the Sub-accounts of PHL Variable
Accumulation Account II (Separate Account). The Contract is intended to be used
to accumulate money for retirement or other long-term tax-deferred investment
purposes. You should note that the Contract does not provide any additional tax
deferral benefit when purchased as part of an IRA or other tax-qualified plan.
The Contract charges no insurance fees other than the Subscription Fee
imposed during the Accumulation Period and Annuity Period, a fee if you select
the optional Guaranteed Minimum Death Benefit ("GMDB") and a fee if you select
the optional Guaranteed Minimum Withdrawal Benefit ("GMWB"). You do pay any
applicable Transaction Fees, as well as the fees of the Investment Portfolios
you select and any Investment Advisor you retain.
The Contract includes a death benefit that is described in detail under the
heading "Death Benefit." In addition, the Contract offers an optional GMDB.
This benefit guarantees a minimum Death Benefit Amount. You should note that
the guaranteed Death Benefit Amount may be reduced by an amount greater than
the sum of all partial withdrawals taken at a time when the Death Benefit
Amount is greater than your Contract Value. If death occurs on or after the
Contract Anniversary immediately following your attaining age 90 (for Joint
Owners, the age of the oldest Owner or Annuitant, if applicable, controls), the
Guaranteed Minimum Death Benefit rider provides no additional death benefit
other than what is provided under the base contract. There is a separate fee
for this benefit.
The Contract offers a GMWB as an optional benefit. This benefit guarantees a
minimum amount you will be able to withdraw from your contract regardless of
investment performance. There is a separate fee for this benefit. You should
note that excessive withdrawals under the GMWB will adversely affect the
available benefit and that investment restrictions will apply if you elect this
optional benefit. If you purchase the GMWB you must allocate Purchase Payments
and Contract Value through an available asset allocation program described in
this prospectus.
All deferred annuity contracts, like the Contract, have two periods: the
Accumulation Period and the Annuity Period. During the Accumulation Period, any
earnings accumulate on a tax-deferred basis and are taxed as ordinary income
when you make a withdrawal. The Annuity Period occurs when you begin receiving
regular Annuity Payments from your Contract. Under the terms of the Contract,
you may not enter the Annuity Period until two (2) years from the date you
purchase the Contract. This time period may vary by state.
You can choose to receive Annuity Payments on a variable basis, on a fixed
basis or a combination of both. If you choose variable Annuity Payments, the
amount of the variable Annuity Payments will depend upon the investment
performance of the Investment Portfolios you select for the Annuity Period. If
you choose fixed Annuity Payments, the amount of the fixed Annuity Payments are
constant for the entire Annuity Period.
Transaction Fee. The Company imposes a Transaction Fee for contributions and
transfers into and withdrawals and transfers out of certain Investment
Portfolios. For further information, see "Expenses--Transaction Fee".
Right to Cancel or "Free Look". If you cancel the Contract within 10 days
after receiving it (or whatever longer time period is required in your state),
We will cancel the Contract. You will receive whatever your Contract is worth
on the Business Day We receive your proper request for cancellation. This may
be more or less than your original payment. We will return your original
payment if required by law.
Tax Penalty. In general, the earnings in your Contract are not taxed until
you take money out of your Contract. If you are younger than age 59 1/2 when
you take money out, you may be charged a 10% federal tax penalty on the amount
treated as income. For Non-Qualified Contracts, Annuity Payments during the
Annuity Period are considered partly a return of your original investment. The
part of each Annuity Payment that is a return of your investment is not taxable
as income. Once you have recovered the full amount of your investment, however,
the entire amount of your Annuity Payment will be taxable income to you. For
IRA and Qualified Plan Contracts, unless you had after-tax monies invested in
the contract, the full Annuity Payment is taxable.
Important Information Concerning Your Phoenix Portfolio Advisor/sm/ Contract.
Upon purchase of the Contract, you can only access documents relating to the
Contract and the Investment Portfolios electronically. Regular and continuous
Internet access is required to access electronically all documents relating to
the Contract and the Investment Portfolios. You should not invest and continue
to receive documents electronically if you do not have regular and continuous
Internet access.
After purchase, either at the time of application or later, you may elect to
receive in paper via U.S. mail all documents relating to the Contract and the
Investment Portfolios by revoking your electronic consent. We will also honor a
request to deliver a specific document in paper even though electronic consent
has not been revoked.
For Owners using electronic communications, current prospectuses and all
required reports for the Contract and the Investment Portfolios are available
at the Website. While We will notify you via email when a transaction
pertaining to your Contract has occurred or a document impacting your Contract
has been posted, you should visit the Website regularly. We post updated
prospectuses for the Contract and the Investment Portfolios on the Website on
or about May 1 of each year. Prospectuses also may be supplemented
7
throughout the year and will be available on the Website, which you should
visit regularly. We post Annual Reports and Semi-Annual Reports on the Website
on or about March 1 and September 1, respectively, each year. For your
reference, We archive out-of-date Contract prospectuses. We have no present
intention of deleting any archived Contract prospectus, however, We reserve the
right to do so at any time upon 30 days' notice to your Secure Online Account.
Investment Portfolio prospectuses will be available on the website for 30 days
after the subsequent May 1 annual update. Investment Portfolio Annual and
Semi-Annual Reports will be available on the website for 30 days after the
subsequent March 1 annual update. You will not have electronic access through
the Website to Investment Portfolio prospectuses or Annual and Semi-Annual
Reports after We remove them from the Website. Accordingly, you should consider
printing them before they are removed. Alternatively, We will provide copies of
them upon request.
We will deliver all other documents electronically to your Secure Online
Account. Checking your Secure Online Account regularly will give you an
opportunity to prevent multiple fraudulent transactions. We deliver transaction
confirmations at or before the completion of your transactions. We deliver
account statements on a quarterly basis (that is, shortly after
March 31, June 30, September 30 and December 31 of each year). Under certain
circumstances, your account statement may serve as the confirmation for
transactions you made during the quarter covered by the statement. Proxy
statements and other correspondence may be delivered at any time.
You should regularly check your Secure Online Account. We will notify you by
e-mail that a transaction relating to your Contract has occurred or a document
impacting your Contract has been posted. However, this is no substitute for
regularly checking your Secure Online Account.
We will allow you to have access to your Secure Online Account even after you
revoke your consent to Our electronic delivery of documents or surrender or
exchange your Contract. However, We reserve the right to delete your Secure
Online Account upon 30 days' notice, which We will deliver to your Secure
Online Account. Upon receipt of such a notice, you should consider printing the
information held in your Secure Online Account. Upon request, We will provide
paper copies of any deleted document.
We have no present intention of deleting documents from your Secure Online
Account. If, however, We decide to do so, We will provide you with at least 30
days' notice in your Secure Online Account so that you will have an opportunity
to print the documents that are subject to deletion.
Inquiries. If you need more information, please contact Us at:
Phoenix Portfolio Advisor/ SM/ Service Center
P.O. Box 36740
Louisville, Kentucky 40233
(866) 226-0170
8
Fee Tables
- --------------------------------------------------------------------------------
The following tables describe the fees and expenses that you will pay when
buying, owning and surrendering the Contract. The first table describes the
fees and expenses that you will pay at the time you buy the Contract, surrender
the Contract, or transfer amounts between Investment Portfolios. State or other
governmental entity premium taxes may also be deducted (See Appendix B).
OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge (as a percentage
of Purchase Payments withdrawn) None
Transfer Fee/1/ Current Charge Maximum Charge
-------------- --------------
None $25
We reserve the right to impose a fee, not to exceed $25, for excessive
transfers upon providing prior notice to you. This fee is different than the
Transaction Fee described below.
Transaction Fee/2/ The Company imposes a Transaction Fee, in the amounts shown below, for
contributions, including initial contributions, and transfers into and
withdrawals and transfers out of certain Investment Portfolios. Only
transactions involving those Investment Portfolios for which the Company
imposes a Transaction Fee are counted for purposes of determining the
number of transactions per Contract year. A listing of the Investment
Portfolios for which the Company imposes a Transaction Fee is set forth in
"Expenses - Transaction Fee", and is also available at the Website or upon
request by calling (866) 226-0170. Unless prohibited by state law or
regulation, the Company may increase the Transaction Fee, or modify the
table below. However, the Transaction Fee may not be increased to an
amount greater than the maximum charge shown.
Current Charge Maximum Charge
------------------- -------------------
Transactions 1-10 per Contract year.. $49.99\transaction $74.99/transaction
Transactions 11-20 per Contract year. $39.99\transaction $74.99/transaction
Transactions 21-30 per Contract year. $29.99\transaction $74.99/transaction
Transactions 31+ per Contract year... $19.99\transaction $74.99/transaction
/1/ All reallocations made on the same day involving the same Investment
Portfolio count as one transfer. Certain restrictions apply as further
described under the heading "Transfers - Excessive Trading Limits" and
"Transfers - Short Term Trading Risk". In the event that We impose transfer
fees, if you sell one Investment Portfolio and use those proceeds to
purchase another Investment Portfolio We will impose one fee, not to exceed
$25.00.
/2/ All transactions made on the same day involving the same Investment
Portfolio will result in one Transaction Fee.
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Contract, not including the Investment
Portfolios' fees and expenses.
Current Charge Maximum Charge
PERIODIC EXPENSES -------------------- --------------------
Subscription Fee $20 per Contract per $20 per Contract per
month month
Separate Account Annual Expenses
(as a percentage of Contract Value invested in
the Investment Portfolios) Mortality and
Expense Risk Charge............................. 0.00% 0.00%
Administrative Charge............................. 0.00% 0.00%
Total Separate Account Annual Expenses............ 0.00% 0.00%
9
Guaranteed Minimum Death Benefit Fee
- --------------------------------------------------------------------------------
The next table describes the fee that you will pay, in addition to the
Subscription Fee and Investment Portfolio Operating Expenses, periodically
during the time that you own the Contract if you elect the Guaranteed Minimum
Death Benefit.
Current Fee Maximum Fee
----------- -----------
Guaranteed Minimum Death Benefit Fee (as a percentage
of the greater of the GMDB Base/1/ and the Contract
Value/2/) 0.20% 0.50%
/1/ The total of all Purchase Payments, less the sum of all Adjusted Partial
Withdrawals and any premium taxes, as applicable. An Adjusted Partial
Withdrawal is calculated each time a withdrawal is taken.
/2/ The sum of amounts held under your Contract in the various Sub-accounts of
the Separate Account.
10
Guaranteed Minimum Withdrawal Benefit Fee
- --------------------------------------------------------------------------------
This table describes the fee that you will pay, in addition to the
Subscription Fee and the Investment Portfolio Operating Expenses, periodically
during the time that you own the contract if you elect the Guaranteed Minimum
Withdrawal Benefit.
Guaranteed Minimum Withdrawal Benefit
Fee (as a percentage of the greater Current Fee Maximum Fee
of the Benefit Base/1/ and Contract ---------------------------- -----------
0.90% (single life option) 3.00%
1.35% (spousal life option) 3.00%
/1/ The Benefit Base is a value determined by Us and used to calculate the
Annual Benefit Amount under the Guaranteed Minimum Withdrawal Benefit
rider. Initially, it equals the Contract Value but We will recalculate it
when events such as certain additional purchase payments or withdrawals
occur. Specific information regarding the calculation of the Benefit Base
and an explanation of how it is used to calculate your Annual Benefit
Amount are found under the heading "Guaranteed Minimum Withdrawal Benefit
(GMWB) - Benefit Base."
The next item shows the minimum and maximum total operating expenses charged
by the Investment Portfolios that you may pay periodically during the time that
you own the Contract. More detail concerning each Investment Portfolio's fees
and expenses is contained in the prospectus for each Investment Portfolio.
Total Investment Portfolio Operating Expenses Minimum Maximum
- --------------------------------------------- ---------- -----------
(expenses that are deducted from Investment Portfolio
assets, including management fees, distribution
and/or service (12b-1) fees, and other expenses)/1/. Gross 0.14% Gross 39.60%
/1/ The minimum and maximum total Investment Portfolio Operating Expenses may
be affected by voluntary or contractual waivers or expense reimbursements.
These waivers and expense reimbursements will reduce the actual Total
Portfolio Operating Expenses for the affected Investment Portfolios. Please
refer to the underlying Investment Portfolio prospectuses for details about
the specific expenses of each Investment Portfolio. The gross numbers
displayed above reflect the minimum and maximum charges without giving
effect to any agreed upon waivers. The numbers shown in the chart do not
reflect the potential assessment by the funds of redemption fees.
11
EXAMPLES OF FEES AND EXPENSES
These Examples are intended to help you compare the cost of investing in the
Contract with the cost of investing in other variable annuity contracts. These
costs include Owner transaction expenses, Contract fees, Separate Account
annual expenses, the fee for the GMWB, the fee for the GMDB and Investment
Portfolio fees and expenses.
The Examples assume that you invest $10,000 in the Contract for the time
periods indicated and that your investment has a 5% return each year. Because
there are no charges upon surrender or annuitization, your costs will be the
same for the time periods shown whether you surrender, annuitize or continue to
own the Contract. For purposes of these examples, We have assumed the money is
invested in Investment Portfolios for which no Transaction Fee is charged. For
a description of the Transaction Fee, see "Expenses - Transaction Fee". All
other expenses and fees reflected in Examples 1,3,5 and 7 are at their maximum
amounts. Examples 2,4,6 and 8 also reflect all other fees and expenses at their
maximum amounts, except that they reflect the minimum Investment Portfolio
operating expenses. The Subscription Fee for every contract, regardless of
size, is $240 annually, i.e. $20 per month. For these examples we used $20.00
per month as the Subscription Fee, but converted it to an asset based charge
based on the estimated contract size. This conversion causes the Subscription
Fee in the example below to be $240.00 annually based on an average contract
size of $150,000. These examples assume the GMDB fee and the GMWB fee as the
maximum fee percentage of Contract Value. Although your actual costs may be
higher or lower, based on these assumptions and those that follow, your costs
would be:
(1)Assuming Contract charges and maximum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Death
Benefit and the optional Guaranteed Minimum Withdrawal Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$458* $6,992 $8,324 $9,070
(2)Assuming Contract charges and minimum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Death
Benefit and the optional Guaranteed Minimum Withdrawal Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$382 $1,161 $1,958 $4,036
(3)Assuming Contract charges and maximum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Death
Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$160* $6,853 $8,335 $9,283
(4)Assuming Contract charges and minimum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Death
Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$82 $255 $444 $990
(5)Assuming Contract charges and maximum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Withdrawal
Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$409* $6,971 $8,328 $9,106
(6)Assuming Contract charges and minimum Investment Portfolio operating
expenses, and you have purchased the optional Guaranteed Minimum Withdrawal
Benefit:
1 year 3 years 5 years 10 years
--------------------------------
$333 $1,015 $1,722 $3,595
(7)Assuming Contract charges and maximum Investment Portfolio operating
expenses, and you have purchased no optional benefits:
1 year 3 years 5 years 10 years
--------------------------------
$109* $6,826 $8,334 $9,318
(8)Assuming Contract charges and minimum Investment Portfolio operating
expenses, and you have purchased no optional benefits:
1 year 3 years 5 years 10 years
--------------------------------
$31 $97 $169 $381
* This figure reflects the effect of waiver arrangements that are contractually
in effect at least until April 30, 2009. The advisor and subadvisor have
contractually agreed to reduce its management fees and subadvisory fee,
respectively, and/or to reimburse certain expenses. There can be no assurance
that any contractual arrangement will extend beyond its current terms and you
should know that these arrangements may exclude certain extraordinary
expenses.
12
The Company, the Separate Account and the General Account
- --------------------------------------------------------------------------------
We are PHL Variable Insurance Company, a Connecticut stock life insurance
company, incorporated on July 15, 1981. We sell life insurance policies and
annuity contracts through producers of affiliated distribution companies,
brokers and other financial advisors. Our executive and administrative office
is located at One American Row, Hartford, Connecticut, 06103-2899.
PHL Variable is an indirectly owned company of Phoenix Life Insurance Company
("Phoenix"). Phoenix is a life insurance company, which is wholly owned by The
Phoenix Companies, Inc. ("PNX"), which is a manufacturer of insurance, annuity
and asset management products. Obligations under the Contracts are obligations
of PHL Variable.
On October 25, 2007, We established the PHL Variable Accumulation Account II,
a separate account created under the insurance laws of Connecticut. The
Separate Account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and it meets the definition
of a "separate account" under the 1940 Act. Registration under the 1940 Act
does not involve supervision by the SEC of the management or investment
practices or policies of the Separate Account or of PHL Variable.
Under Connecticut law, all income, gains or losses, whether or not realized,
of the Separate Account must be credited to or charged against the amounts
placed in the Separate Account without regard to the other income, gains and
losses from any other business or activity of PHL Variable. The assets of the
Separate Account are held in Our name and legally belong to Us; however the
assets that underlie the Contract may not be used to pay liabilities arising
out of any other business that We may conduct. The Separate Account has several
Sub-accounts that invest in underlying mutual funds. We may make certain
changes to the Separate Account as described in "Changes to the Separate
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 Separate Account.
The Phoenix Portfolio Advisor/SM/ Variable Annuity Contract
This prospectus describes the Phoenix Portfolio Advisor/SM/ Variable Annuity
Contract offered by PHL Variable. An annuity is a contract between you, the
Owner, and Us. Until you decide to begin receiving Annuity Payments, your
Contract is in the Accumulation Period. Once you begin receiving Annuity
Payments, your Contract switches to the Annuity Period.
The Contract benefits from tax-deferral. Tax-deferral means that you are not
taxed on any earnings or appreciation on the assets in your Contract until you
take money out of your Contract. The Contracts may be issued in conjunction
with certain qualified plans and Individual Retirement Accounts qualifying for
special income tax treatment under the Internal Revenue Code. You should be
aware that if this annuity funds a retirement plan and/or an Individual
Retirement Account ("IRA"), the annuity provides no additional tax-deferral
than what is already available for any IRA or qualified plan. In addition, you
should be aware that there are fees and charges in an annuity that may not be
included in other types of qualified plan and IRA investments, which may be
more or less costly. However, the fees and charges under the Contract are also
designed to provide for certain payment guarantees and features other than tax
deferral that may not be available through other investments. These features
are explained in detail in this prospectus. You should consult with your tax or
legal adviser to determine if the Contract is suitable for your tax qualified
plan or IRA.
The Contract is called a variable annuity because you can choose to allocate
your Purchase Payments among several Investment Portfolios and, depending upon
market conditions, you can make or lose money in any of these Investment
Portfolios. The amount of money you are able to accumulate in your Contract
during the Accumulation Period depends upon the investment performance of the
Investment Portfolio(s) you select.
You can choose to receive Annuity Payments on a variable basis, fixed basis
or a combination of both. If you choose variable payments, the amount of the
Annuity Payments you receive will depend upon the investment performance of the
Investment Portfolio(s) you select for the Annuity Period. If you elect to
receive payments on a fixed basis, the Annuity Payments you receive will remain
level for the period of time selected.
Right to Cancel or "Free Look Period"
If you change your mind about owning the Contract, you can cancel it within
10 days after receiving it (or whatever period is required in your state). The
Insurance Charges and Investment Portfolio operating expenses, along with any
applicable Transaction Fees, will have been deducted. On the Business Day We
receive your proper request We will return your Contract Value. In some states,
We may be required to refund your Purchase Payment.
Owner. You, as the Owner of the Contract, have all the rights under the
Contract. The Owner is as designated at the time the Contract is issued, unless
changed. You can change the Owner at any time. A change will automatically
revoke any prior Owner designation. You must notify Us in writing to effect a
change of Owner. We will not be liable for any payment or other action We take
in accordance with the Contract before We receive proper notice of the change.
A change of Owner may be a taxable event.
Joint Owner. A Non-Qualified Contract can be owned by Joint Owners. Upon the
death of either Joint Owner, the surviving Joint Owner will be the primary
Beneficiary. Any other Beneficiary designation on record at the time of death
will be treated as a contingent Beneficiary unless you have previously notified
Us in writing otherwise.
13
Beneficiary. The Beneficiary is the person(s) or entity you name to receive
any Death Benefit Amount. The Beneficiary is named at the time the Contract is
issued. If no Beneficiary is designated, your estate will be the Beneficiary.
Unless an irrevocable Beneficiary has been named, you can change the
Beneficiary at any time before you die. We will not be liable for any payment
or other action We take in accordance with the Contract before We receive
notice of the change of Beneficiary.
Assignment
Subject to applicable law, you can assign the Contract at any time during
your lifetime. We will not be bound by the assignment until We receive the
written notice of the assignment. We will not be liable for any payment or
other action We take in accordance with the Contract before We receive notice
of the assignment.
An assignment may be a taxable event.
If the Contract is a Qualified Contract, there are limitations on your
ability to assign the Contract.
Electronic Administration of Your Contract
This Contract is designed to be administered electronically ("Electronic
Administration"). You can access documents relating to the Contract and the
Investment Portfolios online. If you consent to Electronic Administration, you
will receive all documents electronically, unless you request, either at the
time of application or later, a specific paper document, or revoke your consent
to Electronic Administration. You may obtain paper copies of documents related
to your Contract by printing them from your computer. We will honor a request
to deliver a specific document in paper even though electronic consent has not
been revoked.
If you elect Electronic Administration, you must have Internet access so that
you can view your Secure Online Account and access all documents relating to
the Contract and the Investment Portfolios. You should not elect Electronic
Administration if you do not have Internet access. Although We will email you
when a transaction relating to your Contract has occurred or a document
impacting your Contract is posted, you should regularly check your Secure
Online Account. There is no substitute for regularly checking your Secure
Online Account.
You may, however, elect to have documents related to your Contract also
delivered via U.S. Mail to your address of record by withdrawing your consent
to Electronic Administration. After your withdrawal of consent becomes
effective, you will receive documents via U.S. Mail. We may also continue to
send documents to your Secure Online Account. After you have withdrawn your
consent to Electronic Administration, you may notify Us that you again consent
to Electronic Administration. You may revoke or reinstate your consent to
electronic delivery as often as you wish. You may do so by visiting the
Website, by calling the Customer Service telephone number or by writing to Us
at the Phoenix Portfolio Advisor Service Center. You may also contact your
financial advisor, who may initiate a change on your behalf. Notification of
change made via the Website will be effective immediately. Notification by
telephone or U.S. Mail will be processed as received, usually within two
business days.
Current prospectuses and all required reports for the Contract and the
Investment Portfolios are available at the Website through your Secure Online
Account. We post updated prospectuses for the Contract and the Investment
Portfolios on the Website on or about May 1 of each year. Prospectuses also may
be supplemented throughout the year and will be available on the Website. We
post Annual Reports and Semi-Annual Reports on the Website on or about March 1
and September 1, respectively, each year. For your reference, We archive
out-of-date Contract prospectuses. We have no present intention of deleting any
archived Contract prospectus, however, We reserve the right to do so at any
time upon 30 days' notice to your Secure Online Account. To the extent an
archived Contract prospectus is no longer available on the Website, We will
provide it upon request.
Investment Portfolio prospectuses will be available for 30 days after the
subsequent May 1 annual update. Investment Portfolio Annual and Semi-Annual
Reports will be available for 30 days after the subsequent annual update. You
will not have electronic access through the Website to archived Investment
Portfolio prospectuses or Annual and Semi-Annual Reports after We remove them
from the Website. Accordingly, you should consider printing them before they
are removed. Upon request, We will send you a paper copy of these documents via
U.S. mail.
We will send all other documents related to your Contract to your Secure
Online Account, including, but not limited to, transaction confirmations, proxy
statements, periodic account statements and other personal correspondence. You
create your Secure Online Account when you purchase the Contract and We
maintain it for you at the Website.
You will have access to your Secure Online Account even after you revoke your
consent to Our electronic delivery of documents or surrender or exchange your
Contract. However, We reserve the right to delete your Secure Online Account
upon 30 days' notice, which We will deliver to your Secure Online Account. Upon
receipt of such a notice, you should consider printing the information held in
your Secure Online Account. Upon request, We will provide paper copies of any
deleted document.
We have no present intention of deleting documents from your Secure Online
Account. If, however, We decide to do so, We will provide you with at least 30
days' notice to your Secure Online Account so that you will have an opportunity
to print the documents that are subject to deletion.
Confirmations and Statements
We will send a confirmation statement to your Secure Online Account each time
you change your Investment Allocations of Record, We receive a new Purchase
Payment from you, you make a transfer among the Investment Portfolios, or you
make a withdrawal. Generally, We deliver transaction confirmations at or before
the completion of your
14
transactions. However, the confirmation for a new Purchase Payment or transfer
of Contract Value may be an individual statement or may be part of your next
quarterly account statement. You should review your confirmation statements to
ensure that your transactions are carried out correctly. If you fail to do so,
you risk losing the opportunity to ask Us to correct an erroneous transaction.
We deliver account statements to your Secure Online Account on a quarterly
basis (that is, shortly after March 31, June 30, September 30 and December 31
of each year), or in paper via U.S. mail if you have withdrawn your consent to
Electronic Administration or otherwise request a specific confirmation or
statement. Under certain circumstances, your account statement may serve as the
confirmation for transactions you made during the quarter covered by the
statement. Proxy statements and other correspondence may be delivered at any
time. If you have questions, you can either go to the Website and click on
"Contact Us" for secure online correspondence or you can e-mail Us at
ppaservice@portfolioadvisorva.com or call Us at (866) 226-0170.
Requesting Transactions or Obtaining Information About your Contract
You may request transactions or obtain information about your Contract by
submitting a request to Us in writing via U.S. Mail at the Phoenix Portfolio
Advisor/SM/ Service Center, P.O. Box 36740, Louisville, KY 40233. Subject to
Our administrative rules and procedures, We may also allow you to submit a
request through other means.
Under a contract with PHL Variable Insurance Company, Jefferson National Life
Insurance Company (Jefferson National) provides administrative services
including, but not limited to, electronic and mail document delivery,
transaction confirmation, the production of periodic account statements and
other various administrative services for the Contracts. Jefferson National's
principal business office is located at 9920 Corporate Campus Drive, Suite
1000, Louisville, Kentucky 40223.
Telephone and Website Transactions. You can elect to request certain
transactions and receive information about your Contract by telephone or
through the Website. All transaction requests are processed subject to Our
administrative rules and procedures.
We will accept transaction requests from your Registered Representative
and/or your Investment Advisor. You can also authorize someone else, via
submitting to Us a power of attorney in good order, to request transactions for
you. If you own the Contract with a Joint Owner, unless We are instructed
otherwise, We will accept instructions from and provide information to either
you or the other Owner.
We will use reasonable procedures to confirm that instructions given to Us by
telephone are genuine. All telephone calls will be recorded and the caller will
be asked to produce personalized data about the Owner before We will make the
telephone transaction. We will post confirmations of all transactions to your
Secure Online Account. We will not send confirmation of any transaction to you
in paper, unless you have elected to receive paper documents via U.S. mail. If
We fail to use such procedures We may be liable for any losses due to
unauthorized or fraudulent instructions.
Security of Electronic Communications with US. The Website uses generally
accepted and available encryption software and protocols, including Secure
Socket Layer. This is to prevent unauthorized people from eavesdropping or
intercepting information you send or receive from Us. This may require that you
use certain readily available versions of web browsers. As new security
software or other technology becomes available, We may enhance Our systems.
You will be required to provide your user ID and password to access your
Secure Online Account and perform transactions at the Website. Do not share
your password with anyone else. We will honor instructions from any person who
provides correct identifying information, and We may not be responsible for
fraudulent transactions We believe to be genuine based on these procedures.
Accordingly, you may bear the risk of loss if unauthorized persons conduct any
transaction on your behalf. You can reduce this risk by checking your Secure
Online Account regularly which will give you an opportunity to prevent multiple
fraudulent transactions.
Avoid using passwords that can be guessed and consider changing your password
frequently. Our employees or representatives will not ask you for your
password. It is your responsibility to review your Secure Online Account and to
notify Us promptly of any unauthorized or unusual activity. We only honor
instructions from someone logged into Our secure Website using a valid user ID
and password.
We cannot guarantee the privacy or reliability of e-mail, so We will not
honor requests for transfers or changes received by e-mail, nor will We send
account information through e-mail. All transfers or changes should be made
through Our secure Website. If you want to ensure that Our encryption system is
operating properly, go to the icon that looks like a "locked padlock." This
shows that encryption is working between your browser and Our web server. You
can click or double-click on the padlock to get more information about the
server. When you click the "view certificate" button (in Netscape) or the
"subject" section (in Internet Explorer), you should see
"www.secure.portfolioadvisorva.com" listed as the owner of the server you are
connected to. This confirms that you are securely connected to Our server.
Purchase
- --------------------------------------------------------------------------------
Purchase Payments
A Purchase Payment is the money you give Us to buy the Contract. You can make
Purchase Payments at any time before the Annuity Date. The minimum initial
Purchase Payment We will accept is $25,000 whether the Contract is bought as a
Non-Qualified Contract or as part of a Tax-Sheltered Annuity or an Individual
Retirement Annuity (IRA). If You have not elected the optional GMWB or the
optional GMDB the maximum We accept is $10,000,000 without Our prior approval.
If You have elected the GMWB or
15
the GMDB the maximum We accept is $2,000,000 without Our prior approval. All
Purchase Payments will be subject to such terms and conditions as We may
require. PHL Variable reserves the right to refuse any Purchase Payment or not
issue any Contract.
Subject to the minimums and maximums described above, you can make additional
Purchase Payments of any amount. However, We reserve the right to impose
minimums on future Purchase Payments.
Allocation of Purchase Payments
Generally, within specific limits, you determine into which sub-accounts your
Purchase Payments will be invested. When you purchase a Contract, We will
allocate your Purchase Payment according to your Investment Allocation of
Record, which you can change at any time for future Purchase Payments. When you
make additional Purchase Payments, We will allocate them based on the
Investment Allocations of Record in effect on the Business Day We receive the
Purchase Payment. Allocation percentages must be in whole numbers. The Company
may impose a Transaction Fee for contributions and transfers into and
withdrawals and transfers out of certain Investment Portfolios in the
accumulation period and during the annuity period. See "Expenses--Transaction
Fee" for further details. Additionally, if you are participating in an Asset
Allocation program, the Dollar Cost Averaging Program or the GMWB rider is in
effect for your Contract, allocation restrictions apply. These restrictions are
described in the "Asset Allocation and Other Strategic Programs" and the
"Guaranteed Minimum Withdrawal Benefit (GMWB)--Asset Allocation Program
Requirement" sections of this prospectus.
Once We receive your Purchase Payment and the necessary information, We will
issue your Contract and allocate your first Purchase Payment within 2 Business
Days. If you do not provide Us all of the information needed, We will contact
you. If for some reason We are unable to complete this process within 5
Business Days, We will either send back your money or get your permission to
keep it until We get all of the necessary information. The method of payment
(e.g., check, wire transfer, electronic funds transfer) may affect when your
Purchase Payment is received by Us. If you add more money to your Contract by
making additional Purchase Payments, We will credit these amounts to your
Contract as of the Business Day We receive your Purchase Payment, or, if the
day We receive your Purchase Payment is not a Business Day, on the next
Business Day. Our Business Day closes when the New York Stock Exchange closes,
usually 4:00 P.M. Eastern time. However, certain Investment Portfolios impose
transfer cut-off times before the end of the Business Day. We must receive
transfer requests involving these Investment Portfolios no later than the time
shown below, i.e., 3:45 P.M Eastern Time based on the usual 4:00 P.M. Eastern
Time close for those Investment Portfolios listed below with a cut-off 15
minutes before the NYSE close. Any transfer involving a Rydex Investment
Portfolio received after the applicable cut-off time set forth in the chart
below, including a transfer request involving any other Investment Portfolio
not listed or any Investment Portfolio with an earlier cut-off time, will be
processed on the next Business Day. This restriction applies only to transfers
between Sub-Accounts involving one of the Rydex Investment Portfolios listed
below. It does not apply to purchases or redemptions.
15 Minutes Before NYSE Close
The following Rydex Variable Trust Investment Portfolios:
-------------------------------------------------------------
S&P 500 2x Inverse Dow 2x Inverse Government
Strategy Strategy Long Bond Strategy
-------------------------------------------------------------
-------------------------------------------------------------
Inverse Mid-Cap Inverse NASDAQ-100(R) Inverse Russell
Strategy Strategy 2000(R) Strategy
-------------------------------------------------------------
-------------------------------------------------------------
Inverse S&P 500 Japan 1.25x Strategy Large-Cap Growth
Strategy
-------------------------------------------------------------
-------------------------------------------------------------
Large-Cap Value Mid-Cap Growth Mid-Cap 1.5x
Strategy
-------------------------------------------------------------
-------------------------------------------------------------
Mid-Cap Value Nova NASDAQ-100(R)
Strategy
-------------------------------------------------------------
-------------------------------------------------------------
Russell 2000(R) 1.5 Small-Cap Growth Small-Cap Value
Strategy
-------------------------------------------------------------
30 Minutes Before NYSE Close
The following Rydex Variable Trust Investment Portfolios:
------------------------------------------
Banking Basic Materials Biotechnology
------------------------------------------
Commodities
Strategy
-------------
Investment Options
- --------------------------------------------------------------------------------
You may allocate your Purchase Payments to the Sub-accounts during the
Accumulation Period and may maintain and transfer Contract Value among the
Sub-accounts.
Investment Portfolios
The Contract offers several Sub-accounts, each of which invests exclusively
in an Investment Portfolio listed at the beginning of this prospectus. During
the Accumulation Period, money you invest in the Sub-accounts may grow in
value, decline in value, or grow less than you expect, depending on the
investment performance of the Investment Portfolios in which those Sub-accounts
invest. You bear the investment risk that those Investment Portfolios might not
meet their investment objectives. Additional Investment Portfolios may be
available in the future. If you elect variable Annuity Payments, during the
Annuity Period, the variable portion of your Annuity Payment will vary based on
the performance of the Investment Portfolios.
The Investment Portfolios offered through this product are selected by the
Company based on several criteria, including asset class coverage, the strength
of the manager's reputation and tenure, brand recognition, performance, and the
capability and qualification of each sponsoring investment firm. Another factor
the Company considers during the initial selection
16
process is whether the Investment Portfolio or an affiliate of the Investment
Portfolio will compensate the Company for providing administrative, marketing,
and support services that would otherwise be provided by the Investment
Portfolio, the Investment Portfolio's investment advisor, or its distributor.
Finally, when the Company develops a variable annuity (or life) product in
cooperation with a fund family or distributor (e.g., a "private label"
product), the Company will generally include Investment Portfolios based on
recommendations made by the fund family or distributor, whose selection
criteria may differ from the Company's selection criteria.
You should read the prospectuses for these Investment Portfolios carefully.
Unless you have opted to receive documents relating to your Contract via U.S.
mail, copies of these prospectuses will not be sent to you in paper. They are,
however, available at the Website. See Appendix A which contains a summary of
investment objectives for each Investment Portfolio.
The investment objectives and policies of certain of the Investment
Portfolios are similar to the investment objectives and policies of other
mutual funds managed by the same investment advisers. Although the objectives
and policies may be similar, the investment results of the Investment
Portfolios may be higher or lower than the results of such other mutual funds.
The investment advisors cannot guarantee, and make no representation that, the
investment results of similar funds will be comparable even though the
Investment Portfolios have the same investment advisers.
A significant portion of the assets of certain of the Investment Portfolios
come from investors who take part in certain strategic and tactical asset
allocation programs. These Investment Portfolios anticipate that investors who
take part in these programs may frequently redeem or exchange shares of these
Investment Portfolios, which may cause the Investment Portfolios to experience
high portfolio turnover. Higher portfolio turnover may result in the Investment
Portfolios paying higher levels of transaction costs. Large movements of assets
into and out of the Investment Portfolios may also negatively impact an
Investment Portfolio's ability to achieve its investment objective. In
addition, the extent to which Contracts are owned by investors who engage in
frequent redemptions or exchanges involving Investment Portfolios which do not
limit such activity may result in more redemption and exchange activity in
other Investment Portfolios which impose limits on such activity. The adverse
impact, if any, of such activity will be constrained by the limits those other
Investment Portfolios impose on frequent redemption or exchange activity. Refer
to the Investment Portfolios' prospectuses for more details on the risks
associated with any specific Investment Portfolio.
Shares of the Investment Portfolios are offered in connection with certain
variable annuity Contracts and variable life insurance policies of various life
insurance companies, which may or may not be affiliated with Us. Certain
Investment Portfolios are also sold directly to qualified plans. The funds do
not believe that offering their shares in this manner will be disadvantageous
to you.
Administrative, Marketing and Support Services Fees
The Company and the principal underwriter for the Contracts have entered into
agreements with the investment advisor, subadvisor, distributor, and/or
affiliated companies of most of the Investment Portfolios. We have also entered
into agreements with the Phoenix Edge Series Fund and its advisor, Phoenix
Varible Advisors, Inc., with whom we are affiliated. These agreements
compensate the Company and the principal underwriter for the Contracts for
providing certain administrative, marketing or other support services to the
Investment Portfolios.
Proceeds of these payments may be used for any corporate purpose, including
payment of expenses that the Company and the principal underwriter for the
Contracts incur in promoting, issuing, distributing and administering the
Contracts. As stated previously, such payments are a factor in choosing which
funds to offer in the Company's variable products. These payments may be
significant and the Company and its affiliates may profit from them.
The payments are generally based on a percentage of the average assets of
each Investment Portfolio allocated to the variable investment options under
the Contract or other contracts offered by the Company. The amount of the fee
that an Investment Portfolio and its affiliates pay the Company and/or the
Company's affiliates is negotiated and varies with each Investment Portfolio.
Aggregate fees relating to the different Investment Portfolio may be as much as
0.50% of the average net assets of an Investment Portfolio attributable to the
relevant contracts. A portion of these payments may come from revenue derived
from the distribution and/or service fees (12b-1 fees) that are paid by an
Investment Portfolio out of its assets as part of its total annual operating
expenses and is not paid directly from the assets of your variable annuity.
Where the Company does not have an arrangement with an Investment Portfolio
to receive payments for the provision of services, Transaction Fee proceeds may
be used to pay expenses that the Company and the principal underwriter for the
contracts incur in promoting, issuing, distributing and administering the
contracts. The Company and its affiliates may profit from these fees.
Voting Rights
PHL Variable is the legal owner of the Investment Portfolio shares. However,
when an Investment Portfolio solicits proxies in conjunction with a vote of its
shareholders, We will send you and other owners materials describing the
matters to be voted on. You instruct Us how you want Us to vote your shares.
When We receive those instructions, We will vote all of the shares We own and
those for which no timely instructions are received in proportion to those
instructions timely received. This process may result in a small number of
contractowners controlling the vote. Should We determine that We are no longer
required to follow this voting procedure, We will vote the shares ourselves.
17
Substitution
It may be necessary to discontinue one or more of the Investment Portfolios
or substitute a new Investment Portfolio for one of the Investment Portfolios
you have selected. New or substitute Investment Portfolios may have different
fees and expenses and their availability may be limited to certain classes of
purchasers. We will notify you of Our intent to do this. We will obtain any
required prior approval from the Securities and Exchange Commission before any
such change is made.
Transfers
- --------------------------------------------------------------------------------
You can transfer money among the Investment Portfolios. The Company imposes a
Transaction Fee for contributions and transfers into and withdrawals and
transfers out of certain Investment Portfolios in the accumulation period and
during the annuity period. See "Expenses--Transaction Fee" for further details.
Transfers may be deferred as permitted or required by law. See "Suspension of
Payments or Transfers" section below.
Transfers During the Accumulation Period. You can make a transfer to or from
any Investment Portfolio. Transfers may be made by contacting Our
administrative offices or through the Website. Subject to Our administrative
rules, including Our Excessive Trading Limits and Short Term Trading Risk
described below, you can make an unlimited number of transfers between the
Investment Portfolios during the Accumulation Period. We reserve the right to
impose a fee for excessive transfers after notifying you. We reserve the right
to impose any fees charged by the Investment Portfolios for excessive
transfers. The following apply to any transfer during the Accumulation Period:
1.Your request for a transfer must clearly state which Investment Portfolio(s)
are involved in the transfer.
2.Your request for transfer must clearly state how much the transfer is for.
3.Your right to make transfers is subject to modification if We determine, in
Our sole opinion, that the exercise of the right by one or more owners is, or
would be, to the disadvantage of other owners. Restrictions may be applied in
any manner reasonably designed to prevent any use of the transfer right,
which is considered by Us to be to the disadvantage of other Owners. A
modification could be applied to transfers to, or from, one or more of the
Investment Portfolios and could include, but is not limited to:
a.the requirement of a minimum time period between each transfer;
b.not accepting a transfer request from an agent acting under a power of
attorney on behalf of more than one owner; or
c.limiting the dollar amount that may be transferred between Investment
Portfolios by an Owner at any one time.
4.We reserve the right, at any time, and without prior notice to any party, to
terminate, suspend or modify the transfer privilege during the Accumulation
Period.
Transfers During the Annuity Period. Subject to Our administrative rules, you
can make an unlimited number of transfers between the Investment Portfolios
during the Annuity Period. We reserve the right to impose a fee for excessive
transfers after notifying you. We reserve the right to impose any fees charged
by the Investment Portfolios for excessive transfers. We reserve the right, at
any time, and without prior to notice to any party, to terminate, suspend or
modify the transfer privilege during the Annuity Period.
This product is not designed for professional market timing organizations.
PHL Variable reserves the right to modify (including terminating) the transfer
privileges described above.
Excessive Trading Limits
The Contracts are first and foremost annuity contracts, designed for
retirement or other long-term financial planning purposes, and are not designed
for market timers or persons that make frequent transfers. The use of such
transfers can be disruptive to any underlying Investment Portfolio and harmful
to other contract owners invested in the Investment Portfolio.
We reserve the right to limit transfers in any Contract year, or to refuse
any transfer request for an Owner, Registered Representative, Investment
Advisor or other third party acting under a Limited Power of Attorney, for any
reason, including without limitation, if:
. We believe, in Our sole discretion, that excessive trading by the Owner,
or a specific transfer request, submitted by a third party advisor, or a
group of transfer requests, may have a detrimental effect on the
Accumulation Unit values of any Sub-account or the share prices of any
Investment Portfolio or would be detrimental to other Owners; or
. We are informed by one or more Investment Portfolios that they intend to
restrict the purchase of Investment Portfolio shares because of excessive
trading or because they believe that a specific transfer or group of
transfers would have a detrimental effect on the price of Investment
Portfolio shares; or
. the requested transaction violates Our administrative rules designed to
detect and prevent market timing.
The restrictions imposed may include, but are not limited to, restrictions on
transfers (e.g., by not processing requested transfers, limiting the number of
transfers allowed, and/or the dollar amount, requiring holding periods,
allowing transfer requests by U.S. Mail only, etc.) or even prohibitions on
them for particular owners who, in Our view, have abused or appear likely to
abuse the transfer privilege. Any holding period We impose will apply only to
transfers and not to redemptions.
We may apply restrictions in any manner reasonably designed to prevent
transfers that We consider disadvantageous to other Owners. These excessive
trading limits apply to all owners. However, using Our processes and
procedures, We may not detect all market timers, prevent frequent transfers, or
prevent harm caused by excessive transfers.
18
Short-Term Trading Risk. Frequent exchanges among Investment Portfolios by
Owners can reduce the long-term returns of the underlying mutual funds. The
reduced returns could adversely affect the owners, annuitants, insureds or
beneficiaries of any variable annuity or variable life insurance contract
issued by any insurance company with respect to values allocated to the
underlying fund. Frequent exchanges may reduce the mutual fund's performance by
increasing costs paid by the fund (such as brokerage commissions); they can
disrupt portfolio management strategies; and they can have the effect of
diluting the value of the shares of long term shareholders in cases in which
fluctuations in markets are not fully priced into the fund's net asset value.
The insurance-dedicated mutual funds available through the Investment
Portfolios are also available in products issued by other insurance companies.
These funds carry a significant risk that short-term trading may go undetected.
The funds themselves generally cannot detect individual contract owner exchange
activity, because they are owned primarily by insurance company separate
accounts that aggregate exchange orders from owners of individual contracts.
Accordingly, the funds are dependent in large part on the rights, ability and
willingness of all participating insurance companies to detect and deter
short-term trading by contract owners.
As outlined below, We have adopted policies regarding frequent trading, but
can provide no assurance that other insurance companies using the same mutual
funds have adopted comparable procedures. There is also the risk that these
policies and procedures concerning short-term trading will prove ineffective in
whole or in part to detect or prevent frequent trading. The difficulty in
detecting market timing activity may have the effect of allowing some to engage
in market timing while preventing others. Please review the underlying funds'
prospectuses for specific information about the funds' short-term trading
policies and risks.
We have adopted policies and procedures with respect to frequent transfers.
These policies apply to all Investment Portfolios except for Investment
Portfolios that contain disclosure permitting active trading. As of the date of
this prospectus, the only Investment Portfolios which permit active trading are
those of the Rydex Variable Trust with the exception of those listed in the
following table. This list may change any time without notice.
- -----------------------------------------------------------------------------
Rydex Sector Rydex Absolute Rydex Multi-Cap
Rotation Return Strategies Core Equity
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Rydex Hedged
Equity
- --------------------------
Pursuant to these policies, We block trades that are the second transaction
in a purchase and sale or sale and purchase involving the same Investment
Portfolio in less than seven (7) days (or whatever greater time period is
required by the Investment Portfolio). As of the date of this prospectus, We
impose longer hold periods for the funds set forth in the following table:
30 Day Hold
- -------------------------------------------------------------------------------------------------
Fidelity VIP Balanced Portfolio Fidelity VIP Contrafund(R) Portfolio Fidelity VIP
Disciplined Small
Cap Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Fidelity VIP Dynamic Capital Fidelity VIP Equity-Income Portfolio Fidelity VIP
Appreciation Portfolio Growth & Income
Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities Fidelity VIP Growth Portfolio Fidelity VIP High
Portfolio Income Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Fidelity VIP International Capital Fidelity VIP Investment Grade Bond Fidelity VIP Mid
Appreciation Portfolio Portfolio Cap Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio Fidelity VIP Real Estate Portfolio Fidelity VIP
Strategic Income
Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Fidelity VIP Value Leaders Portfolio Fidelity VIP Value Strategies Fidelity VIP Value
Portfolio Portfolio
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Rydex Absolute Return Strategies Rydex Hedged Equity Rydex Multi-Cap
Core Equity
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Rydex Sector Rotation
- ---------------------------------------
60 Day Hold
- ----------------------------------------------------------------------------------------------
Vanguard Total Bond Market Index Vanguard Short-Term Investment Grade Vanguard
Portfolio Portfolio (Short Term Corporate) Balanced
Portfolio
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Vanguard Diversified Value Portfolio Vanguard Equity Index Portfolio Vanguard Small
Company Growth
Portfolio (Small
Cap Growth)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Vanguard International Portfolio Vanguard Total Stock Market Index Vanguard Capital
Portfolio Growth Portfolio
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Ibbotson Balanced ETF Asset Ibbotson Growth ETF Asset Allocation Ibbotson
Allocation Portfolio Portfolio Conservative ETF
Asset Allocation
Portfolio
- ----------------------------------------------------------------------------------------------
Ibbotson Income and Growth ETF Asset Third Avenue Value
Allocation Portfolio
- ------------------------------------------------------------------------------
90 Day Hold
- ----------------------------------------------------------------------------------------------
Janus Aspen Balanced Janus Global Janus Mid Cap
Growth
- ----------------------------------------------------------------------------------------------
This list may change at any time without notice. If only one portion of a
transfer request involving multiple Investment Portfolios violates Our policy,
the entire transfer request is blocked.
19
We monitor transfers and impose these rules across multiple Contracts owned
by the same owner. Thus, if you own two Contracts and make a purchase in an
Investment Portfolio in Contract 1, you will have to wait at least seven
(7) days (or such greater time period as set forth in the table above) to make
a sale in the same Investment Portfolio in Contract 2. With the exception of
contributions to, and withdrawals from, the Contract, all transfers are
monitored, including without limitation, systematic transfers such as dollar
cost averaging and rebalancing. Transactions are not monitored if they are
scheduled at least 7 days in advance. Hold periods apply only to transfers and
not to redemptions. If you (or your agent's) Website transfer request is
restricted or denied, We will send notice via U.S. Mail.
Asset Allocation and Other Strategic Programs
Several Asset Allocation and other strategic programs are available for use
with the Contract. Except for custom asset allocation programs for which your
advisor may charge a program fee, there is currently no separate fee to
participate in these programs. If you elect the GMWB rider for your contract,
you must participate in an Approved Asset Allocation program as described
below. Details about when programs can be elected, how they are terminated, and
whether multiple programs can be used concurrently are provided below.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program (DCA Program) allows you to systematically
transfer a set amount either monthly, quarterly, semi-annually or annually. By
allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, this is not guaranteed.
Subject to Our administrative procedures, you may select the Business Day
when dollar cost averaging transfers will occur. You can sign up for the DCA
Program for a specified time period. The DCA Program will end when the value in
the Investment Portfolio(s) from which you are transferring is zero. A transfer
request will not automatically terminate the DCA Program.
There is no additional charge for the DCA Program. We reserve the right, at
any time and without prior notice, to terminate, suspend or modify the DCA
Program. The DCA Program may vary by state. The Company imposes a Transaction
Fee for contributions and transfers into and withdrawals and transfers out of
certain Investment Portfolios. For further information, see
"Expenses--Transaction Fee". You should note that if the DCA Program utilizes
Transaction Fee portfolios there may be significant Transaction Fees imposed.
Dollar cost averaging does not assure a profit and does not protect against
loss in declining markets. Dollar cost averaging involves continuous investment
in the selected Investment Portfolio(s) regardless of fluctuating price levels
of the Investment Portfolio(s). You should consider your financial ability to
continue the dollar cost averaging program through periods of fluctuating price
levels.
Rebalancing Program
Once your money has been allocated among the Investment Portfolios, the
performance of each Investment Portfolio may cause your allocation to shift.
You can direct Us to automatically rebalance your Contract to return to your
Investment Allocations of Record or some other allocation of your choosing by
selecting Our Rebalancing Program. When you elect the Rebalancing Program, you
must specify the date on which you would like the initial rebalancing to occur
and the frequency of the rebalancing (i.e. quarterly, semi-annually or
annually). We will measure the rebalancing periods from the initial rebalancing
date selected. You must use whole percentages in 1% increments for rebalancing.
You can discontinue the Rebalancing Program at any time. You can modify
rebalancing percentages for future rebalancing by submitting your request prior
to the next rebalancing date. Currently, there is no charge for participating
in the Rebalancing Program. We reserve the right, at any time and without prior
notice to impose a fee, or to terminate, suspend or modify this program. The
Company imposes a Transaction Fee for contributions and transfers into and
withdrawals and transfers out of certain Investment Portfolios. For further
information, see "Expenses--Transaction Fee".
Example: Assume that you want your initial Purchase Payment split between 2
Investment Portfolios. You want 40% to be in the Fixed Income Investment
Portfolio and 60% to be in the Growth Investment Portfolio. Over the next 2 1/2
months the bond market does very well while the stock market performs poorly.
At the end of the first quarter, the Fixed Income Investment Portfolio now
represents 50% of your holdings because of its increase in value. If you had
chosen to have your holdings rebalanced quarterly, on the first day of the next
quarter, PHL Variable would sell some of your units in the Fixed Income
Investment Portfolio to bring its value back to 40% and use the money to buy
more units in the Growth Investment Portfolio to increase those holdings to 60%.
Asset Allocation Programs
Asset allocation programs are intended to optimize the selection of
investment options for a given level of risk tolerance, in order to attempt to
maximize returns and limit the effects of market volatility. The programs
reflect the philosophy that diversification among asset classes may help reduce
volatility and boost returns over the long term. An asset class is a category
of investments that have similar characteristics, such as stocks, or bonds.
Within asset classes there are often further divisions. For example, there may
be divisions according to the size of the issuer (large cap, mid cap, small
cap) or type of issuer (government, corporate, municipal). You should note that
you must participate in an Approved Asset Allocation Program if you have
purchased the GMWB for your contract.
PHL Variable understands the importance to you of having advice from a
financial advisor regarding your investments in the Contract. Certain
investment advisors may make arrangements with Us to make their services
available to you and We may approve an asset allocation model you and your
20
advisor bring to us. PHL Variable has not made any independent investigation of
these investment advisors and is not endorsing asset allocation programs
offered by various advisors. We reserve the right, at any time and without
prior notice to discontinue or suspend these programs.
If you elect to participate in the Approved Asset Allocation Program, you may
be required to enter into an advisory agreement with your Investment Advisor to
have investment advisory fees paid out of your Contract during the Accumulation
Period. PHL Variable will, pursuant to an agreement with you, make a partial
withdrawal from the value of your Contract to pay for the services of your
Investment Advisor. If the Contract is Non-Qualified, the withdrawal will be
treated like any other distribution and may be included in gross income for
federal tax purposes. Further, if you are under age 59 1/2 it may be subject to
a tax penalty. If the Contract is qualified, the withdrawal for the payment of
fees may not be treated as a taxable distribution if certain conditions are
met. You should consult a tax advisor regarding the tax treatment of the
payment of investment advisor fees from your Contract.
Approved Asset Allocation Program
If you purchase a contract with GMWB, you must also elect the Approved Asset
Allocation program described below on the Contract Date. Otherwise, you may
elect the program at any time. We may discontinue, modify or amend this program
as well as offer new programs in the future.
.. Ibbotson ETF Allocation Series
The Ibbotson ETF Asset Allocation Series are "funds of funds" that invest in
securities of exchange-traded funds ("ETF"s) based on certain target
percentages. The series were designed based on asset allocation models
developed by Ibbotson Associates and are intended to provide various levels
of potential return. Periodically, Ibbotson Associates may recommend the
rebalancing of a Portfolio's assets among underlying ETFs to meet the target
allocations. The options approved for use are:
.. Conservative ETF Asset Allocation Portfolio
.. Income and Growth ETF Asset Allocation Portfolio
.. Balanced ETF Asset Allocation Portfolio
.. Growth ETF Asset Allocation Portfolio
Expenses
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the Contract that reduce
the return on your investment in the Contract. These charges and expenses are:
Subscription Fee
We charge the Subscription Fee regardless of the amount of your Contract
Value. This fee is used to reimburse Us for Our various expenses in
establishing and maintaining the contracts. This fee is deducted from the money
market Investment Portfolios you are invested in, pro rata. If you have less
than $20 invested in the money market Investment Portfolios, then the remaining
amount will be deducted from your non-money market Investment Portfolios, pro
rata. We will deduct the Subscription Fee each month during the Accumulation
Period and the Annuity Period. We also impose the applicable portion of the fee
at death and upon full surrender of the Contract.
Guaranteed Minimum Death Benefit Fee
If you elect the optional Guaranteed Minimum Death Benefit, We will deduct a
fee. The fee is deducted on each Contract Anniversary that this benefit is in
effect. If this benefit terminates on a date other than the Contract
Anniversary for any reason, a pro rated portion of the fee will be deducted.
Unless We agree otherwise, the fee will be deducted from the total Contract
Value with each Sub-account bearing a pro rata share of such fee based on the
proportionate Contract Value of each Sub-account. Should any of the
Sub-accounts be depleted, We will proportionally increase the deduction from
the remaining Sub-accounts unless We agree otherwise.
The fee is equal to a stated percentage annually multiplied by the greater of
the GMDB Base and the Contract Value.
On the Contract Anniversary immediately following your attaining age 90, the
GMDB Base will equal the Contract Value and no further GMDB Fee will be
deducted. The GMDB Fee will not be deducted after the Contract Value decreases
to zero. Past GMDB Fees will not be refunded.
Guaranteed Minimum Withdrawal Benefit Fee
If the Guaranteed Minimum Withdrawal Benefit is part of your contract, We
will deduct a fee. This fee is used to guarantee this benefit. The fee is
deducted on each Contract Anniversary that this benefit is in effect. If this
benefit terminates on a date other than the Contract Anniversary for any reason
other than death or commencement of Annuity Payments, a pro rated portion of
the fee will be deducted. The fee will be deducted from the total Contract
Value with each Sub-account bearing a pro rata share of such fee based on the
proportionate Contract Value of each Sub-account. We will waive the fee if the
benefit terminates due to death or commencement of Annuity Payments. Should any
of the Sub-accounts be depleted, We will proportionally increase the deduction
from the remaining Sub-accounts unless We agree otherwise.
The fee is equal to a stated percentage multiplied by the greater of the
Benefit Base and the Contract Value. The fee percentage for your Contract will
be shown on the rider specifications pages and is based on your election of a
single life benefit or a spousal life benefit. We may increase the fee
percentage; however, it will never exceed a maximum of 3.00%.
Transaction Fee
The Company imposes a Transaction Fee, in the amounts shown in the table
below, for contributions, including initial purchase payments, and transfers
into and withdrawals and
21
transfers out of certain Investment Portfolios, including partial or complete
withdrawals. This fee is used to recoup the cost of administering the
transaction. The Transaction Fee will also apply to transactions in certain
Investment Portfolios in connection with asset allocation, dollar cost
averaging and systematic withdrawal programs. A listing of the Investment
Portfolios for which the Company imposes a Transaction Fee is provided below,
and is also available at the Company's Website or upon request. The Transaction
Fee is waived for redemptions required for payment of the Subscription Fee or
fees charged by any Investment Advisor you hire. Transaction Fees are charged
twice--once for the transfer out, and once for the transfer in--when
transferring between two Investment Portfolios that impose Transaction Fees.
The Transaction Fee will be deducted first from the Investment Portfolios
affected, then pro-rata first from the balance of any money market
portfolio(s), and then pro-rata from the balance of any other portfolio(s). If
approved by Us, you may elect to have these fees charged to your Investment
Advisor, rather than deducted from your Contract. In the event We agree to
this, but the applicable Transaction Fees are not paid within thirty (30) days
by your Investment Advisor, We reserve the right to deduct the applicable
Transaction Fees from your Contract. All applicable Transaction Fees are
deducted from your Contract upon a request for full surrender.
Transactions 1-10 per Contract year $49.99\transaction
Transactions 11-20 per Contract year $39.99\transaction
Transactions 21-30 per Contract year $29.99\transaction
Transactions 31+ per Contract year $19.99\transaction
Unless prohibited by state law or regulation, the Company may increase the
Transaction Fee, or modify the table above. However, the Transaction Fee will
never be greater than $74.99 for a single transfer.
The Company charges the Transaction Fee for transfers into and transfers and
withdrawals out of all Vanguard Portfolios, which include the following:
Transaction Fee Portfolios
- -------------------------------------------------------------------------
Vanguard Total Bond Market Vanguard Short- Vanguard Balanced
Index Portfolio Term Investment Portfolio
Grade Portfolio
(Short Term
Corporate)
- -------------------------------------------------------------------------
Vanguard Diversified Value Portfolio Vanguard Equity Vanguard Small
Index Portfolio Company Growth
Portfolio (Small
Cap Growth)
- -------------------------------------------------------------------------
Vanguard International Portfolio Vanguard Total Vanguard Capital
Stock Market Growth Portfolio
Index Portfolio
- -------------------------------------------------------------------------
This list may change at any time without notice. The Investment Portfolios
for which the Company charges a Transaction Fee may not be available in all
states.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the various
Investment Portfolios, which are described in the Investment Portfolio
prospectuses. The Investment Portfolio Expenses are included as part of Our
calculation of the value of the Accumulation Units and the Annuity Units. We
reserve the right to charge transfer fees imposed by the Investment Portfolios
for excessive transfers.
Transfer Fee
Other than any applicable Transaction Fees described above, We impose no
transfer fee for transfers made during the Accumulation Period or Annuity
Period. We reserve the right to impose a fee, not to exceed $25, for excessive
transfers after notifying You in advance. In the event that We impose transfer
fees, if you sell one Investment Portfolio and use those proceeds to purchase
another Investment Portfolio We will impose one fee, not to exceed $25.00. Any
such fee would be used to recoup the cost of administering the transfer.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the Contract Value for them. These taxes
are due either when the Contract is issued or when Annuity Payments begin. It
is Our current practice to deduct these taxes when Annuity Payments begin. PHL
Variable may in the future discontinue this practice and assess the charge when
the tax is due. Premium taxes currently range from 0% to 3.5%, depending on the
jurisdiction. For a list of states and taxes, see "Appendix B."
Income Taxes
PHL Variable may deduct from the Contract for any income taxes which We incur
because of the Contract. At the present time, We are not making any such
deductions.
Contract Value
Your Contract Value is the sum of your assets in the Sub-accounts of the
Separate Account. The value of any assets in the Sub-accounts(s) will vary
depending upon the investment performance of the Investment Portfolio(s) you
choose. In order to keep track of your Contract Value in a Sub-account, We use
a unit of measure called an Accumulation Unit. During the Annuity Period of
your Contract We call the unit an Annuity Unit. Your Contract Value is affected
by the investment performance of the Investment Portfolios, the expenses of the
Investment Portfolios and the deduction of fees and charges under the Contract.
Accumulation Units
Every Business Day, We determine the value of an Accumulation Unit for each
of the Investment Portfolios by multiplying the Accumulation Unit value for the
previous Business Day by a factor for the current Business Day. The factor is
determined by dividing the value of a Sub-account share at the end of the
current Business Day (and any charges
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for taxes) by the value of a Sub-account share for the previous Business Day.
The value of an Accumulation Unit may go up or down from Business Day to
Business Day.
When you make a Purchase Payment, We credit your Contract with Accumulation
Units. The number of Accumulation Units credited is determined by dividing the
amount of the Purchase Payment allocated to a Sub-account, less any applicable
Transaction Fees described above, by the value of the Accumulation Unit for
that Sub-account on that Business Day. When you make a withdrawal, We deduct
Accumulation Units from your Contract representing the withdrawal. We also
deduct Accumulation Units when We deduct certain charges under the Contract.
Whenever We use an Accumulation Unit value, it will be based on the value next
determined after receipt of the request or the Purchase Payment.
We calculate the value of an Accumulation Unit for each Sub-account after the
New York Stock Exchange closes each Business Day and then credit your Contract.
Example: On Wednesday We receive an additional Purchase Payment of $10,000
from you. You have told Us you want this to go to the Balanced Portfolio
Investment Portfolio, which is not a Transaction Fee Investment Portfolio. When
the New York Stock Exchange closes on that Wednesday, We determine that the
value of an Accumulation Unit for the Balanced Portfolio Sub-account is $12.50.
We then divide $10,000 by $12.50 and credit your Contract on Wednesday night
with 800 Accumulation Units for the Balanced Portfolio Sub-account.
Access To Your Money
You can have access to the money in your Contract:
1.by making a withdrawal (either a partial or a complete withdrawal);
2.by electing to receive Annuity Payments; or
3.when a death benefit is paid to your Beneficiary.
Withdrawals can only be made during the Accumulation Period.
When you make a complete withdrawal, you will receive the Contract Value on
the Business Day you made the withdrawal, less any premium tax, less any pro
rata Subscription fees and less any applicable Transaction Fees, GMWB Fees and
GMDB Fees.
You must tell Us which Investment Portfolios you want a partial withdrawal to
come from. Under most circumstances, the amount of any partial withdrawal from
any Investment Portfolio must be for at least $500. There is no minimum
required if the partial withdrawal is pursuant to Our Systematic Withdrawal
Program (see below). The Company imposes a Transaction Fee for contributions
and transfers into and withdrawals and transfers out of certain Investment
Portfolios. For further information, see "Expenses--Transaction Fee".
PHL Variable will pay the amount of any withdrawal from the Investment
Portfolios within 7 days of your request in good order unless the Suspension of
Payments or Transfers provision (see below) is in effect.
A withdrawal may result in tax consequences (including an additional 10% tax
penalty under certain circumstances).
Systematic Withdrawal Program
The Systematic Withdrawal Program allows you to receive automatic payments
either monthly, quarterly, semi-annually or annually. Subject to Our
administrative procedures, you can instruct Us to withdraw a specific amount,
which can be a percentage of the Contract Value, or a dollar amount. All
systematic withdrawals will be withdrawn from the Investment Portfolios on a
pro-rata basis, unless you instruct Us otherwise. You may elect to end the
Systematic Withdrawal Program by notifying Us prior to the next systematic
withdrawal. The Systematic Withdrawal Program will terminate automatically when
the Contract Value is exhausted. We do not currently charge for the Systematic
Withdrawal Program. The Company imposes a Transaction Fee for contributions and
transfers into and withdrawals and transfers out of certain Investment
Portfolios. For further information, see "Expenses--Transaction Fee". You
should note that if the Systematic Withdrawal Program utilizes Transaction Fee
portfolios there may be significant Transaction Fees imposed.
Income taxes, tax penalties and certain restrictions may apply to systematic
withdrawals.
Suspension of Payments or Transfers
Payment of the Contract Value, attributable to the Separate Account, in a
single sum upon a death claim, withdrawal or full surrender of the contract
will ordinarily be made within at least 7 days after receipt of the written
documentation in good order. However, we may postpone payment of the value of
any Accumulation Units at times (a) when the NYSE is closed, other than
customary weekend and holiday closings, (b) when trading on the NYSE is
restricted, (c) when an emergency exists as a result of which disposal of
securities in the Series is not reasonably practicable or it is not reasonably
practicable to determine the Contract Value or (d) when a governmental body
having jurisdiction over us by order permits such suspension. Rules and
regulations of the SEC, if any, are applicable and will govern as to whether
conditions described in (b), (c) or (d) exist.
Guaranteed Minimum Withdrawal Benefit (GMWB)
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Subject to state approval, We offer a Guaranteed Minimum Withdrawal Benefit
by rider attached to the Contract at issue. The rider can be issued to cover a
single life, the "Single Life Option", or to cover the lives of two spouses,
the "Spousal Life Option". The GMWB has a separate charge, is subject to
restrictions and limitations described below, and may not provide any benefit
to you under certain market conditions. You should review the rider carefully
to be sure the benefit is
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something you want and should review the rider with your financial advisor.
The GMWB guarantees a minimum amount that you will be able to withdraw from
your contract, regardless of investment performance. The GMWB is intended to
help protect you against poor market performance if you make withdrawals within
the limits described below. GMWB does not establish or guarantee a Contract
Value or in any way guarantee the investment performance of any investment
option available under the contract. You may begin taking withdrawals
immediately or at a later time. However, withdrawals prior to the Benefit
Eligibility Date (the date your lifetime Annual Benefit Amount is available to
you) will reduce your Benefit Base. You will not lose the guarantee if you
don't make withdrawals or if you withdraw less than the limit allowed as
specified below. If you do make withdrawals, income taxes, tax penalties or
Transaction Fees may apply. A fee for this benefit is deducted on each Contract
Anniversary. See the "Guaranteed Minimum Withdrawal Benefit Fee" in the Fee
Tables section and refer to "Deductions and Charges" above.
Currently We allow you to elect GMWB only on the Contract Date and only if
you are 85 years old or younger. We may remove these restrictions in the future.
Asset Allocation Program Requirement
If you purchase GMWB, you must select one of the Approved Asset Allocation
programs through which to allocate your premium payments and Contract Values.
You should consult with your registered representative when you initially
select a program and periodically review your program with your registered
representative to determine if you need to change programs. You may switch your
current program or option to another approved Asset Allocation program, as well
as to any modified or new programs or options the Company may make available.
We reserve the right to restrict availability of investment options.
Although you may cancel your participation in a program, you should consult
your registered representative before doing so, as canceling the program will
cause GMWB to terminate without value. You may later re-enroll in a program but
re-enrollment will not reinstate GMWB if it has terminated. If a program is
eliminated while GMWB is in effect, you will receive notice and you must
choose, in consultation with your registered representative, among the other
programs and options available.
Descriptions of the programs are found in "Asset Allocation," above.
How the Benefit Works
GMWB guarantees that each contract year after the Benefit Eligibility Date,
you may take withdrawals up to the Annual Benefit Amount, until the first death
of any Covered Person if the Single Life Option is in effect, or until the last
death of any Covered Person if the Spousal Life Option is in effect, even if
your Contract Value reduces to zero.
Important Terms and Conditions
. Benefit Eligibility Date
The Benefit Eligibility Date is the date your lifetime Annual Benefit Amount
is available to you.
The Benefit Eligibility Date when the Single Life Option is in effect is the
later of the date that this rider is added to the contract (the "Rider Date")
and the Contract Anniversary on or following the date the youngest Covered
Person attains age 60.
The Benefit Eligibility Date when the Spousal Life Option is in effect is the
later of the Rider Date or the Contract Anniversary on or following the date
the youngest Covered Person attains age 65. If either spouse dies prior to the
Benefit Eligibility Date, the Benefit Eligibility Date will be reset to the
later of (a) the Contract Anniversary following the spouse's date of death, and
(b) the Contract Anniversary on or following the date the surviving spouse
attains age 65.
. Covered Person
The Covered Person is the person whose life is used to determine the duration
of lifetime Annual Benefit Amount payments. The Covered Person must be a
natural person; the owner, however, can be a non-natural person, e.g., a trust
or corporation can be designated.
. Single Life Option
Covered Person(s) can be one or more lives. If there is only one designated
owner, that owner is the Covered Person. If there are multiple owners, all
owners are Covered Persons. If none of the owners are a natural person, all
Annuitants become the Covered Persons. The rider terminates upon the first
death of the Covered Person(s).
. Spousal Life Option
Covered Persons must be two legal spouses under Federal law. If there is only
one designated owner, the Covered Persons must be the owner and the owner's
spouse, and the spouse must be the sole beneficiary. If there are spousal
owners, the Covered Persons must be the spousal owners, and they must both be
the beneficiaries. You cannot elect the Spousal Life Option if you wish to
designate multiple non-spousal owners, or ownership by a non-natural person.
The rider terminates upon the last death of the Covered Persons.
. Benefit Base
We determine the Benefit Base. The Benefit Base is used in calculating the
Annual Benefit Amount. On the Rider Date, the Benefit Base equals the Contract
Value. We will then recalculate the Benefit Base whenever any event described
below occurs. The Maximum Benefit Base is shown on the Rider Specifications
page of your Contract. The Benefit Base will never exceed the Maximum Benefit
Base.
Additional Purchase Payments
Purchase Payments made to the Contract during the 90-day period following the
Rider Date (the "Inception Period"), increase the Benefit Base by the amount of
the Purchase Payment on the Business Day We apply the
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payment, Additional Purchase Payments made after the Inception Period do not
affect the Benefit Base. (See Appendix C--Guaranteed Minimum Withdrawal Benefit
Examples ("Appendix C"), Example 1.)
Contract Anniversary (Automatic Step-Up Date)
The Automatic Step-Up Date is every Contract Anniversary following the Rider
Date. On each Automatic Step-Up Date, if applicable, We will compare the
Contract Value to the Benefit Base. If the Contract Value is greater than the
Benefit Base, We will automatically step-up the Benefit Base to equal the
Contract Value, subject to the Maximum Benefit Base. If, however, the Automatic
Step-Up has been suspended, as described below, no Automatic Step-Up will occur.
We may prospectively increase the fee percentage on the effective date of any
Automatic Step-Up, subject to the maximum fee percentage of 3.00%. If there is
an increase in the fee percentage, We will notify you at least 30 days prior to
the Contract Anniversary. You can decline the increase by contacting Us no
later than seven days prior to the Contract Anniversary. If you decline the fee
increase, the Automatic Step-up feature will be suspended immediately and your
fee percentage will remain unchanged. Once your Automatic Step-up is suspended,
you will no longer be eligible for any future Automatic Step-up unless you
later request in writing to reactivate it. After We receive your request for
reactivation, the Automatic Step-up will resume on the following Contract
Anniversary and the fee percentage effective at that time will apply. (See
Appendix C, Example 2)
Withdrawals* Prior to Benefit Eligibility Date
Prior to the Benefit Eligibility Date, any withdrawal, including withdrawals
taken to meet Required Minimum Distributions ("RMD"s), will reduce the Benefit
Base in the same proportion as the Contract Value is reduced. (See Appendix C,
Examples 3, 4 and 5)
Withdrawals* On or After Benefit Eligibility Date
If withdrawals are made from the Contract Value on or after the Benefit
Eligibility Date, the Benefit Base may be reduced, depending on the amount of
the withdrawal. (See Appendix C, Example 6)
. If cumulative withdrawals in any Contract Year are less than or equal to
the Annual Benefit Amount then in effect, the Benefit Base will not be
reduced.
. If a withdrawal causes the cumulative withdrawals during a Contract Year
to exceed the Annual Benefit Amount, the amount withdrawn in excess of the
Annual Benefit Amount and any subsequent withdrawals in that Contract Year
are all considered excess withdrawals. Each excess withdrawal will reduce
the Benefit Base in the same proportion as the Contract Value is reduced
by the excess withdrawal.
. You should know that, currently, withdrawals taken to meet Required
Minimum Distribution requirements as defined by the Internal Revenue Code
are not considered to exceed the Annual Benefit Amount and therefore do
not reduce the Benefit Base. However, we may change this rule at our
discretion in which case such withdrawals taken following this change may
be considered excess withdrawals as described below.
For IRA and qualified plan contracts, cumulative withdrawals during a
contract year will be considered excess withdrawals only if they exceed
the greatest of (a), (b) and (c), where:
(a) =the current Annual Benefit Amount;
(b) =the RMD for the 1/st/ calendar year during the contract year; and
(c) =the RMD for the 2/nd/ calendar year during the same contract year.
Required Minimum Distribution is the amount defined by the Internal
Revenue Code section 401(a)(9) and regulations thereunder. The amount of
the RMD for this contract will depend on a number of factors, including
the account balance, age of the policyowner and value of all benefits
under the contract.
*Withdrawals
The Subscription Fee, Transaction Fees, Transfer Fees, the GMWB fee, and any
fees up to 1.50% of the Contract Value charged by any Financial Advisor you
hire will not be considered withdrawals for the purposes of calculating the
values under the GMWB and will not reduce the Benefit Base. However, any
Advisor Fees in excess of 1.50% of the Contract Value and any other fees or
charges will be considered withdrawals and may reduce the Benefit Base.
. Annual Benefit Amount
If your Contract Value is greater than zero, the Annual Benefit Amount
represents the maximum amount you can withdraw each Contract Year after the
Benefit Eligibility Date without reducing the Benefit Base. If your Contract
Value decreases to zero, the Annual Benefit Amount represents the annual
lifetime amount We will pay you under a GMWB Option.
Prior to the Benefit Eligibility Date, the Annual Benefit Amount is equal to
zero. On the Benefit Eligibility Date, the Annual Benefit Amount is equal to 5%
multiplied by the Benefit Base. The Annual Benefit Amount is recalculated on
the date of each Purchase Payment during the Inception Period, on each Rider
Anniversary following the Benefit Eligibility Date and on the date the Contract
Value decreases to zero. On the date of any recalculation, the Annual Benefit
amount is equal to 5% multiplied by the Benefit Base. The Annual Benefit Amount
may never be less than zero.
Contract Value Decreases to Zero
On the date the Contract Value decreases to zero, the Contract terminates and
all rights under the Contract and the rider terminate other than as described
below. We will pay you an amount each year equal to the Annual Benefit Amount,
until the first death of the Covered Person(s) for Single Life Option, or until
the last death of the Covered Persons for the Spousal Life Option. We will
automatically make monthly payments
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equal to one-twelfth of the Annual Benefit Amount. We may change the payment
frequency to annual if the monthly payment would otherwise be less than Our
minimum payment requirement.
If the Contract Value decreases to zero before the Benefit Eligibility Date,
We will calculate the Annual Benefit Amount. The new Annual Benefit Amount is
equal to the Annual Benefit Percentage multiplied by the Benefit Base at the
time the Contract Value decreases to zero. Monthly payments, however, will not
commence until one month after the Benefit Eligibility Date.
If the Contract Value decreases to zero on or after the Benefit Eligibility
Date, monthly payments will commence one month after the Contract Value
decreases to zero.
Cancellation
You may cancel the rider at any time in writing in a form acceptable to Us.
Once cancelled, all rights and benefits under the rider terminate. We will
assess the current year rider fee at time of cancellation prorated by the time
elapsed since the last Contract Anniversary. Past rider fees will not be
refunded.
Termination of Benefit
This benefit will terminate without value on the occurrence of any of the
following dates:
. the date of first death of the Covered Person(s) for the Single Life
Option, or the date of last death of the Covered Persons for the Spousal
Life Option;
. the date there is a change of contract Owner or Joint Owner (or Covered
Person if any Owner is a non-natural person);
. the Annuity Date;
. the date the Contract to which this benefit is attached terminates;
. the date any investment restriction is violated;
. the date both the Contract Value and Benefit Base have been reduced to
zero; or
. the date the Contract Owner(s) elect in writing to terminate the benefit.
Death Benefit
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Upon Your Death During the Accumulation Period
If you, or your Joint Owner, die before Annuity Payments begin, We will pay a
death benefit to your Beneficiary. If you have a Joint Owner, the surviving
Joint Owner will be treated as the primary Beneficiary. Any other Beneficiary
designation on record at the time of death will be treated as a contingent
Beneficiary. The terms of the payment of the death benefit will be controlled
by section 72(s) or 401(a)(9) of the Internal Revenue Code.
The Contract Value for purposes of calculating any Death Benefit Amount will
be determined as of the Business Day We receive due proof of death and an
election for the payment method (see below). After the Death Benefit Amount is
calculated, it will remain in the Investment Portfolios until distribution
begins. Until We distribute the Death Benefit Amount, the Death Benefit Amount
in the Investment Portfolios will be subject to investment risk, which is borne
by the Beneficiary. However, it is our general practice to distribute the Death
Benefit Amount within 24 hours of the date we receive due proof of death and an
election for the payment method in good order. If you designate multiple
beneficiaries, upon payment of the Death Benefit Amount to the first
beneficiary, the remaining Death Benefit Amount will be placed in a money
market account until We receive an election for the payment of the remaining
Death Benefit Amount. (See also "Suspension of Payments or Transfers.")
Standard Death Benefit Amount During the Accumulation Period
The Death Benefit Amount will be the Net Contract Value at the time We
receive due proof of death and a payment election.
Optional Guaranteed Minimum Death Benefit Amount During the Accumulation Period
For an extra fee, at the time you purchase the Contract, you can choose the
optional Guaranteed Minimum Death Benefit. In general terms, this option will
provide you a benefit if you die at a time when your contract value is less
than the purchase payments you have made. If you elect this benefit your death
benefit will be equal to the Guaranteed Minimum Death Benefit. This benefit may
only be elected if you have not attained age 81. Under this benefit, if you die
prior to the Contract Anniversary immediately following your attaining age 90,
the Guaranteed Minimum Death Benefit Amount will be the greater of:
(1)the GMDB Base; and
(2)the Net Contract Value as of the Business Day We receive due proof of
death and a payment election.
The GMDB Base equals the total of all Purchase Payments less the sum of all
Adjusted Partial Withdrawals and any premium taxes, as applicable. Generally,
it will be increased by additional Purchase Payments and will be decreased by
partial withdrawals. (See below for an explanation of the impact of a partial
withdrawal at a time when the GMDB Base is greater or less than your Contract
Value.)
If death occurs on or after the Contract Anniversary immediately following
your attaining age 90 (for Joint Owners, the age of the oldest Owner or
Annuitant, if applicable, controls), the Guaranteed Minimum Death Benefit rider
provides no additional death benefit other than what is provided under the base
contract. In this case, the Guaranteed Minimum Death Benefit Amount will be
equal to the Net Contract Value as of the Business Day we receive due proof of
death and a payment election. On the Contract Anniversary immediately following
your attaining age 90, no further GMDB Fee will be deducted.
If Joint Owners are named, the Guaranteed Minimum Death Benefit Amount is
determined based on the age of the
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oldest Owner and is payable on the first death. If the Owner is a non-natural
person, the death of an Annuitant will be treated as the death of the Owner. If
more than one Annuitant is named, the Guaranteed Death Benefit Amount is
determined based on the age of the oldest Annuitant and is payable on the first
death.
If you take a partial withdrawal at a time when the GMDB Base is greater than
your Contract Value, then your GMDB Base will be reduced by the percentage of
the Contract Value withdrawn. Therefore, since you are making a withdrawal at a
time when the GMDB Base is greater than the Contract Value, although the
percentage reduction will be the same, the amount the GMDB Base will be reduced
will be greater than the amount of the withdrawal.
For example:
GMDB Base: $150,000
Contract Value: $100,000
Partial Withdrawal: $ 50,000
The Contract Value is reduced by 50% as a result of the $50,000 withdrawal.
Therefore, the GMDB Base will be reduced by 50% or $75,000. In this case, the
GMDB Base is reduced by an amount greater ($75,000) than the amount withdrawn
($50,000).
If you take a partial withdrawal at a time when the GMDB Base is less than
your Contract Value, then your GMDB Base will be reduced by the percentage of
the Contract Value withdrawn. Therefore, since you are making a withdrawal at a
time when the GMDB Base is less than the Contract Value, although the
percentage reduction will be the same, the amount the GMDB Base will be reduced
will be less than the amount of the withdrawal.
For example:
GMDB Base: $100,000
Contract Value: $200,000
Partial Withdrawal: $ 50,000
The Contract Value is reduced by 25% as a result of the $50,000 withdrawal.
Therefore, the GMDB Base will be reduced by 25% or $25,000. In this case, the
GMDB Base is reduced by an amount less ($25,000) than the amount withdrawn
($50,000).
Unless the Owner has previously elected a death benefit payment option, a
Beneficiary who is a spouse of the deceased Owner may elect to continue the
Contract in his or her own name at the then current Guaranteed Death Benefit
Amount, which amount shall be deemed to be the initial Purchase Payment for
purposes of the GMDB Base of the continued Contract.
The optional Guaranteed Minimum Death Benefit will terminate without value on
the occurrence of any of the following:
(1)the date there is a change of owner or joint owner (or annuitant if any
owner is a non-natural person);
(2)the Annuity Date;
(3)the date the Contract terminates;
(4)the date the Contract Value decreases to zero;
Once cancelled, all rights and benefits under the optional GMDB terminate. We
will assess the current year GMDB Fee at the time of cancellation prorated by
the time elapsed for the Contract Year. Past GMDB Fees will not be refunded.
The GMDB may not be available in all states.
Payment of the Death Benefit During the Accumulation Period
For contracts issued not in connection with qualified plans or IRAs, all
death benefits will be paid so as to comply with section 72(s) of the Internal
Revenue Code. Unless already selected by you, a Beneficiary must elect to have
the Death Benefit Amount paid under one of the options described below in the
event of the death of the Owner or Joint Owner during the Accumulation Period,
(including, without limitation, non-qualified stretch options).
Option 1--lump sum payment of the Death Benefit Amount; or
Option 2--the payment of the entire Death Benefit Amount within 5 years of
the date of death of the Owner or Joint Owner; or
Option 3--payment of the Death Benefit Amount under an Annuity Option over
the lifetime of the Beneficiary, or over a period not extending beyond the life
expectancy of the Beneficiary, with distribution at least annually, beginning
within 1 year of the date of the death of the Owner or any Joint Owner.
Unless you have previously designated one of the payment options above, a
Beneficiary who is a spouse of the deceased Owner may elect to:
. continue the Contract in his or her own name at the then current Death
Benefit Amount;
. elect a lump sum payment of the Death Benefit Amount; or
. apply the Death Benefit Amount to an Annuity Option.
A "spouse" is as defined under Federal law and specifically does not include
a Civil Union or Domestic Partner.
If a lump sum payment is requested, the Death Benefit Amount will be paid
within 7 days, unless the Suspension of Payments or Transfers provision is in
effect. Payment to the Beneficiary, in any other form than a lump sum, may only
be elected during the 60 day period beginning with the date of receipt by Us of
due proof of death. If the spouse elects to continue the Contract, the Death
Benefit Amount otherwise payable will be the initial Purchase Payment for the
purpose of determining benefits under the Contract for the continuing spouse.
Death of Contract Owner During the Annuity Period
If you or a Joint Owner, who is not the Annuitant, dies during the Annuity
Period, any remaining Annuity Payments
27
under the Annuity Option elected will continue at least as rapidly as under the
method of distribution in effect at the time of the Owner's or Joint Owner's
death. Upon the Owner's death during the Annuity Period, the Beneficiary
becomes the Owner. Upon the death of any Joint Owner during the Annuity Period,
the surviving Owner, if any, will be treated as the primary Beneficiary. Any
other Beneficiary designation on record at the time of death will be treated as
a contingent Beneficiary.
Death of Annuitant
If the Annuitant, who is not an Owner or Joint Owner, dies during the
Accumulation Period, you, the Owner, will automatically become the Annuitant. A
change of Annuitant by the Owner may result in a taxable event. You may
designate a new Annuitant subject to Our approval. If the Owner is a
non-natural person (for example, a corporation), then the death of the
Annuitant will be treated as the death of the Owner, and a new Annuitant may
not be named.
Upon the death of the Annuitant during the Annuity Period, the death benefit,
if any, will be as provided for in the Annuity Option selected. The death
benefit will be paid at least as rapidly as under the method of distribution in
effect at the Annuitant's death.
Annuity Payments (The Annuity Period)
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Under the Contract you can receive regular income payments. We call these
payments Annuity Payments. You can choose the date on which the Annuity
Payments begin. We call that date the Annuity Date. The Annuitant is the person
whose life We look to when We determine Annuity Payments.
You can select any Annuity Date provided it is a date after the end of the
Free Look Period. The Annuity Date must be at least two (2) years after the
Contract Date, but may not be later than the maximum date permitted under
applicable state law.
For a Contract held as an IRA, the Annuity Date may not be later than April 1
of the year after the year in which the Annuitant attains age 70 1/2 .
You can also choose among income plans. We call those Annuity Options. You
can select an Annuity Option. You can change it at any time prior to 30 days
before the Annuity Date. If you do not choose an Annuity Option, We will assume
that you selected Option 2 which provides a life annuity with 10 years of
guaranteed payments.
During the Annuity Period, you can choose to have fixed Annuity Payments
(these payments will come from PHL Variable's general account), variable
Annuity Payments (these payments will be based on the performance of the
Investment Portfolios) or a combination of both. If you choose a fixed Annuity
Option, your Account Value is placed in Our general account. Our general
account is not registered under the federal securities laws and it is generally
not subject to its provisions. If you choose a fixed Annuity Option, the
minimum guaranteed interest rate is not less than that disclosed in your
Contract. See your Contract for more information regarding the Fixed Account.
If you do not tell Us otherwise, your Annuity Payments will be based on the
investment allocations that were in place on the Annuity Date.
Annuity Payment Amount
If you choose to have any portion of your Annuity Payments based on the
performance of the Investment Portfolio(s), the dollar amount of your Annuity
Payment will depend upon:
1)the Contract Value or the Death Benefit Amount (if the Annuity Option is
selected to pay the Death Benefit Amount) applied to an Annuity Option on
the Annuity Date;
2)the 3% or 5% (as you selected) assumed investment rate (AIR) performance
used in the annuity table for the Contract;
3)the performance of the Investment Portfolio(s) you selected, less any
applicable Transaction Fees; and
4)the Annuity Option you select.
For contracts held in connection with an IRA or qualified plan, there are
required minimum distribution requirements in Code section 401(a)(9).
No Transaction Fees are imposed when We make withdrawals to fund an Annuity
Payment. Transaction Fees are incurred if you instruct Us to transfer money
into or transfer money out of Investment Portfolio(s) upon which We impose
Transaction Fees. For further information, see "Expenses--Transaction Fee".
You can choose either a 3% or a 5% assumed investment rate (AIR). If the
actual performance exceeds the 3% or 5% (as you selected) AIR, your Annuity
Payments will increase. Similarly, if the actual performance is less than 3% or
5% (as you selected) AIR, your Annuity Payments will decrease. Using a higher
AIR results in a higher initial Annuity Payment, but later Annuity Payments
will increase more slowly when the investment performance rises and decrease
more rapidly when investment performance decreases.
On the Annuity Date, the Contract Value, less any premium tax, less the
applicable Subscription Fee and less any applicable Transaction Fees will be
applied under the Annuity Option you selected.
Annuity Payments are made monthly unless you have less than $5,000 to apply
toward purchasing an Annuity Option. In that case, We may make a single lump
sum payment to you instead of Annuity Payments. Likewise, if your Annuity
Payments would be less than $50 a month, We have the right to change the
frequency of payments so that your Annuity Payments are at least $50.
Unless you notify Us otherwise, We will pay the Annuity Payments to you. You
can change the payee at any time prior to the Annuity Date. Income from any
distribution will be reported to you for tax purposes.
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Annuity Options
You can choose one of the following Annuity Options or any other Annuity
Option which is acceptable to Us. After Annuity Payments begin, you cannot
change the Annuity Option.
Option 1. Income for Life. We will pay monthly Annuity Payments during the
lifetime of the Annuitant. We will stop making payments when the Annuitant dies.
Option 2. Income For Life With Payment Guaranteed for a Fixed Number of
Years. We will make monthly Annuity Payments so long as the Annuitant is alive.
However, when the Annuitant dies, if We have made Annuity Payments for less
than the guaranteed period you selected (5, 10 or 20 years), We will then
continue to make Annuity Payments to the Beneficiary for the rest of the
guaranteed period. Annuity Payments to the Beneficiary will be made at least as
rapidly as under the method of payment being used at the time of the
Annuitant's death. However, after the Annuitant dies, the Beneficiary may elect
to receive a single lump sum payment which will be equal to the present value
of the remaining Annuity Payments (as of the date of proof of death) discounted
at the assumed investment rate (AIR) for a variable Annuity Option.
Option 3. Income for a Specified Period. We will make monthly Annuity
Payments for a fixed period of time (3 to 20 years). When the Annuitant dies,
any amount remaining will be paid to the Beneficiary. Annuity Payments to the
Beneficiary will be made at least as rapidly as under the method of payment
being used at the time of the Annuitant's death. However, the Beneficiary may
elect to receive a single lump sum payment which will be equal to the present
value of the remaining Annuity Payments (as of the date of proof of death)
discounted at the assumed investment rate (AIR) for a variable Annuity Option.
Option 4. Joint and Survivor Income for Life. We will make monthly Annuity
Payments so long as the Annuitant and a joint Annuitant are both alive. When
either of these people die, the amount of the Annuity Payments We will make to
the survivor can be equal to 100%, 66 2/3% or 50% of the amount that We would
have paid if both were alive.
Federal Income Taxes
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Note: PHL Variable has prepared the following information on taxes as a
general discussion of the subject. Further information on taxes is contained in
the Statement of Additional Information. It is not intended as tax advice to
any specific individual. No attempt is made to consider any applicable state
tax or other tax laws, or to address any federal estate, or state and local
estate, inheritance and other tax consequences of ownership or receipt of
distributions under a Contract. You should consult your tax adviser about your
own circumstances.
Introduction
The contracts are designed for use with retirement plans which may or may not
be tax-qualified plans ("qualified plans") or Individual Retirement Annuities
(IRAs) under the provisions of the Internal Revenue Code of 1986, (the "Code").
The ultimate effect of federal income taxes on the amounts held under a
contract, on annuity payments and on the economic benefits of the contract
owner, annuitant or beneficiary depends on our income tax status, on the type
of retirement plan for which the contract is purchased, and upon the income tax
and employment status of the individual concerned.
The following discussion is general in nature and is not intended as
individual tax advice. The income tax rules are complicated and this discussion
is intended only to make you aware of the issues. Each person should consult an
independent tax advisor. No attempt is made to consider any estate or
inheritance taxes or any applicable state, local or other tax laws. Moreover,
the discussion is based upon our understanding of the federal income tax laws
as they are currently interpreted. No representation is made regarding the
likelihood of continuation of the federal income tax laws or the current
interpretations by the Internal Revenue Service (the "IRS"). We do not
guarantee the tax status of the contracts or any transactions involving the
contracts either currently or in the future. Purchasers bear the complete risk
that the contracts may not be treated as "annuity contracts" under federal
income tax laws. From time to time, there are proposals in Congress that would
impact the taxation of annuity contracts and/or qualified plans; if enacted,
these changes could be retroactive. At this time, we do not have any specific
information about any pending proposals that could affect this contract. For a
discussion of federal income taxes as they relate to the funds, please see the
fund prospectuses.
Income Tax Status
We are taxed as a life insurance company under Part 1 of Subchapter L of the
Code. Since the Separate 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 Separate Account are
reinvested and taken into account in determining the contract value. Under
existing federal income tax law, the Separate Account's investment income,
including realized net capital gains, is not taxed to us. We reserve the right
to make a deduction for taxes should they be imposed on us with respect to such
items in the future.
Taxation of Annuities in General--Nonqualified 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. In certain cases, the increase in
value may be subject to tax currently; see "Distribution-at-Death Rules,"
"Contracts Owned by Non-Natural Persons," "Owner Control" and "Diversification
Standards" below.
As the owner of the contract, you may elect one of the available death
benefit guarantees under the contract. One or more of the options available
may, in some cases, exceed the greater of the sum of premium payments or the
contract
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value. The IRS may take the position with respect to these death benefit
guarantees that they are not part of the annuity contract. In such a case, the
charges against the cash value of the annuity contract or charges withheld from
a rollover for the benefits would be considered distributions subject to tax,
including penalty taxes, and charges withheld from purchase payments for the
contract would not be deductible. If the IRS were to take this position, we
would take all reasonable steps to avoid this result, which would include the
right to amend the contract, with appropriate notice to you. You should consult
with your tax advisor before electing a death benefit guarantee under this
contract or any amendments, benefits or endorsements to the contract.
Surrenders or Withdrawals Prior to the Contract Maturity Date
Code Section 72 provides that a withdrawal or surrender of the contract prior
to the contract maturity date will be treated as taxable income to the extent
the amounts held under the contract exceeds the "investment in the contract."
The "investment in the contract" is that portion, if any, of purchase payments
by or on behalf of an individual under a contract that have not been excluded
from the individual's gross income.
The taxable portion is taxed as ordinary income in an amount equal to the
value of the amount received in excess of the "investment in the contract" on
account of a withdrawal or surrender of a contract. For purposes of this rule,
a pledge, loan or assignment of a contract is treated as a payment received on
account of a withdrawal from a contract.
Surrenders or Withdrawals On or After the Contract Maturity Date
Upon receipt of a lump sum payment under the contract, the recipient is taxed
on the portion of the payment that exceeds the investment in the contract.
Ordinarily, such taxable portion is taxed as ordinary income.
For amounts received as an annuity, which are amounts payable at regular
intervals over a period of more than one full year from the date on which they
are deemed to begin, 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. For annuities
issued in connection with qualified employer retirement plans, a simplified
method of determining the exclusion ratio applies. This simplified method does
not apply to IRAs.
Withholding of federal income taxes on all distributions may be required
unless the recipient properly elects not to have any amounts withheld and
notifies our Annuity Operations Division of that election on the required forms
and under the required certifications. Certain contract owners cannot make this
election.
Penalty Tax on Certain Surrenders and Withdrawals--Nonqualified contracts
Amounts surrendered, withdrawn or distributed before the taxpayer reaches age
59 1/2 are subject to a penalty tax equal to ten percent (10%) of the portion
of such amount that is includable in gross income. However, the penalty tax
will not apply to withdrawals: (i) made on or after the death of the contract
owner (or where the contract owner is not an individual, the death of the
"primary annuitant," who is defined as the individual the events in whose life
are of primary importance in affecting the timing and amount of the payout
under the contract); (ii) attributable to the taxpayer's becoming totally
disabled within the meaning of Code Section 72(m)(7); (iii) which are part of a
series of substantially equal periodic payments made (not less frequently than
annually) for the life (or life expectancy) of the taxpayer, or the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from certain qualified plans (such distributions may, however, be subject
to a similar penalty under Code Section 72(t) relating to distributions from
qualified retirement plans and to a special penalty of 25% applicable
specifically to SIMPLE IRAs or other special penalties applicable to Roth
IRAs); (v) allocable to investment in the contract before August 14, 1982;
(vi) under a qualified funding asset (as defined in Code Section 130(d));
(vii) under an immediate annuity contract (as defined in Code
Section 72(u)(4)); or (viii) that are purchased by an employer on termination
of certain types of qualified plans and which are held by the employer until
the employee separates from service.
Separate tax withdrawal penalties apply to qualified plans.
See "Penalty Tax on Certain Surrenders and Withdrawals from Qualified Plans."
Additional Considerations
Distribution-at-Death Rules
In order to be treated as an annuity contract for federal income tax
purposes, a contract must provide the following two distribution rules: (a) if
the contract owner dies on or after the contract maturity date, and before the
entire interest in the contract has been distributed, the remainder of the
contract owner's interest will be distributed at least as rapidly as the method
in effect on the contract owner's death; and (b) if a contract owner dies
before the contract maturity date, the contract owner's entire interest
generally must be distributed within five (5) years after the date of death, or
if payable to a designated beneficiary, may be annuitized over the life or life
expectancy of that beneficiary and payments
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must begin within one (1) year after the contract owner's date of death. If the
beneficiary is the spouse of the contract owner, the contract (together with
the deferral of tax on the accrued and future income thereunder) may be
continued in the name of the spouse as contract owner. Similar distribution
requirements apply to annuity contracts under qualified plans. However, a
number of restrictions, limitations and special rules apply to qualified plans
and contract owners should consult with their tax advisor.
If the primary annuitant, which is not the contract owner, dies before the
maturity date, the owner will become the annuitant unless the owner appoints
another annuitant. 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, however, a change in the primary
annuitant is treated as the death of the contract owner. Finally, in the case
of non-spousal joint contract owners, distribution will be required at the
earliest death of any 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 Payment Option selected
will be made at least as rapidly as under the method of distribution in effect
at the time of death.
Any death benefits paid under the contract are taxable to the beneficiary at
ordinary rates to the extent amounts exceed investment in the contract. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply whether the death benefits are paid as lump sum or
annuity payments. Estate taxes may also apply.
Transfer of Annuity Contracts
Transfers of nonqualified 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 to the contract owner 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 transfers incident to a divorce.
Contracts Owned by Non-Natural Persons
If a non-natural person (for example, a corporation) holds the contract, the
income on that contract (generally the increase in the net surrender value less
the premium payments paid) is includable in income each year. The rule does not
apply where the non-natural person is an agent for a natural person, such as a
trust in which the beneficial owner is a natural person. The rule also does not
apply where the annuity contract is acquired by the estate of a decedent, where
the contract is held under a qualified plan, a TSA program or an IRA, where the
contract is a qualified funding asset for structured settlements, or where the
contract is purchased on behalf of an employee upon termination of a qualified
plan.
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. For non-qualified contracts, the contract
proceeds must be transferred directly from one insurer to another insurer; they
cannot be sent to the policyowner by the original insurer and then transmitted
from the policyowner to the new insurer. For IRA and qualified plan contracts,
the proceeds can be transmitted through the policyowner is specific conditions
are met. Exchanges are permitted of entire the entire contract or a portion of
the contract. Numerous rules and procedures apply to Code Section 1035
transactions. Prospective contract owners wishing to take advantage of Code
Section 1035 should consult their tax advisors.
Multiple Contracts
Code Section 72(e)(12)(A)(ii) provides that 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 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 U.S. 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 advisor before purchasing more than one annuity
contract in the same year.
Owner Control
For variable contracts, tax deferral depends on the insurance company and not
you having control of the assets held in the separate accounts. You can
allocate account values from one fund of the separate account to another but
you cannot direct the investments each fund makes. If you have too much
"investor control" of the assets supporting the separate account funds, then
you will be taxed on the gain in the contract as it is earned rather than when
it is withdrawn.
In 2003, the IRS in Revenue Ruling 2003-91, issued formal guidance that
indicates that if the number of underlying mutual funds available in a variable
insurance product does not exceed 20, the number of underlying mutual funds
alone would not cause the contract to not qualify for the desired tax
treatment. The IRS has also indicated that exceeding 20 investment options may
be considered a factor, along with other factors, including the number of
transfer opportunities available under the contract, when determining whether
the contract qualifies for the desired tax treatment. The Revenue Ruling did
not indicate the actual number of underlying mutual funds that would cause the
contract to not provide the desired tax treatment but stated that whether the
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owner of a variable contract is to be treated as the owner of the assets held
by the insurance company under the contract will depend on all of the facts and
circumstances.
The Revenue Ruling considered certain variable annuity and variable life
insurance contracts and held that the types of actual and potential control
that the contract owners could exercise over the investment assets held by the
insurance company under the variable contracts was not sufficient to cause the
contract owners to be treated as the owners of those assets and thus to be
subject to current income tax on the income and gains produced by those assets.
Under this contract, like the contracts described in the Revenue Ruling, there
will be no arrangement, plan, contract, or agreement between the contract owner
and PHL Variable regarding the availability of a particular investment option
and, other than the contract owner's right to allocate premium payments and
transfer funds among the available subaccounts, all investment decisions
concerning the subaccounts will be made by us or an advisor in its sole and
absolute discretion.
At this time, it cannot be determined whether additional guidance will be
provided by the U.S. Treasury on this issue and what standards may be contained
in such guidance. Should the U.S. Treasury issue additional rules or
regulations limiting the number of underlying mutual funds, transfers between
or among underlying mutual funds, exchanges of underlying mutual funds or
changes in investment objectives of underlying mutual funds such that the
contract would no longer qualify for tax deferred treatment under section 72 of
the Internal Revenue Code, PHL Variable reserves the right to modify the
contract to the extent required to maintain favorable tax treatment.
Diversification Standards
Diversification Regulations
To comply with the diversification regulations under Code Section 817(h)
("Diversification Regulations"), after a start-up period, each series of the
funds will be required to diversify its investments. The Diversification
Regulations generally require that, on the last day of each calendar quarter,
the series' total assets be invested in no more than:
55% in any 1 investment
70% in any 2 investments
80% in any 3 investments
90% in any 4 investments
A "look-through" rule applies to treat a pro rata portion of each asset of a
series as an asset of the Separate 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. 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 exclusive guidance regarding the circumstances in which contract
owner control of the investments of the Separate Account will cause the
contract owner to be treated as the owner of the assets of the Separate
Account, thereby resulting in the loss of favorable tax treatment for the
contract.
We represent that we intend to comply with the Diversification Regulations to
assure that the contracts continue to be treated as annuity contracts for
federal income tax purposes.
Diversification Regulations and Qualified Plans
Code Section 817(h) applies to a variable annuity contract other than a
pension plan contract. The Diversification Regulations reiterate that the
diversification requirements do not apply to a pension plan contract. All of
the qualified plans (described below) are defined as pension plan contracts for
these purposes. Notwithstanding the exception of qualified plan contracts from
application of the diversification rules, all investments of the PHL Variable
Qualified Plan Contracts (i.e., the funds) will be structured to comply with
the diversification standards because the funds serve as the investment vehicle
for nonqualified contracts as well as qualified plan contracts.
Taxation of Annuities in General--Qualified Plans
The contracts may be used with several types of IRAs and qualified plans:
Section 403(b) contracts (also referred to as Tax-Sheltered Annuities (TSAs) or
Tax-Deferred Annuities (TDAs)), Roth 403(b) contracts, Traditional IRAs, SEP
IRAs, SIMPLE IRAs, SARSEP IRAs, Roth IRAs, Corporate Pension and Profitsharing
Plans and State Deferred Compensation Plans will be treated, for purposes of
this discussion, as qualified plans. The tax rules applicable to participants
in such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. No attempt is made here to provide more than
general information about the use of the contracts with the various types of
qualified plans. PHL Variable reserves the right at any time to discontinue the
availability of this contract for use with 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 review as to whether
spousal consent may be required under the Retirement Equity Act (REA).
Consequently, a contract owner's beneficiary designation or elected annuity
payment options that do not follow the REA may not be enforceable.
As the owner of the contract, you may elect one of the available death
benefit guarantees under the contract. We are of the opinion that the death
benefit guarantees available under the contract are part of the annuity
contract. One or more of the death benefit guarantees available may exceed the
greater of the sum of premium payments or the contract value. The contract and
its amendments, benefits or endorsements (together referred to herein as the
"contract") have not been reviewed by the IRS for qualification as an IRA or
any other
32
qualified plan. Moreover, the IRS has not addressed in a ruling of general
applicability whether a death benefit option such as those available under the
contract complies with the qualification requirements for an IRA or any other
qualified plan. The language in the endorsements is intended to comply with the
IRS model language provided under the List of Required Modifications (LRMs).
There is no IRS requirement that the endorsements be approved by the IRS.
There is a risk that the IRS would take the position that one or more of the
death benefit guarantees are not part of the annuity contract. In such a case,
charges against the cash value of the annuity contract or charges withheld from
a rollover for the benefits would be considered distributions subject to tax,
including penalty taxes, and charges withheld from purchases for the contract
would not be deductible. While we regard the death benefit guarantees available
for your election under the contract as a permissible benefit under an IRA, the
IRS may take a contrary position regarding tax qualification resulting in
deemed distributions and penalty taxes. If the IRS were to take this position,
we would take all reasonable steps to avoid this result, which would include
the right to amend the contract, with appropriate notice to you. You should
consult with your tax advisor before electing a death benefit option under this
contract for an IRA or other qualified plan. Certain death benefit guarantees
may be purchased under your contract.
IRA's and other qualified contracts generally may not invest in life
insurance contracts. If you own an IRA or other qualified contract and purchase
these death benefit guarantees, the IRS may consider these benefits "incidental
death benefits." The IRC imposes limits on the amount of the incidental death
benefits allowable for qualified contracts. If the death benefit(s) selected
are considered to exceed these limits, the benefit(s) could result in taxable
income to the owner of the IRA or qualified contract. Furthermore, the Code
provides that the assets of an IRA (including a traditional IRA, Roth IRA, SEP
IRA and SIMPLE IRA) may not be invested in life insurance, but may provide, in
the case of death during the accumulation phase, for a death benefit payment
equal to the greater of sum of premium payments (less withdrawals) or contract
value. This contract offers death benefits which may exceed the greater of sum
of premium payments (less withdrawals) or contract value. If the IRS determines
that these benefits are providing life insurance, the contract may not qualify
as an IRA (including traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) or
other qualified contract. That determination could result in the immediate
taxation of amounts held in the contract and the imposition of penalty taxes.
You should consult your tax advisor regarding these features and benefits prior
to purchasing a contract.
Distributions from qualified plans, including section 403(b) contracts
eligible to be rolled over to new contracts but which are paid to the
policyowner directly 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).
The contracts sold by PHL Variable in connection with certain qualified plans
will utilize annuity tables that do not differentiate on the basis of sex. Such
annuity tables also will be available for use in connection with certain
nonqualified deferred compensation plans.
Numerous changes have been made to the income tax rules governing qualified
plans as a result of legislation enacted during the past several years,
including rules with respect to: coverage, participation, maximum
contributions, required distributions, penalty taxes on early or insufficient
distributions and income tax withholding on distributions. The following are
general descriptions of the various types of qualified plans and of the use of
the contracts in connection therewith.
Tax Sheltered Annuities ("TSAs"), Tax Deferred Annuities ("TDAs), Section 403(b)
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3), to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of payments from gross income for federal
income tax purposes. These annuity contracts are commonly referred to as TSAs,
TDAs, or 403(b)s.
Code Section 403(b)(11) imposes certain restrictions on a contract owner's
ability to make withdrawals from, or surrenders of, Code Section 403(b)
Contracts, if the cash withdrawn is attributable to payments made under a
salary reduction agreement. Specifically, Code Section 403(b)(11) allows a
contract owner to make a surrender or withdrawal only (a) when the employee
attains age 59 1/2, separates from service, dies or becomes disabled (as
defined in the Code), or (b) in the case of hardship. In the case of hardship,
the distribution amount cannot include any income earned under the contract.
Code Section 403(b)(11) 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. The responsibility for
compliance is with the employer and not with the issuer of the underlying
annuity contract.
If certain contractual requirements are met loans may be made available under
Internal Revenue Code Section 403(b)
33
tax-sheltered annuity programs. A loan from a participant's contract value may
be requested only if we make loans available with the contract and if the
employer permits loans under their tax-sheltered annuity program. There are
specific limits in the Code on the amount of the loan and the term of the loan.
It is not the responsibility of policy issuer (PHL Variable) to monitor
compliance with these requirements.
If we are directed by the participant, the loan may be taken from specific
subaccounts. Otherwise, the loan is taken proportionately from all subaccounts.
The loan must be at least $1,000 and the maximum loan amount is the greater of:
(a) 90% of the first $10,000 of contract value minus any withdrawal charge; and
(b) 50% of the contract value minus any withdrawal 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 Code. Amounts borrowed from the GIA are subject to the
same limitations as applies to transfers from the GIA; thus no more than the
greatest of $1000 and 25% of the contract value in the GIA may be borrowed at
any one time.
Interest will be charged on the loan, in the amount set forth in the
contract. This interest is payable to PHL Variable. 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
Loan Security Account is part of the general account and is the sole security
for the loan. It is increased with all loan amounts taken and reduced by all
repayments of loan principal. 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
payments allocation on file with us.
Under Code section 72(p), if a loan payment is not paid within 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 pursuant to Internal Revenue Code requirements. At the time of
such deemed distribution, interest will continue to accrue until such time as
an actual distribution occurs under the contract.
Keogh Plans
The Self-Employed Individual Tax Retirement Act of 1962, as amended permitted
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.
Individual Retirement Annuities
Code Sections 408 and 408A permit eligible individuals to contribute to
individual retirement programs known as "Traditional IRAs", "Roth IRAs", "SEP
IRA", "SARSEP IRA", "SIMPLE IRA", and "Deemed IRAs", .Each of these different
types of IRAs are subject to limitations on the amount that 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. Participant loans are
not allowed on IRA contracts.
Details about each of these different types of IRAs are included in the
respective contract endorsements.
Corporate Pension and Profit-Sharing Plans
Code Section 401(a) permits corporate employers to establish various types of
retirement plans for employees. 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 includable 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
independent tax advice as to the tax treatment and suitability of such an
investment.
Deferred Compensation Plans With Respect to Service for State and Local
Governments and Tax Exempt Organizations
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other entities.
The contracts may be used in connection with these plans; however, under these
plans if issued to tax exempt organizations, the contract owner is the plan
sponsor, and the individual participants in the plans are the annuitants. Under
such contracts, the rights of individual plan participants are governed solely
by their agreements with the plan sponsor and not by the terms of the contracts.
Tax on Surrenders and Withdrawals from Qualified Plans and IRAs
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
after-tax 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. For many qualified plans, the individual will have no
after-tax contributions and the entire amount received will be taxable. For
Roth IRAs, if certain conditions are met regarding holding periods and age of
the policyowner, the withdrawals are received without tax.
34
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 Section 403(b) contracts and Individual
Retirement Annuities other than Roth IRAs. The penalty is increased to 25%
instead of 10% for SIMPLE IRAs if distribution occurs within the first two
years of the contract owner's participation in the SIMPLE IRA. These penalty
taxes are in addition to any income tax due on the distribution.
To the extent amounts are not includable in gross income because they have
been properly rolled over to an IRA or to another eligible qualified plan; no
tax penalty will be imposed.
The tax penalty will not apply to the following distributions: (a) if
distribution is made on or after the date on which the contract owner or
annuitant (as applicable) reaches age 59 1/2; (b) distributions following the
death or disability of the contract owner or annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code);
(c) after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the contract owner or annuitant (as applicable) or the
joint lives (or joint life expectancies) of such contract owner or annuitant
(as applicable) and his or her designated beneficiary; (d) distributions to a
contract owner or annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the contract owner or
annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the contract owner or
annuitant (as applicable) for amounts paid during the taxable year for medical
care; (f) distributions made to an alternate payee pursuant to a qualified
domestic relations order; (g) distributions from an IRA for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
contract owner and his or her spouse and dependents if the contract owner has
received unemployment compensation for at least 12 weeks (this exception will
no longer apply after the contract owner has been reemployed for at least 60
days); (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; and
(i) distributions from retirement plans to individuals called to active
military duty. 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 or IRA 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 Traditional or SIMPLE
IRA and the required distribution rules do not apply to Roth IRAs.
This commencement date is referred to as the "required beginning date."
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.
The amount that must be distributed is based on Code rules relating to
"Required Minimum Distributions". This RMD takes into consideration the
individual's age, marital status, and account balance, as well as the actuarial
value of additional benefits under the contract. The individual will have
options regarding computation of the RMD amount; these options are selected at
the time that the payments begin.
An individual is required to take distributions from all of his or her
retirement accounts; however, if the individual has two or more accounts, the
total amount of RMDs can be taken from one of the multiple accounts. For
example, if the individual has a traditional IRA and a section 403(b) contract,
the individual will have an RMD amount relating to each of these retirement
vehicles. The individual can take the total of two RMDs from either or both of
the two contracts.
We are required to file an information return to the IRS, with a copy to the
participant, of the total account value of each account. This information
return will also indicate if RMDs are required to be taken.
In addition to RMDs during the life of the individual, there are also
required after-death distributions. These after-death RMDs apply to all
qualified plans and IRAs, including Roth IRAs. The beneficiary of the contract
may take payments earlier than provided under these after-death RMD rules, such
as immediately after death, but cannot delay receipt of payments after the
dates specified under these rules.
Under the after-death RMD rules, if the original owner died prior to the
required beginning date, and designated a contract beneficiary, then the full
account value must be distributed either by the end of the fifth calendar year
are the year of the owner's death or over a period of no longer than the life
expectancy of the oldest individual beneficiary. If the payments are to be over
the life expectancy, the first payment must be received by December 31/st/ of
the year following the year of death. If the owner did not name a contract
beneficiary or if the beneficiary was a non-natural person (such as an entity
or the owner's estate), then the life expectancy payouts are not permitted and
only the five-year rule is permitted.
If the owner died after the required beginning date and designed a contract
beneficiary, then the maximum payout period is the longer of the life
expectancy of the named beneficiary or the remaining life expectancy of the
original contract owner. If the owner did not name a contract beneficiary or if
the beneficiary was a non-natural person (such as an entity or the owner's
estate), then the only payment permitted is based on the remaining life
expectancy of the original owner.
In all cases, if the beneficiary is the surviving spouse of the original
owner, there are special spousal continuation rules under which the spouse can
treat the contract as his or her own and delay receiving payments until the
spouse attains his or her own required beginning date.
35
Spousal Definition
Under the Internal Revenue Code, the special provisions relating to a
"spouse" relate only to persons considered as spouses under the Defense of
Marriage Act (DOMA), Pub. L. 104-199. Under this Act, a spouse is must be a man
or women legally joined. Individuals married under State or foreign laws that
permit a marriage between two men or two women are not spouses for purposes of
the Internal Revenue Code. Individuals participating in a civil union or other
like status are not spouses for purposes of the Internal Revenue Code.
Seek Tax Advice
The above description of federal income tax consequences of the different
types of qualified plans which may be funded by the contracts offered by this
prospectus is only a brief summary meant to alert you to the issues and is not
intended as tax advice. The rules governing the provisions of qualified plans
and IRAs 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 advisor, with regard
to the suitability of the contract as an investment vehicle for the qualified
plan or IRA.
Other Information
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The Phoenix Companies, Inc.--Legal Proceedings about Company Subsidiaries
We are regularly involved in litigation and arbitration, both as a defendant
and as a plaintiff. The litigation and arbitration naming Us as a defendant
ordinarily involves Our activities as an insurer, investor, investment advisor,
or taxpayer. It is not feasible to predict or determine the ultimate outcome of
all legal or arbitration proceedings or to provide reasonable ranges of
potential losses. We believe that the outcomes of Our litigation and
arbitration matters are not likely, either individually or in the aggregate, to
have a material adverse effect on Our consolidated financial condition.
However, given the large or indeterminate amounts sought in certain of these
matters and the inherent unpredictability of litigation and arbitration, it is
possible that an adverse outcome in certain matters could, from time to time,
have a material adverse effect on Our results of operations or cash flows in
particular quarterly or annual periods.
State regulatory bodies, the Securities and Exchange Commission, or SEC, the
Financial Industry Regulatory Authority, or FINRA, and other regulatory bodies
regularly make inquiries of Us and, from time to time, conduct examinations or
investigations concerning Our compliance with, among other things, insurance
laws and securities laws. We endeavor to respond to such inquiries in an
appropriate way and to take corrective action if warranted.
In 2005, the Boston District Office of the SEC conducted a compliance
examination of certain of PNX's affiliates that are registered under the
Investment Company Act of 1940 or the Investment Advisers Act of 1940.
Following the examination, the staff of the Boston District Office issued a
deficiency letter primarily focused on perceived weaknesses in procedures for
monitoring trading to prevent market timing activity. The staff requested PNX
to conduct an analysis as to whether shareholders, policyholders and contract
holders who invested in the funds that may have been affected by undetected
market timing activity had suffered harm and to advise the staff whether PNX
believes reimbursement is necessary or appropriate under the circumstances. A
third party was retained to assist PNX in preparing the analysis. Based on this
analysis, PNX advised the SEC that it does not believe that reimbursement is
appropriate.
Over the past several years, a number of companies have announced settlements
of enforcement actions with various regulatory agencies, primarily the SEC and
the New York Attorney General's Office. While no such action has been initiated
against Us, it is possible that one or more regulatory agencies may pursue this
type of action against Us in the future.
Financial services companies have also been the subject of broad industry
inquiries by state regulators and attorneys general which do not appear to be
company-specific.
These types of regulatory actions may be difficult to assess or quantify, may
seek recovery of indeterminate amounts, including punitive and treble damages,
and the nature and magnitude of their outcomes may remain unknown for
substantial periods of time. While it is not feasible to predict or determine
the ultimate outcome of all pending inquiries, investigations, legal
proceedings and other regulatory actions, or to provide reasonable ranges of
potential losses, We believe that their outcomes are not likely, either
individually or in the aggregate, to have a material adverse effect on Our
consolidated financial condition. However, given the large or indeterminate
amounts sought in certain of these actions and the inherent unpredictability of
regulatory matters, it is possible that an adverse outcome in certain matters
could, from time to time, have a material adverse effect on Our results of
operation or cash flows in particular quarterly or annual periods.
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 that necessitates a corresponding change
in the prospectus or the SAI must be filed with the SEC. We will notify you if
such a change to the prospectus occurs. You may not receive notice of changes
to the SAI, but you can review this document and any changes filed with the SEC
on the Website.
Changes to The Separate Account
Where permitted by law, We may:
. create new Separate Accounts;
. combine separate accounts, including combining the Separate Account with
another separate account established by the Company;
36
. transfer assets of the Separate Account, which We determine to be
associated with the class of policies to which this policy belongs, to
another separate account;
. transfer the Separate Account to another insurance company;
. add new Sub-accounts to or remove Sub-accounts from the Separate Account,
or combine Sub-accounts;
. make the Sub-accounts available under other policies We issue;
. add new Investment Portfolios or remove existing Investment Portfolios;
. substitute new Investment Portfolios for any existing Investment Portfolio
which We determine is no longer appropriate in light of the purposes of
the Separate Account;
. deregister the Separate Account under the Investment Company Act of 1940;
and
. operate the Separate Account under the direction of a committee or in
another form.
Distributor
PHL Variable has designated Phoenix Equity Planning Corporation ("PEPCO") to
serve as the principal underwriter and distributor of the securities offered
through this prospectus, pursuant to the terms of a distribution agreement.
PEPCO, which is an affiliate of the PHL Variable, also acts as the principal
underwriter and distributor of other variable annuity contracts and variable
life insurance policies issued by the PHL Variable and its affiliated
companies. PHL Variable reimburses PEPCO for expenses PEPCO incurs in
distributing the Contracts). PEPCO does not retain any fees under the
Contracts; however, PEPCO may receive 12b-1 fees from the underlying funds.
PEPCO's principal executive offices are located at 56 Prospect Street,
Hartford, Connecticut 06103-2836. PEPCO is registered as a broker-dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange
Act of 1934, as well as the securities commissions in the states in which it
operates, and is a member of the Financial Industry Regulatory Authority
("FINRA"). Prior to July 7, 2007, FINRA was known as the National Association
of Securities Dealers ("NASD").
PEPCO and PHL Variable enter into selling agreements with broker-dealers who
are registered with the SEC and are members of the FINRA, and with entities
that may offer the Contracts but are exempt from registration. Applications for
the Contract are solicited by registered representatives who are associated
persons of such broker-dealer and investment adviser firms. Such registered
representatives act as appointed agents of PHL Variable under applicable state
insurance law and must be licensed to sell variable insurance products. PHL
Variable intends to offer the Contract in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts are
offered on a continuous basis.
Management Services
Under a contract with PHL Variable Insurance Company, Jefferson National Life
Insurance Company (Jefferson National) provides management services for the
Separate Account, including, but not limited to, calculation of daily unit
values and preparation of information used in various financial reports and
forms that are filed with the SEC.
Financial Statements
Our financial statements have been included in the Statement of Additional
Information and should be considered only as bearing on the ability of the
Company to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the Investment
Portfolios. The value of the Investment Portfolios is affected primarily by the
performance of the underlying investments.
Prior to April 7, 2008, PHL Variable Accumulation Account II had not
commenced operations. As a result, there are no financial statements for PHL
Variable Accumulation Account II included in the Statement of Additional
Information.
Experts
The financial statements of PHL Variable Insurance Company as of December 31,
2007 and 2006, and for each of the three years in the period ended December 31,
2007 included in the Prospectus and Statement of Additional Information, have
been so included in reliance on the report of [ ], an independent
registered public accounting firm, given on the authority of said firm as
experts in auditing and accounting.
The principal business address of [ ] is [ ].
37
Table of Contents of the Statement of Additional Information
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General Information
General Information PHL Variable Insurance Company
PHL Variable Accumulation Account II
Certain Federal Income Tax Consequences
Published Ratings
Administration and Services
Annuity Provisions
Distribution
Financial Statements
(cut along dotted line)
- --------------------------------------------------------------------------------
If you would like a free copy of the Statement of Additional Information
(Phoenix Portfolio Advisor/SM/) dated April 7, 2008 for this Prospectus, please
complete this form, detach, and mail to:
Phoenix Portfolio Advisor/SM/ Service Center
Administrative Office
P.O. Box 36740
Louisville, Kentucky 40233
Please send me a free copy of the Statement of Additional Information for
the PHL Variable Insurance Company (Phoenix Portfolio Advisor/SM/) fixed and
variable annuity at the following address:
Name:________________________________________________________________
Mailing Address:________________________________________________________
Sincerely,
(Signature)
PHL Variable Insurance Company
Administrative Office
P.O. Box 36740
Louisville, Kentucky 40233
2008, PHL Variable Insurance Company VA4995T
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38
APPENDIX A - Investment Options
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Below is a summary of the investment objectives and strategies of each
Investment Portfolio available under the Contract. There can be no assurance
that the investment objectives will be achieved. The Investment Portfolio
prospectuses contain more complete information including a description of the
investment objectives, policies, restrictions and risks of each Investment
Portfolio. The following descriptions are qualified in their entirety by the
prospectus for each Investment Portfolio.
AIM Variable Insurance Funds
The AIM Variable Insurance Funds is a mutual fund with multiple portfolios.
A I M Advisors, Inc. serves as the investment advisor. INVESCO Institutional
(N.A.), Inc. serves as the investment subadvisor for AIM V.I. Global Real
Estate Fund. The following investment Portfolios are available under the
Contract:
AIM V.I. Dynamics Fund--Series I shares
The fund's investment objective is long-term capital growth. The fund seeks
to meet this objective by investing, normally, at least 65% of its net assets
in equity securities of mid-capitalization companies. The principal type of
equity securities purchased by the fund is common stock.
AIM V.I. Financial Services Fund--Series I shares
The fund's investment objective is capital growth. The fund seeks to meet its
objective by investing, normally, at least 80 % of its net assets, plus the
amount of any borrowings for investment purposes, in equity securities of
issuers engaged primarily in financial services-related industries. The
principal type of equity securities purchased by the fund is common stock.
AIM V.I. Global Real Estate Fund--Series I shares
The fund's investment objective is high total return through growth of
capital and current income. The fund seeks to meet its objective by investing,
normally, at least 80 % of its net assets in securities of real estate and real
estate-related companies. In complying with this 80% investment requirement,
the fund may invest in debt and equity securities, including convertible
securities, and its investments may include other securities, such as synthetic
instruments.
AIM V.I. High Yield--Series I shares
The fund's investment objective is to achieve a high level of current income.
The fund seeks to meet its objective by investing, normally, at least 80% of
its net assets, plus the amount of any borrowings for investment purposes, in
non-investment grade debt securities, i.e., "junk bonds."
AIM V.I. International Growth Fund--Series I shares
The fund's investment objective is long-term growth of capital. The fund
seeks to meet its objective by investing in a diversified portfolio of
international equity securities whose issuers are considered by the fund's
portfolio managers to have strong earnings momentum. The fund focuses its
investments on marketable equity securities of foreign companies that are
listed on a recognized foreign or U.S. securities exchange or U.S.
over-the-counter market.
AIM V.I. Mid Cap Core Equity--Series I shares
The fund's investment objective is long-term growth of capital. The fund
seeks to meet this objective by investing, normally, at least 80% of its net
assets plus the amount of any borrowings for investment purposes, in equity
securities, including convertible securities, of mid-capitalization companies.
AIM V.I. Technology Fund--Series I shares
The fund's investment objective is capital growth. The fund seeks to meet its
objective by investing, normally, at least 80% of its net assets, plus the
amount of any borrowings for investment purposes, in equity securities of
issuers engaged primarily in technology-related industries. The principal type
of equity securities purchased by the fund is common stocks.
AIM V.I. Utilities Fund--Series I shares
The fund's investment objective are capital growth and income. The fund seeks
to meet its objective by investing, normally, at least 80% of its net assets,
plus the amount of any borrowings for investment purposes, in equity securities
of issuers engaged primarily in utilities-related industries. The principal
type of equity securities purchased by the fund is common stocks.
AllianceBernstein L.P.
AllianceBernstein L.P. is one of the largest publicly traded global asset
management firms in the world with approximately $579 billion in assets under
management at December 31, 2005. AllianceBernstein provides diversified,
investment management services that include global growth, value and style
blend equities, and fixed income services to institutional, high net worth and
retail clients worldwide.
AllianceBerstein VPS International Growth Portfolio--Class B
The Portfolio's investment objective is long-term growth of capital. The
Portfolio invests primarily in an international portfolio of equity securities
of companies located in both developed and emerging countries. The Portfolio's
investment process relies upon comprehensive fundamental company research
produced by the Adviser's large research team of analysts covering both
developed and emerging markets around the globe.
AllianceBerstein VPS International Value Portfolio--Class B
The Portfolio's investment objective is long-term growth of capital. The
Portfolio will invest primarily in a diversified portfolio of equity securities
of established companies selected from more than 40 industries and more than 40
developed and emerging market countries. The Portfolio normally invests in
companies in at least three countries other than the United States.
A-1
AllianceBerstein VPS U.S. Government/High Grade Securities Portfolio--Class B
The Portfolio's investment objective is high current income consistent with
preservation of capital. The Portfolio invests, under normal circumstances, at
least 80% of its net assets in U.S. Government or high-grade fixed-income
securities rated A or better by S&P and Moody's or equivalent rating. The
Portfolio's investments include mortgage-backed securities and repurchase
agreements relating to U.S. Government securities. U.S. Government securities
in which the Portfolio invests may include a significant amount of securities
issued by government-sponsored entities, such as the Federal National Mortgage
Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC,
which are neither issued nor guaranteed by the U.S. Treasury. The Portfolio
also may invest in investment grade corporate and other debt securities. This
includes hybrid and structured debt instruments as well as
U.S. Dollar-denominated securities issued by non-U.S. corporations and
governments.
DREYFUS Investment Portfolios
The Dreyfus Investment Portfolios ("Dreyfus IP") is a mutual fund with
multiple portfolios. The investment adviser to the fund is The Dreyfus
Corporation. The following Investment Portfolios are available under the
Contract:
DREYFUS IP MidCap Stock Portfolio--Service Shares
The portfolio seeks investment results that are greater than the total return
performance of publicly traded common sticks of medium-size domestic companies
in the aggregate, as represented by the Standard & Poor's MidCap 400(R) Index
(S&P 400). To pursue this goal, the portfolio normally invests at least 80% of
its assets in stock of midsize companies. The portfolio invests in growth and
value stocks, which are chosen through a disciplined investment process that
combines computer modeling techniques, fundamental analysis and risk management.
DREYFUS IP Small Cap Stock Index Portfolio--Service Shares
The portfolio seeks to match the performance of the Standard & Poor's (S&P)
SmallCap 600 Index(R). To pursue this goal, the portfolio invests in a
representative sample of stocks included in the S&P SmallCap 600 Index(R), and
in futures whose performance is related to the index, rather than attempt to
replicate the index.
DREYFUS Stock Index Fund, Inc. (Service Shares)
The Dreyfus Stock Index Fund is a mutual fund. The investment adviser for the
fund is The Dreyfus Corporation and Mellon Equity Associates. The Dreyfus Stock
Index Fund seeks to match the total return of the Standard & Poor's 500
Composite Stock Price Index. To pursue this goal, the fund generally invests in
all 500 stocks in the S&P 500 in proportion to their weighting in the index.
DREYFUS Variable Investment Fund
The Dreyfus Variable Investment Fund ("Dreyfus VIF") is a mutual fund with
multiple portfolios. The investment adviser for the fund is The Dreyfus
Corporation. The following Investment Portfolios are available under the
Contract:
DREYFUS VIF International Equity Portfolio--Service Shares
The Dreyfus VIF International Equity Portfolio seeks capital growth. To
pursue its goal, the portfolio primarily invests in growth stocks of foreign
companies. Normally, the portfolio invests at least 80% of its assets in
stocks, including common stocks, preferred stocks and convertible securities,
including those purchased in initial public offerings.
DREYFUS VIF International Value Portfolio--Service Shares
The Dreyfus VIF International Value Portfolio seeks long-term capital growth.
To pursue this goal, the portfolio invests at least 80% of its assets in
stocks. The Portfolio ordinarily invests most of its assets in foreign issuers
which Dreyfus considers to be "value" companies.
Fidelity Variable Insurance Products
Fidelity Variable Insurance Products is a mutual fund with multiple
portfolios. Fidelity Management & Research Company is the investment adviser to
the fund. The following Investment Portfolios are available under your Contract:
Fidelity VIP Balanced Portfolio--Service Class 2
VIP Balanced Portfolio seeks income and capital growth consistent with
reasonable risk. Principal investment strategies include: Investing
approximately 60% of assets in stocks and other equity securities and the
remainder in bonds and other debt securities, including lower-quality debt
securities, investing at least 25% of total assets in fixed-income senior
securities (including debt securities and preferred stock); investing in
domestic and foreign issuers.
Fidelity VIP Contrafund(R) Portfolio--Service Class 2
VIP Dynamic Capital Appreciation Portfolio seeks capital appreciation.
Principal investment strategies include: normally investing primarily in common
stocks; investing in securities of companies whose value Fidelity Management &
Research Company believes is not fully recognized by the public; investing in
domestic and foreign issuers and investing in either "growth" stocks or "value"
stocks or both.
Fidelity VIP Disciplined Small Cap Portfolio--Service Class 2
VIP Disciplined Small Cap Portfolio seeks capital appreciation. Principle
investment strategies include: normally investing primarily in common stocks;
normally investing at least 80% of assets in securities of companies with small
market capitalizations (which, for purposes of this fund, are those companies
with market capitalizations similar to companies in the Russell 2000(R) Index
or the Standard & Poor's(R) SmallCap 600 Index (S&P(R) SmallCap 600); investing
in domestic and foreign issuers and investing in either "growth" stocks or
"value" stocks or both.
Fidelity VIP Dynamic Capital Appreciation Portfolio--Service Class 2
VIP Dynamic Capital Appreciation Portfolio seeks capital appreciation.
Principal investment strategies include: normally investing primarily in common
stocks; investing in domestic and foreign issuers and investing in either
"growth" stocks or "value" stocks or both.
A-2
Fidelity VIP Equity-Income Portfolio--Service Class 2
VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund's goal is to achieve
a yield which exceeds the composite yield on the securities comprising the
Standard & Poor's 500/SM/ Index (S&P 500). Principal investment strategies
include: normally investing at least 80% of assets in equity securities;
normally investing primarily in income-producing equity securities, which tends
to lead to investments in large cap "value" stocks; potentially investing in
other types of equity securities and debt securities, including lower-quality
debt securities; and investing in domestic and foreign issuers.
Fidelity VIP Growth & Income Portfolio--Service Class 2
VIP Growth & Income Portfolio seeks high total return through a combination
of current income and capital appreciation. Principal investment strategies
include: Normally investing a majority of assets in common stocks with a focus
on those that pay current dividends and show potential for capital
appreciation; Potentially investing in bonds, including lower-quality debt
securities, as well as stocks that are not currently paying dividends, but
offer prospects for future income or capital appreciation; investing in
domestic and foreign issuers and investing in either "growth" stocks or "value"
stocks or both.
Fidelity VIP Growth Opportunities Portfolio--Service Class 2
VIP Growth Opportunities Portfolio seeks to provide capital growth. Principal
investment strategies include: normally investing primarily in common stocks;
investing in companies that Fidelity Management & Research Company believes
have above-average growth potential (stocks of these companies are often called
"growth" stocks) and investing in domestic and foreign issuers.
Fidelity VIP Growth Portfolio--Service Class 2
VIP Growth Portfolio seeks to achieve capital appreciation. Principal
investment strategies include: normally investing primarily in common stocks;
investing in companies that Fidelity Management & Research Company believes
have above-average growth potential (stocks of these companies are often called
"growth" stocks) and investing in domestic and foreign issuers.
Fidelity VIP High Income Portfolio--Service Class 2
VIP High Income Portfolio seeks a high level of current income, while also
considering growth of capital. Principal investment strategies include:
Normally investing primarily in income-producing debt securities, preferred
stocks, and convertible securities, with an emphasis on lower-quality debt
securities; potentially investing in non-income producing securities, including
defaulted securities and common stocks; investing in companies in troubled or
uncertain financial condition and investing in domestic and foreign issuers.
Fidelity VIP International Capital Appreciation Portfolio--Service Class 2
VIP International Capital Appreciation Portfolio seeks capital appreciation.
Principal investment strategies include: normally investing primarily in
non-U.S. securities, including securities of issuers located in emerging
markets; normally investing primarily in common stocks and allocating
investments across countries and regions considering the size of the market in
each country and region relative to the size of the international market as a
whole.
Fidelity VIP Investment Grade Bond Portfolio--Service Class 2
VIP Investment Grade Bond Portfolio seeks as high a level of current income
as is consistent with the preservation of capital. Principal investment
strategies include: normally investing at least 80% of assets in
investment-grade debt securities (those of medium and high quality) of all
types and repurchase agreements for those securities; managing the fund to have
similar overall interest rate risk to the Lehman Brothers Aggregate Bond Index,
allocating assets across different market sectors and maturities; investing in
domestic and foreign issuers; potentially investing in lower-quality debt
securities and engaging in transactions that have a leveraging effect on the
fund.
Fidelity VIP Mid Cap Portfolio--Service Class 2
VIP Mid Cap Portfolio seeks long-term growth of capital. Principle investment
strategies include: normally investing primarily in common stocks; normally
investing at least 80% of assets in securities of companies with medium market
capitalizations (which, for purposes of this fund, are those companies with
market capitalizations similar to companies in the Russell Midcap(R) Index or
the Standard & Poor's(R), MidCap 400 Index ; potentially investing in companies
with smaller or larger market capitalizations. And investing in domestic and
foreign issuers.
Fidelity VIP Overseas Portfolio--Service Class 2
VIP Overseas Portfolio seeks long-term growth of capital. Principal
investment strategies include: normally investing at least 80% of assets in
non-U.S. securities; normally investing primarily in common stocks and
allocating investments across countries and regions considering the size of the
market in each country and region relative to the size of the international
market as a whole.
Fidelity VIP Real Estate Portfolio--Service Class 2
VIP Real Estate Portfolio seeks above-average income and long-term capital
growth, consistent with reasonable investment risk. The fund seeks to provide a
yield that exceeds the composite yield of the Standard & Poor's 500/SM/ Index.
Principal investment strategies include: normally investing primarily in common
stocks; normally investing at least 80% of assets in securities of companies
principally engaged in the real estate industry and other real estate related
investments and investing in domestic and foreign issuers.
Fidelity VIP Strategic Income Portfolio--Service Class 2
VIP Strategic Income Portfolio seeks a high level of current income. The fund
may also seek capital appreciation. Principal investment strategies include:
investing primarily in debt securities, including lower-quality debt
securities; allocating the fund's assets among four general investment
categories: high yield securities, U.S. Government and
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investment-grade securities, emerging markets securities, and foreign developed
market securities; potentially investing in equity securities and using a
neutral mix of approximately 40% high yield, 30% U.S. Government and
investment-grade, 15% emerging markets, and 15% foreign developed markets.
Fidelity VIP Value Leaders Portfolio--Service Class 2
VIP Value Leaders Portfolio seeks capital appreciation. Principal investment
strategies include: normally investing primarily in common stocks of well-known
and established companies; normally investing at least 80% of assets in blue
chip companies; investing in securities of companies that Fidelity Management &
Research Company believes are undervalued in the marketplace in relation to
factors such as assets, sales, earnings, growth potential, or cash flow, or in
relation to securities of other companies in the same industry (stocks of these
companies are often called "value" stocks) and investing in securities of
domestic and foreign issuers.
Fidelity VIP Value Strategies Portfolio--Service Class 2
VIP Value Strategies Portfolio seeks capital appreciation. Principal
investment strategies include: normally investing primarily in common stocks;
investing in securities of companies that Fidelity Management & Research
Company believes are undervalued in the marketplace in relation to factors such
as assets, sales, earnings, or growth potential (stocks of these companies are
often called "value" stocks); focusing investments in medium-sized companies,
but also may invest substantially in larger or smaller companies and investing
in domestic and foreign issuers.
Fidelity VIP Value Portfolio--Service Class 2
VIP Value Portfolio seeks capital appreciation. Principal investment
strategies include: normally investing primarily in common stocks; investing in
securities of companies that Fidelity Management & Research Company believes
are undervalued in the marketplace in relation to factors such as assets,
sales, earnings, growth potential, or cash flow, or in relation to securities
of other companies in the same industry (stocks of these companies are often
called "value" stocks) and investing in domestic and foreign issuers.
Franklin Templeton Variable Insurance Products (Class 2)
Franklin Templeton Variable Insurance Products Trust is a mutual fund with
multiple portfolios. Franklin Advisers, Inc is the Advisers to Franklin Global
Communications Securities Fund, Franklin High Income Securities Fund, Franklin
Income, Securities Fund, Franklin Mutual Discovery Securities Fund, Franklin
Small-Mid Cap Growth Securities Fund, Franklin Strategic Income Securities
Fund, Franklin U.S. Government Fund and Templeton Global Income Securities
Fund. Franklin Advisory Services, LLC is the Adviser to Franklin Small Cap
Value Securities Fund. The following Investment Portfolios are available under
your Contract:
Franklin Global Communications Securities Fund--Class 2
The Fund's investment goals are capital appreciation and current income.
Under normal market conditions, the Fund invests at least 80% of its net assets
in investments of communications companies. Shareholders will be given at least
60 days' advance notice of any change to this 80% policy. Under normal market
conditions, the Fund invests predominantly in equity securities.
Franklin High Income Securities Fund--Class 2
The Fund's principal investment goal is to earn a high level of current
income. Its secondary goal is capital appreciation. Under normal market
conditions, the Fund invests primarily to predominantly in debt securities
offering high yield and expected total return. The Fund may invest in senior
and subordinated debt securities.
Franklin Income Securities Fund--Class 2
The Fund's investment goal is to maximize income while maintaining prospects
for capital appreciation. Under normal market conditions, the Fund invests in
debt and equity securities. The Fund seeks income by investing in corporate,
foreign and U.S. Treasury bonds, as well as stocks with dividend yields the
manager believes are attractive. The Fund seeks growth opportunities by
investing in common stocks of companies from a variety of sectors that may
include utilities, healthcare, financials, oil and gas. The Fund may also
invest a portion of its assets in convertible securities, including enhanced
convertible securities and synthetic convertible securities.
Franklin Mutual Discovery Securities Fund--Class 2
The Fund's investment goal is capital appreciation. Under normal market
conditions, the Fund invests primarily in equity securities (including
securities convertible into, or that the manager expects to be exchanged for,
common or preferred stock) of U.S. and foreign companies that the manager
believes are available at market prices less than their value based on certain
recognized or objective criteria (intrinsic value).
Franklin Small Cap Value Securities Fund--Class 2
The Fund's investment goal is long-term total return. Under normal market
conditions, the Fund invests at least 80% of its net assets in investments of
small capitalization (small-cap) companies. Shareholders will be given at least
60 days' advance notice of any change to this 80% policy. For this Fund,
small-cap companies are those companies with market capitalization values
(share price multiplied by the number of common stock shares outstanding) not
exceeding $3.5 billion at the time of purchase. Under normal market conditions,
the Fund invests predominantly in equity securities.
Franklin Small-Mid Cap Growth Securities Fund--Class 2
The Fund's investment goal is long-term capital growth. Under normal market
conditions, the Fund invests at least 80% of its net assets in investments of
small capitalization (small-cap) companies and mid capitalization (mid-cap)
companies. Shareholders will be given at least 60 days' advance notice of any
change to this 80% policy. Under normal market conditions, the Fund invests
predominantly in equity securities.
Franklin Strategic Income Securities Fund--Class 2
The Fund's principal investment goal is to earn a high level of current
income. Its secondary goal is long-term capital
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appreciation. Under normal market conditions, the Fund invests primarily to
predominantly in U.S. and foreign debt securities, including those in emerging
markets. Debt securities include all varieties of fixed and floating rate
income securities, including bonds, mortgage securities and other asset-backed
securities, and convertible securities
Franklin U.S. Government Fund--Class 2
The Fund's investment goal is income. Under normal market conditions, the
Fund invests at least 80% of its net assets in U.S. government securities.
Shareholders will be given at least 60 days' advance notice of any change to
this 80% policy. The Fund invests primarily in fixed and variable rate
mortgage-backed securities, a substantial amount of which is in securities
issued by the Government National Mortgage Association (Ginnie Mae).
Templeton Global Income Securities Fund--Class 2
The Fund's investment goal is high current income, consistent with
preservation of capital. Capital appreciation is a secondary consideration.
Under normal market conditions, the Fund invests mainly in the debt securities
of governments and their political subdivisions and agencies, supranational
organizations, and companies located anywhere in the world, including emerging
markets. Under normal market conditions the Fund expects to invest at least 40%
of its net assets in foreign securities.
Ibbotson ETF Asset Allocation Series
Ibbotson ETF Asset Allocation Series is a mutual fund with multiple
portfolios. ALPS Advisers, Inc. is the investment adviser and Ibbotson
Associates is the subadvisor to the funds. The following Portfolios are
available under your Contract:
Ibbotson Balanced ETF Asset Allocation Portfolio
The Portfolio seeks to provide investors with capital appreciation and some
current income. The Portfolio invests, under normal circumstances, at least 80%
of its net assets plus the amount of any borrowings for investment purposes, in
securities of exchange-traded funds.
Ibbotson Growth ETF Asset Allocation Portfolio
The Portfolio seeks to provide investors with capital appreciation. The
Portfolio invests, under normal circumstances, at least 80% of its net assets
plus the amount of any borrowings for investment purposes, in securities of
exchange-traded funds.
Ibbotson Conservative ETF Asset Allocation Portfolio
The Portfolio seeks to provide investors with current income and preservation
of capital. The Portfolio invests, under normal circumstances, at least 80% of
its net assets plus the amount of any borrowings for investment purposes, in
securities of exchange-traded.
Ibbotson Income and Growth ETF Asset Allocation Portfolio
The Portfolio seeks to provide investors with current income and capital
appreciation. The Portfolio invests, under normal circumstances, at least 80%
of its net assets plus the amount of any borrowings for investment purposes, in
securities of exchange-traded funds.
Janus Aspen Series (Service Class)
Janus Aspen Series is a mutual fund with multiple portfolios. Janus Capital
Management LLC is the investment adviser to the fund. The following Investment
Portfolios are available under your Contract:
Janus Aspen Balanced Portfolio--Service Class
The Janus Aspen Balanced Portfolio seeks long-term capital growth, consistent
with preservation of capital and balanced by current income. The Portfolio
pursues its investment objective by normally investing 50-60% of its assets in
equity securities selected primarily for their growth potential and 40- 50% of
its assets in securities selected primarily for their income potential. The
Portfolio normally invests at least 25% of its assets in fixed-income senior
securities. The Portfolio will limit its investment in high-yield/high-risk
bonds (also called "junk" bonds) to 35% or less of its net assets.
Janus Aspen Flexible Bond Portfolio--Service Class
Flexible Bond Portfolio is designed for long-term investors who primarily
seek total return. The Portfolio pursues its investment objective by primarily
investing, under normal circumstances, at least 80% of its assets plus the
amount of any borrowings for investment purposes, in bonds. Bonds include, but
are not limited to, government bonds, corporate bonds, convertible bonds,
mortgage-backed securities, and zero-coupon bonds. The Portfolio will invest at
least 65% of its assets in investment grade debt securities and will maintain
an average weighted effective maturity of five to ten years. The Portfolio will
limit its investment in high-yield/high-risk bonds to 35% or less of its net
assets.
Janus Aspen Fundamental Equity Portfolio--Service Class
Fundamental Equity Portfolio is designed for long-term investors who
primarily seek growth of capital and who can tolerate the greater risks
associated with common stock investments. The Portfolio pursues its investment
objective by investing, under normal circumstances, at least 80% of its net
assets plus the amount of any borrowings for investment purposes, in equity
securities selected for their growth potential.
Janus Aspen Global Technology Portfolio--Service Class
Global Technology Portfolio is designed for long-term investors who primarily
seek growth of capital and who can tolerate the greater risks associated with
common stock investments The Portfolio invests, under normal circumstances, at
least 80% of its net assets plus the amount of any borrowings for investment
purposes, in securities of companies that the portfolio managers believe will
benefit significantly from advances or improvements in technology.
Janus Aspen Growth & Income Portfolio--Service Class
The Janus Aspen Series Growth and Income Portfolio seeks long-term capital
growth and current income. It pursues its objective by normally emphasizing
investments in common stocks. It will normally invest up to 75% of its assets
in equity securities selected primarily for their growth potential, and at
least 25% of its assets in securities the portfolio manager believes have
income potential.
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Janus Aspen International Growth Portfolio--Service Class
The Janus Aspen International Growth Portfolio seeks long-term growth of
capital. It invests, under normal circumstances, at least 80% of its net assets
plus the amount of any borrowings for investment purposes in securities of
issuers from several different countries, excluding the United States. Although
the Portfolio intends to invest substantially all of its assets in issuers
located outside the United States, it may at times invest in U.S. issuers and,
under unusual circumstances, it may at times invest all of its assets in a
single country. The Portfolio may have significant exposure to emerging markets.
Janus Aspen Mid Cap Growth Portfolio--Service Class
The Janus Aspen Mid Cap Growth Portfolio seeks long-term growth of capital.
It pursues its objective by investing, under normal circumstances, at least 80%
of its net assets plus the amount of any borrowings for investment purposes in
equity securities of mid-sized companies whose market capitalization falls, at
the time of initial purchase, in the 12-month average of the capitalization
range of the Russell Midcap Growth Index. Within the parameters of its specific
investments policies, the Portfolio may invest without limitation in foreign
equity and debt.
Lazard Retirement Series, Inc.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Management LLC serves as the investment manager of the portfolios.
Lazard Asset Management LLC ("Lazard" or "LAM") is a Delaware limited liability
company. It is a subsidiary of Lazard Freres & Co. LLC, (LF&Co), a New York
limited liability company with one member, Lazard Group LLC, a Delaware limited
liability company. The following Investment Portfolios are available under the
Contract:
Lazard Retirement Emerging Markets Portfolio--Service Shares
The Portfolio seeks long-term capital appreciation. The Portfolio invests
primarily in equity securities, principally common stocks, of non-U.S.
companies whose principal activities are located in emerging market countries
and that the Investment Manager believes are undervalued based on their
earnings, cash flow or asset values. Under normal circumstances, the Portfolio
invests at least 80% of its assets in equity securities of companies whose
principal business activities are located in emerging market countries.
Northern Lights Variable Insurance Trust
The Northern Lights Variable Insurance Trust is managed by JNF Advisors, Inc.
JNF Advisors, Inc. is a mutual fund with multiple portfolios. The following
Investment Portfolios are available under the Contract:
JNF Balanced Portfolio
The JNF Balanced Portfolio seeks to provide long-term growth of capital and
income consistent with preservation of capital and a prudent level of risk.
Normally the portfolio invests approximately 65-70% of its assets in mid to
large cap equity securities, and the remainder in a combination of fixed-
income securities, or cash equivalents. The equity investment strategy is
designed to deliver a consistent exposure to the domestic equity market and
utilizes a proprietary multi-factor model to identify securities with positive
exposure to specific growth, value, quality and momentum factors. The goal of
the process is to outperform the benchmark through specific security selection
while reducing portfolio risks that lead to volatility and are not consistently
rewarded. The fixed income strategy is designed to generate excess return
through sector allocation, security selection and maturity distribution. The
asset allocation strategy focuses on shifting the allocation to provide
additional excess return over the benchmark at a prudent risk level.
JNF Equity Portfolio
The JNF Equity Portfolio seeks to provide a high total return consistent with
preservation of capital and a prudent level of risk. The investment strategy is
designed to deliver a consistent exposure to the domestic mid capitalization
equity market and utilizes a proprietary multifactor model to identify
securities with positive exposure to specific growth, value, quality and
momentum factors. The goal of the process is to outperform the benchmark
through specific stock selection while reducing portfolio risks that lead to
volatility and are not consistently rewarded.
JNF Loomis Sayles Bond Portfolio
The JNF Loomis Sayles Bond Portfolio seeks high total investment return
through a combination of current income and capital appreciation. The
Portfolio's investment objective may be changed without shareholder approval.
The Portfolio normally will invest at least 80% of its net assets (plus any
borrowings made for investment purposes) in fixed-income securities. In
accordance with applicable Securities and Exchange Commission ("SEC")
requirements, the Portfolio will notify shareholders prior to any change to
such policy taking effect. The Portfolio invests primarily in investment-grade
fixed-income securities, although it may invest up to 35% of its assets in
lower-quality fixed-income securities (commonly known as "junk bonds") and up
to 20% of its assets in preferred stocks. The Portfolio may invest in
fixed-income securities of any maturity.
This fund will be available starting May 1, 2008.
JNF Money Market Portfolio
The Money Market Portfolio seeks to provide as high a level of current income
as is consistent with preservation of capital and daily liquidity. The
Portfolio seeks to achieve its investment objective by investing at least 95%
of its total assets in a diversified portfolio of money market securities that
are in the highest rating category for short-term obligations. The Portfolio
also may invest up to 5% of its total assets in money market securities that
are in the second-highest rating category for short-term obligations. The
Portfolio attempts to maintain a stable net asset value of $1.00 per share,
although there is no assurance that it will be successful in doing so.
Oppenheimer Variable Account Funds
The Oppenheimer Variable Account Funds a mutual fund with multiple
portfolios. OppenheimerFunds, Inc. serves as
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investment adviser for the funds. The following funds are available under the
Contract:
Oppenheimer Balanced Fund/VA--Service Shares
The Fund seeks a high total investment return, which includes current income
and capital appreciation in the value of its shares. The Fund's investment
manager, OppenheimerFunds, Inc. uses a variety of different types of securities
and investment strategies to seek the Fund's objective: equity securities, such
as common stocks, preferred stocks and securities convertible into common
stock, of issuers in the U.S. and foreign countries, debt securities, such as
bonds and notes issued by domestic and foreign companies (which can include
lower-grade, high-yield securities), securities issued or guaranteed by the
U.S. government and its agencies and instrumentalities including
mortgage-related securities (these are referred to as "U.S. government
securities"), and debt obligations of foreign governments, and money market
instruments, which are debt obligations that have a maturity of 13 months or
less, including short-term U.S. government securities, corporate and bank debt
obligations and commercial paper.
Oppenheimer Core Bond Fund/VA--Service Shares
The Fund's main objective is to seek a high level of current income. As a
secondary objective, the Fund seeks capital appreciation when consistent with
its primary objective. As a non-fundamental policy (which will not be changed
without providing 60 days' notice to Fund shareholders), under normal market
conditions, the Fund invests at least 80% of its net assets (plus borrowings
for investment purposes) in investment grade bonds.
Oppenheimer Global Securities Fund/VA--Service Shares
The Fund seeks long-term capital appreciation by investing a substantial
portion of its assets in securities of foreign issuers, "growth-type"
companies, cyclical industries and special situations that are considered to
have appreciation possibilities. The Fund invests mainly in common stocks of
U.S. and foreign companies. The Fund buys securities of issuers in the U.S. and
foreign countries.
Oppenheimer International Growth Fund/VA--Service Shares
The Fund seeks long-term growth of capital by investing under normal
circumstances, at least 90% of its total assets in equity securities of
companies wherever located, the primary stock market of which is outside the
United States.
Oppenheimer Main Street Fund(R)/VA--Service Shares
The Fund seeks high total return (which includes growth in the value of its
shares as well as current income) from equity and debt securities. The Fund
currently invests mainly in common stocks of U.S. companies of different
capitalization ranges, presently focusing on large-capitalization issuers. It
also can buy debt securities, such as bonds and debentures, but does not
currently emphasize these investments. The Fund currently invests mainly in
common stocks of foreign growth companies listed on foreign stock exchanges.
They can include both smaller, less-well-known companies and larger, more
established companies that the portfolio manager believes have favorable
prospects for capital growth relative to the market.
Oppenheimer Value Fund/VA--Service Shares
The Fund seeks long-term growth of capital by investing primarily in common
stocks with low price-earnings ratios and better-than anticipated earnings.
Realization of current income is a secondary consideration. The Fund invests
mainly in common stocks of different capitalization ranges. The Fund also can
buy other investments, including: Preferred stocks, rights and warrants and
convertible securities, and Securities of U.S. and foreign companies, although
there are limits on the Fund's investments in foreign securities.
The Phoenix Edge Series Fund
The Phoenix Edge Series Fund is a mutual fund with multiple portfolios.
Phoenix Variable Advisors, Inc. serves as the Advisor for the Series. The
following Series are available under the Contract:
Phoenix Capital Growth Series
Intermediate and long-term capital appreciation, with income as a secondary
consideration. The series normally invests at least 80% of its assets in common
stocks. These stocks are generally of companies with market capitalization in
excess of $1 billion at time of purchase which invest their profits into the
companies for growth rather than pay dividends to shareholders.
Phoenix Growth and Income Series
Dividend growth, current income and capital appreciation. The series will
invest in equity securities, primarily common stocks. Under normal
circumstances, the series will invest at least 65% of its assets in equity
securities. The series invests in a diversified portfolio of securities of
primarily U.S. companies. The series is designed to invest in equity securities.
Phoenix Mid-Cap Growth Series
Capital appreciation. The series will invest in equity securities, primarily
common stocks of growth companies. Under normal circumstances the series will
invest at least 80% of its assets in equity securities of companies with market
capitalizations between $500 million and $10 billion. The series may at times
have investments in companies with higher or lower market capitalizations.
Phoenix-Aberdeen International Series
High total return consistent with reasonable risk. The series invests in a
diversified portfolio of securities of non-U.S. issuers, including companies,
governments, governmental agencies and international organizations, which may
be denominated in foreign currencies. The series may invest in any region of
the world. The series will invest primarily in common stocks of established
non-U.S. companies believed to have potential for capital growth, income or
both.
Phoenix-Alger Small-Cap Growth Series
Llong-term capital growth. The series will invest primarily in common stocks
of growth companies with favorable prospects for capital growth. Under normal
market
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conditions, the series will invest at least 80% of its assets in companies
that, at the time of initial purchase by the series, have market
capitalizations within the range of companies included in the Russell 2000(R)
Growth Index or the S&P SmallCap 600 Index.
Phoenix-Duff & Phelps Real Estate Securities Series
Capital appreciation and income with approximately equal emphasis. Under
normal circumstances, the series invests at least 80% of its assets in publicly
traded real estate investment trusts (REITs) and companies that are principally
engaged in the real estate industry The series' policy of investing 80% of its
assets in REITs and other real estate related securities is not fundamental and
therefore, may be changed without shareholder approval, but upon 60 days'
written notice to shareholders.
PIMCO Variable Insurance Trust
The PIMCO Variable Insurance Trust is a mutual fund with multiple portfolios.
Pacific Investment Management Company LLC ("PIMCO") serves as investment
adviser and the administrator for the Portfolios. The following Investment
Portfolios are available under the Contract:
PIMCO VIT All Asset Portfolio--Administrative Class
Seeks maximum real return consistent with preservation of real capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances substantially all of its
assets in Institutional Class shares of the PIMCO Funds, an affiliated open-end
investment company, except the All Asset and All Asset All Authority Funds.
PIMCO VIT CommodityRealReturn(TM) Strategy Portfolio--Advisor Class
Seeks maximum real return consistent with prudent investment management. The
Portfolio seeks to achieve its investment objective by investing under normal
circumstances in commodity-linked derivative instruments backed by a portfolio
of inflation-indexed securities and other Fixed Income Instruments.
PIMCO VIT Emerging Markets Bond Portfolio--Advisor Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 80% of its assets in
Fixed Income Instruments of issuers that economically are tied to countries
with emerging securities markets.
PIMCO VIT Foreign Bond Portfolio (U.S. Dollar-Hedged)--Administrative Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 80% of its assets in
Fixed Income Instruments of issuers located outside the United States,
representing at least three foreign countries, which may be represented by
future contracts (including related options) with respect to such securities,
and options on such securities.
PIMCO VIT Global Bond Portfolio (Unhedged)--Advisor Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 80% of its assets in
Fixed Income Instruments of issuers located in at least three countries (one of
which may be the United States), which my be represented by futures contracts
(including related options) with respect to such securities, and options on
such securities.
PIMCO VIT High Yield Portfolio--Advisor Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 80% of its assets in
a diversified portfolio of high yield securities ("junk bonds") rated below
investment grade but rated at least Caa by Moody's or CCC by S&P, or , if
unrated, determined by PIMCO to be of comparable quality, subject to a maximum
of 5% of its total assets in securities rated Caa by Moody's or CCC by S&P, or,
if unrated, determined by PIMCO to be of comparable quality.
PIMCO VIT Long-Term U.S. Government Portfolio--Administrative Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 80% of its assets in
a diversified portfolio of fixed income securities that are issued or
guaranteed by the U.S. Government, its agencies or government-sponsored
enterprises ("U.S. Government Securities").
PIMCO VIT Low Duration Portfolio--Advisor Class
Seeks maximum total return, consistent with preservation of capital and
prudent investment management. The Portfolio seeks to achieve its investment
objective by investing under normal circumstances at least 65% of its total
assets in a diversified portfolio of Fixed Income Instruments of varying
maturities.
PIMCO VIT Real Return Portfolio--Advisor Class
The Portfolio seeks maximum real return, consistent with preservation of real
capital and prudent investment management. The Portfolio seeks its investment
objective by investing under normal circumstances at least 80% of its net
assets in inflation-indexed bonds of varying maturities issued by the U.S. and
non-U.S. governments, their agencies or government-sponsored enterprises and
corporations.
PIMCO VIT RealEstateRealReturn Strategy Portfolio--Administrative Class
Seeks maximum real return consistent with prudent investment management. The
Portfolio seeks to achieve investment objective by investing under normal
circumstances in real estate-linked derivative instruments backed by portfolio
of inflation-indexed securities and other Fixed Income Instruments. The
Portfolio may invest in real
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estate-linked derivative instruments, including swap agreements, options,
futures, options on futures and structured notes.
PIMCO VIT Short Term Portfolio--Administrative Class
Seeks maximum current income, consistent with preservation of capital and
daily liquidity. Invests in money market instruments and short maturity fixed
income securities. The average portfolio duration will normally not exceed one
year, but will vary based on PIMCO'S forecast for interest rates.
PIMCO VIT Total Return Portfolio--Advisor Class
The Portfolio seeks maximum total return, consistent with preservation of
capital and prudent investment management. The Portfolio seeks to achieve its
investment objective by investing under normal circumstances at least 65% of
its total assets in a diversified portfolio of Fixed Income Instruments of
varying maturities.
Pioneer Variable Contracts Trust
Pioneer Variable Contracts Trust is an open-ended management investment
company consisting of distinct investment portfolios. Pioneer Investment
Management, Inc. (Pioneer) is the investment adviser to each portfolio.
Pioneer Cullen Value VCT--Class II Shares
The Pioneer Cullen Value VCT Portfolio seeks capital appreciation by
investing primarily in equity securities of medium- and large capitalization
companies. The portfolio invests primarily in equity securities. The portfolio
may invest a significant portion of its assets in equity securities of medium-
and large-capitalization companies. Consequently, the portfolio will be subject
to the risks of investing in companies with market capitalizations of $1.5
billion or more. Secondarily, the portfolio may seek income.
Pioneer Emerging Markets VCT Portfolio--Class II Shares
The Pioneer Emerging Markets VCT Portfolio seeks long-term growth of capital.
The portfolio invests primarily in securities of emerging market issuers.
Pioneer Equity Income VCT Portfolio--Class II Shares
The Pioneer Equity Income VCT Portfolio seeks current income and long-term
growth of capital from a portfolio consisting primarily of income producing
equity securities of U.S. corporations.
Pioneer Fund VCT Portfolio--Class II Shares
The Pioneer Fund VCT Portfolio seeks reasonable income and capital growth.
The portfolio invests in a broad list of carefully selected, reasonably priced
securities rather than in securities whose prices reflect a premium resulting
from their current market popularity. The portfolio invests the major portion
of its assets in equity securities, primarily of U.S. issuers.
Pioneer Global High Yield VCT Portfolio--Class II Shares
The Pioneer Global High Yield VCT Portfolio seeks to maximize total return
through a combination of income and capital appreciation. Normally, the
portfolio invests at least 80% of its total assets in below investment grade
(high yield) debt securities and preferred stocks of U.S. and non-U.S. issuers,
including governmental and corporate issuers in emerging markets.
Pioneer Growth Opportunities VCT Portfolio--Class I Shares
The portfolio seeks growth of capital. The portfolio invests primarily in
equity securities of companies that the portfolio's investment adviser
considers to be reasonably priced or undervalued, with above average growth
potential.
Pioneer High Yield VCT Portfolio--Class II Shares
The Pioneer High Yield VCT Portfolio seeks to maximize total return through a
combination of income and capital appreciation. Normally, the portfolio invests
at least 80% of its total assets in below investment grade (high yield) debt
securities and preferred stocks.
Pioneer International Value VCT Portfolio--Class II Shares
The Pioneer International Value VCT Portfolio seeks long-term growth of
capital. Normally, the portfolio invests at least 80% of its total assets in
equity securities of non-U.S. issuers.
Pioneer Mid Cap Value VCT Portfolio--Class II Shares
The Pioneer Mid Cap Value VCT Portfolio seeks capital appreciation by
investing in a diversified portfolio of securities consisting primarily of
common stocks. Normally, the portfolio invests at least 80% of its total assets
in equity securities of mid-size companies. Mid-size companies are those with
market values, at the time of investment, that do not exceed the greater of the
market capitalization of the largest company within the Russell Midcap Value
Index or the 3-year rolling average of the market capitalization of the largest
company within the Russell Midcap Value Index as measured at the end of the
preceding month, and are not less than the smallest company within the index.
Pioneer Strategic Income VCT Portfolio--Class II Shares
The Pioneer Strategic Income VCT Portfolio seeks a high level of current
income. Normally, the portfolio invests at least 80% of its net assets (plus
the amount of borrowings, if any, for investment purposes) in debt securities.
Royce Capital Fund
Royce Capital Fund is a registered management investment company with
multiple Portfolios. Royce & Associates, LLC ("Royce") is the investment
adviser and is responsible for the management of the Portfolios' assets. The
following Investment Portfolios are available under the Contract:
Royce Micro-Cap Portfolio--Investment Class
This Portfolio's primary investment goal is long-term growth of capital.
Royce invests the Portfolio's assets primarily in a broadly diversified
portfolio of securities issued by micro-cap companies. Royce selects these
securities from a universe of more than 5,500 micro-cap companies, generally
focusing on factors such as balance sheet quality and cash flow levels. The
Portfolio normally invests at least 80% of its net assets in the equity
securities of micro-cap companies, defined by Royce as companies with stock
market capitalizations less than $500 million. Although the Portfolio normally
focuses on the securities of U.S. companies, it may
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invest up to 10% of its assets in the securities of foreign issuers.
Royce Small-Cap Portfolio--Investment Class
This Portfolio's primary investment goal is long-term growth of capital.
Royce generally looks for companies that have excellent business strengths
and/or prospects for growth, high internal rates of return, and low leverage,
and that are trading significantly below its estimate of their current worth.
Any production of income is incidental to the Fund's investment goal. The
Portfolio normally invests at least 80% of its assets in the equity securities
of small-cap companies, defined as companies with stock market capitalizations
of less than $2.5 billion at the time of investment. Although the Portfolio
normally focuses on the securities of U.S. companies, it may invest up to 10%
of its assets in the securities of foreign issuers.
Rydex Variable Trust
Rydex Variable Trust is a mutual fund with multiple portfolios which are
managed by Rydex Investments. The following Investment Portfolios are available
under the Contract:
Rydex VT Absolute Return Strategies Fund
The Absolute Return Strategies Fund The Fund pursues multiple investment
styles or mandates that correspond to investment strategies widely employed by
hedge funds, including strategies sometimes referred to as absolute return
strategies. In particular, the Fund will pursue those investment strategies
that may be replicated through proprietary quantitative style analysis.
Rydex VT Amerigo Fund
The Fund seeks long-term growth of capital without regard to current income.
The Fund invests in Underlying Funds that seek capital growth or appreciation
by investing in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants), including the stock of foreign issuers, or in individual securities
that may provide capital growth or appreciation.
Rydex VT Banking Fund
The Banking Fund seeks to provide capital appreciation by investing in
companies that are involved in the banking sector, including commercial banks
(and their holding companies) and savings and loan institutions ("Banking
Companies").
Rydex VT Basic Materials Fund
The Basic Materials Fund seeks capital appreciation by investing in companies
engaged in the mining, manufacture, or sale of basic materials, such as lumber,
steel, iron, aluminum, concrete, chemicals and other basic building and
manufacturing materials.
Rydex VT Berolina Fund
The Berolina Fund seeks to provide growth of capital and total return. The
Berolina Fund is a "fund of funds" and pursues its investment objective by
investing primarily in exchange-traded funds, mutual funds and closed-end funds
that are not affiliated with the Trust. In addition to these underlying funds,
the Fund may invest directly in individual securities or derivatives. Under
normal market conditions, the Fund will invest primarily in underlying funds
that seek capital growth or appreciation by investing in common stock or
securities convertible into or exchangeable for common stock (such as
convertible preferred stock, convertible debentures or warrants), including the
stock of foreign issuers, or in individual securities that may provide capital
growth or appreciation. While pursuing its investment objective, the Fund will
not invest less than 35% of its total assets in underlying funds that seek
capital appreciation or growth. The Fund may invest up to 65% of its total
assets in underlying funds that invest in long, medium, or short-term bonds and
other fixed income securities of varying credit quality if the Sub-Advisor
believes that these underlying funds offer a potential for capital
appreciation, or in individual securities that provide current income.
Rydex VT Biotechnology Fund
The Biotechnology Fund seeks capital appreciation by investing in companies
that are involved in the biotechnology industry, including companies involved
in research and development, genetic or other biological engineering, and in
the design, manufacture, or sale of related biotechnology products or services.
Rydex VT Clermont Fund
The objective of the Clermont Fund is a combination of current income and
growth of capital. The Fund's principal investment strategies include:
Investing in Underlying Funds that seek capital growth or appreciation by
investing in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants), including the stock of foreign issuers, or in individual securities
that may provide capital growth or appreciation. Investing at least 20% of its
total assets in Underlying Funds that invest in long, medium, or short-term
bonds and other fixed income securities of varying qualities in order to
maximize the Fund's total return, or in individual securities that may provide
current income. Some of the Underlying Funds in which the Fund invests may
invest part or all of their assets in securities of foreign issuers or engage
in foreign currency transactions with respect to these investments. The Fund
may also invest in individual securities of foreign issuers and engage in
foreign currency transactions. The Fund may invest up to 80% of its total
assets in Underlying Funds that invest in futures contracts and options on
futures contracts, or invest directly in futures contracts and options on
futures contracts.
Rydex VT Commodities Strategy Fund
The Commodities Strategy Fund seeks to provide investment results that
correlate to the performance of a benchmark for commodities. The Fund's current
benchmark is the GSCI(R) Total Return Index. It is anticipated that the Fund's
investment exposure will tend to be heavily weighted toward oil and other
energy-related commodities.
Rydex VT Consumer Products Fund
The Consumer Products Fund seeks capital appreciation by investing in
companies engaged in manufacturing finished goods and services both
domestically and internationally.
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Rydex VT Dow 2x Strategy Fund (f.k.a. Rydex Dynamic Dow)
The Dow 2X Strategy Fund seeks to provide investment results that will match
the performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the Dow Jones Industrial Average.
Rydex VT Electronics Fund
The Electronics Fund seeks capital appreciation by investing in companies
that are involved in the electronics sector, including semiconductor
manufacturers and distributors, and makers and vendors of other electronic
components and devices.
Rydex VT Energy Fund
The Energy Fund seeks capital appreciation by investing in companies involved
in the energy field, including the exploration, production, and development of
oil, gas, coal and alternative sources of energy.
Rydex VT Energy Services Fund
The Energy Services Fund seeks capital appreciation by investing in companies
that are involved in the energy services field, including those that provide
services and equipment in the areas of oil, coal, and gas exploration and
production.
Rydex VT Europe 1.25x Strategy Fund (f.k.a Rydex Europe Advantage)
The Europe 1.25x Strategy Fund seeks to provide investment results that
correlate to a daily price movement of a specific benchmark. The Fund's current
benchmark is the Dow Jones Stoxx 50 Index/SM/. The Fund's investment advisor
will attempt to consistently apply leverage to increase the Fund's exposure to
125% of its benchmark.
Rydex VT Financial Services Fund
The Financial Services Fund seeks capital appreciation by investing in
companies that are involved in the financial services sector.
Rydex VT Government Long Bond 1.2x Strategy Fund (f.k.a. Rydex Government Long
Bond Advantage)
The Government Long Bond 1.2 x Strategy Fund seeks to provide investment
results that correspond to a benchmark for U.S. Government securities. The
Fund's current benchmark is 120% of the price movement of the Long Treasury
Bond.
Rydex VT Health Care Fund
The Health Care Fund seeks capital appreciation by investing in companies
that are involved in the health care industry.
Rydex VT Hedged Equity Fund
The Hedged Equity Fund seeks to provide capital appreciation consistent with
the return and risk characteristics of the long/short hedge fund universe. The
secondary objective is to achieve these returns with low correlation to and
less volatility than equity indices. The Fund pursues a long/short investment
strategy by employing multiple investment styles widely used by hedge funds. In
particular, the Fund will pursue those long/short investment styles that may be
replicated through proprietary quantitative style analysis.
Rydex VT Internet Fund
The Internet Fund seeks capital appreciation by investing in companies that
provide products or services designed for or related to the Internet.
Rydex VT Inverse Dow 2x Strategy Fund (f.k.a. Rydex Inverse Dynamic Dow)
The Inverse Dow 2x Strategy Fund seeks to provide investment results that
will match the performance of a specific benchmark on a daily basis. The Fund's
current benchmark is 200% of the inverse (opposite) performance of the Dow
Jones Industrial Average.
Rydex VT Inverse Government Long Bond Fund (f.k.a Rydex Inverse Government Long
Bond)
The Inverse Government Long Bond Fund seeks to provide total returns that
will inversely correlate to the price movements of a benchmark for U.S.
Treasury debt instruments or futures contract on a specified debt instrument.
The Fund's current benchmark is the inverse of the daily price movement of the
Long Treasury Bond.
Rydex VT Inverse Mid-Cap Strategy (f.k.a. Rydex Inverse Mid-Cap)
The Inverse Mid-Cap Fund seeks to provide investment results that will match
the performance of a specific benchmark. The Fund's current benchmark is the
inverse of the performance of the S&P MidCap 400 Index. Unlike a traditional
index fund, the Fund's objective is to perform exactly the opposite of the
underlying index.
Rydex VT Inverse OTC Strategy Fund (f.k.a. Rydex Inverse OTC)
The Inverse OTC Strategy Fund seeks to provide investment results that will
match the performance of a specific benchmark. The Fund's current benchmark is
the inverse of the performance of the Nasdaq 100 Index(R)( (the "underlying
index"). Unlike a traditional index fund, the Inverse OTC Fund's benchmark is
to perform exactly opposite the underlying index.
Rydex VT Inverse Russell 2000 Strategy Fund (f.k.a. Rydex Inverse Russell 2000)
The Inverse Russell 2000 Strategy Fund seeks to provide investment results
that will match the performance of a specific benchmark. The Fund's current
benchmark is inverse of the performance of the Russell 2000 Index(R) (the
"underlying index"). Unlike a traditional index fund, the Fund's objective is
to perform exactly the opposite of the underlying index.
Rydex VT Inverse S&P 500 Strategy Fund (f.k.a. Rydex Inverse S&P 500)
The Inverse S&P 500 Strategy Fund seeks to provide investment results that
will inversely correlate to the performance of the S&P 500(R) Index. Unlike a
traditional index fund, the Inverse S&P 500 Fund's benchmark is to perform
exactly opposite the underlying index.
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Rydex VT Japan 1.25x Strategy Fund (f.k.a. Rydex Japan Advantage)
The Japan 1.25x Strategy Fund seeks to provide investment results that
correlate to a daily price movement of a specific benchmark. The Fund's current
benchmark is the Topix 100 Index. The Fund's investment advisor will attempt to
consistently apply leverage to increase the Fund's exposure to 125% of its
benchmark.
Rydex VT Large Cap Growth Fund
The Large-Cap Growth Fund seeks to provide investment results that match the
performance of a benchmark for large cap growth securities. The Fund's current
benchmark is the S&P 500/Citigroup Pure Growth Index.
Rydex VT Large Cap Value Fund
The Large-Cap Value Fund seeks to provide investment results that match the
performance of a benchmark for large cap value securities. The Fund's current
benchmark is the S&P 500/Citigroup Pure Value Index.
Rydex VT Leisure Fund
The Leisure Fund seeks capital appreciation by investing in companies engaged
in leisure and entertainment businesses.
Rydex VT Mid Cap 1.5x Strategy Fund (f.k.a. Rydex Mid Cap Advantage)
The Mid Cap 1.5x Strategy Fund seeks to provide investment results that
correlate to the performance of a specific benchmark for mid-cap securities.
The Fund's current benchmark is the S&P MidCap 400(R) Index. The Fund's
investment advisor will attempt to consistently apply leverage to increase the
Fund's exposure to 150% of its benchmark.
Rydex VT Mid-Cap Growth Fund
The Mid-Cap Growth Fund seeks to provide investment results that match the
performance of a benchmark for mid cap growth securities. The Fund's current
benchmark is the S&P MidCap 400/Citigroup Pure Growth Index.
Rydex VT Mid-Cap Value Fund
The Mid-Cap Value Fund seeks to provide investment results that match the
performance of a benchmark for mid cap value securities. The Fund's current
benchmark is the S&P MidCap 400/Citigroup Pure Value Index (the "underlying
index").
Rydex VT Multi-Cap Core Equity Fund
The Multi-Cap Core Equity Fund seeks long-term capital appreciation. It
invests in a broad mix of equity securities of companies representative of the
total US stock market as measured by the Russell 3000(R) Index. The Fund
pursues its investment objective by investing in securities with the small,
medium, and large market capitalization segments that demonstrate value and
potential for growth.
Rydex VT Nova Fund
The Nova Fund seeks to provide investment results that match the performance
of a specific benchmark on a daily basis. The Fund's current benchmark is 150%
of the performance of the S&P 500(R) Index (the "underlying index").
Rydex VT OTC 2x Strategy Fund (f.k.a. Rydex Dynamic OTC)
seeks to provide investment results that will match the performance of
specific benchmark on a daily basis. The Fund's current benchmark is 200% of
the performance of the Nasdaq 100 Index(R).
Rydex VT OTC Fund
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
Nasdaq 100 Index(R) (the "underlying index").
Rydex VT Precious Metals Fund
The Precious Metals Fund seeks to provide capital appreciation by investing
in U.S. and foreign companies that are involved in the precious metals sector,
including exploration, mining, production and development, and other precious
metals-related services.
Rydex VT Real Estate Fund
The Real Estate Fund seeks to provide capital appreciation by investing in
companies that are involved in the real estate industry including real estate
investment trusts.
Rydex VT Retailing Fund
The Retailing Fund seeks capital appreciation by investing in companies
engaged in merchandising finished goods and services, including department
stores, restaurant franchises, mail order operations and other companies
involved in selling products to consumers.
Rydex VT Russell 2000(R) 1.5x Strategy Fund (f.k.a. Russell 2000 Advantage Fund)
The Russell 2000 1.5 Strategy Fund seeks to provide investment results that
correlate to the performance of a specific benchmark for small-cap securities.
The Fund's current benchmark is the Russell 2000 Index(R). The Fund's
investment advisor will attempt to consistently apply leverage to increase the
Fund's exposure to 150% of its benchmark.
Rydex VT Russell 2000(R) 2x Strategy Fund (f.k.a. Rydex Dynamic Russell 2000)
The Russell 2000(R) 2x Strategy Fund seeks to provide investment results that
match the performance of a specific benchmark on a daily basis. The Fund's
current benchmark is 200% of the Russell 2000(R) Index (the "underlying
index"). If the Fund meets its objective, the value of the Fund's shares will
tend to increase on a daily basis by 200% of any increase in value of the
underlying index. When the value of the underlying index declines, the value of
the Fund's shares should also decrease on a daily basis 200% of the decrease in
the value of the underlying index.
Rydex VT S&P 500 2x Strategy Fund (f.k.a. Rydex Dynamic S&P 500)
The Dynamic S&P 500 Fund seeks to provide investment results that will match
the performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the S&P 500(R) Index.
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Rydex VT Sector Rotation Fund
The Sector Rotation Fund seeks long term capital appreciation. The Fund seeks
to respond to the dynamically changing economy by moving its investments among
different sectors or industries.
Rydex VT Small-Cap Growth Fund
The Small-Cap Growth Fund seeks to provide investment results that match the
performance of a benchmark for small cap growth securities. The Fund's current
benchmark is the S&P SmallCap 600/Citigroup Pure Growth Index.
Rydex VT Small-Cap Value Fund
The Small-Cap Value Fund seeks to provide investment results that match the
performance of a benchmark for small cap value securities. The Fund's current
benchmark is the S&P SmallCap 600/Citigroup Pure Value Index.
Rydex VT Strengthening Dollar 2x Strategy Fund (f.k.a. Rydex Dynamic
Strengthening Dollar)
The Strengthening Dollar 2x Strategy Fund seeks to provide investment results
that will match the performance of a specific benchmark on a daily basis. The
Fund's current benchmark is 200% of the performance of the US Dollar Index(R).
The US Dollar Index(R) (USDX) is a broad based, diversified index representing
an investment in the U.S. Dollar (USD). The New York Board of Trade determines
the value of the US Dollar Index(R) by averaging the exchange rates between the
USD and the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona,
and Swiss Franc.
Rydex VT Technology Fund
The Technology Fund seeks capital appreciation by investing in companies that
are involved in the technology sector, including computer software and service
companies, semiconductor manufacturers, networking and telecommunications
equipment manufacturers, PC hardware and peripherals companies.
Rydex VT Telecommunications Fund
The Telecommunications Fund seeks capital appreciation by investing in
companies engaged in the development, manufacture, or sale of communications
services or communications equipment.
Rydex VT Transportation Fund
The Transportation Fund seeks capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the
design, manufacture, distribution, or sale of transportation equipment.
Rydex VT Utilities Fund
The Utilities Fund seeks capital appreciation by investing in companies that
operate public utilities.
Rydex VT Weakening Dollar 2x Strategy Fund (f.k.a. Rydex Dynamic Weakening
Dollar)
The Weakening Dollar 2x Strategy Fund seeks to provide investment results
that will match the performance of a specific benchmark on a daily basis. The
Fund's current benchmark is 200% of the inverse (opposite) performance of the
US Dollar Index(R). The US Dollar Index(R) (USDX) is a broad based, diversified
index representing an investment in the U.S. Dollar (USD). The New York Board
of Trade determines the value of the US Dollar Index(R) by averaging the
exchange rates between the USD and the Euro, Japanese Yen, British Pound,
Canadian Dollar, Swedish Krona, and Swiss Franc.
Third Avenue Variable Series Trust
The Third Avenue Variable Series Trust is a mutual fund with one portfolio.
Third Avenue Management LLC is the investment adviser for the Portfolio and is
responsible for the management of the Portfolio's investments. The following
Investment Portfolio is available under the Contract:
Third Avenue Value Portfolio
The Third Avenue Value Portfolio seeks long-term capital appreciation. The
Portfolio seeks to achieve its objective mainly by acquiring common stocks of
well-financed companies (meaning companies without significant liabilities in
comparison to their overall resources) at a discount to what the adviser
believes is their intrinsic value. The Portfolio also seeks to acquire senior
securities, such as preferred stocks and debt instruments (including high yield
securities) that the adviser believes are undervalued.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Series, Inc. (the "corporation") was incorporated in
Maryland in 1994. Currently the corporation consists of seven series, each
representing a separate pool of assets with different investment objectives and
policies. The Portfolios are managed by T. Rowe Price Associates, Inc.
T. Rowe Price Blue Chip Growth Portfolio--II
Seeks long-term growth of capital by investing primarily in common stocks of
well-established large and medium-sized companies with the potential for
above-average earnings increases. Current income is a secondary objective. The
investment is appropriate for investors in the variable annuity who seek
capital appreciation over time and can accept the price volatility inherent in
common stock investing.
T. Rowe Price Equity Income Portfolio--II
Seeks to provide substantial dividend income as well as long-term growth of
capital through investments in the common stocks of established companies. In
selecting such stocks, the fund emphasizes companies that appear to be
temporarily undervalued by various measures, such as price/earnings (P/E)
ratios. The fund is intended for investors who can accept the price volatility
inherent in common stock investing.
T. Rowe Price Health Sciences Portfolio--II
Seeks long-term growth of capital by investing at least 80% of net assets in
common stocks of companies engaged in the research, development, production, or
distribution of products or services related to health care, medicine, and the
life sciences. The fund focuses primarily on U.S. stocks but may also invest up
to 35% of assets in foreign securities. While the fund may purchase
small-company stocks, its primary focus should be large and mid-size companies.
It is intended for long-term investors who can accept the higher risks inherent
in a fund that concentrates on a volatile area of the stock market.
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T. Rowe Price Limited-Term Bond--II
The Limited-Term Bond Portfolio II seeks a high level of income consistent
with moderate fluctuations in principal value. The II class is a share class of
the Limited-Term Bond Portfolio and is not a separate mutual fund. The class
should be used as an investment option for variable annuity and variable life
insurance contracts. Normally, the fund invests at least 80% of its net assets
in bonds and 65% of its total assets in short- and intermediate-term bonds. The
fund's average effective maturity will not exceed five (5) years. The fund is
designed for individuals seeking a higher level of income than money market
funds provide and who are able to accept the risk of modest price declines.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Insurance Trust is a mutual fund with multiple portfolios.
Van Eck Associates Corporation serves as investment adviser to the funds. The
following Investment Portfolios are available under the Contract:
Van Eck Worldwide Absolute Return Fund--Initial Class
The Van Eck Worldwide Absolute Return Fund seeks to achieve consistent
absolute (positive) returns in various market cycles. The Fund's objective is
fundamental and may only be changed with the approval of shareholders.
Van Eck Worldwide Bond Fund--Initial Class
The Van Eck Worldwide Bond Fund seeks high total return--income plus capital
appreciation--by investing globally, primarily in a variety of debt securities.
Van Eck Worldwide Emerging Markets Fund--Initial Class
The Van Eck Worldwide Emerging Markets Fund long-term capital appreciation by
investing primarily securities in emerging markets around the world.
Van Eck Worldwide Hard Assets--Class S
The Van Eck Worldwide Hard Assets Fund seeks long-term capital appreciation
by investing primarily in hard asset securities. Income is a secondary
consideration.
Van Eck Worldwide Real Estate Fund--Initial Class
The Van Eck Worldwide Real Estate Fund seeks maximize return by investing in
equity securities of domestic and foreign companies that own significant real
estate assets or that principally are engaged in the real estate industry.
Vanguard Variable Insurance Fund
Vanguard Variable Insurance Fund is a mutual fund with multiple portfolios.
The Vanguard Group, Inc. LLP provides advisory services for the Equity Index
Portfolio, Short-Term Investment-Grade Portfolio, Total Bond Market Index
Portfolio and Total Stock Market Index Portfolio. Wellington Management
Company, LLP provides advisory services for the Balanced Portfolio. Barrow,
Hanley, Mewhinney & Strauss, Inc. provides advisory services for the
Diversified Value Portfolio. PRIMECAP Management Company provides advisory
services for the Capital Growth Portfolio. Granahan Investment Management, Inc.
and Grantham, Mayo, Van Otterloo & Co. LLC provide advisory services for the
Small Company Growth Portfolio. Schroder Investment Management North America
Inc. and Baillie Gifford Overseas Ltd. provide advisory services for
the--International Portfolio. The following Investment Portfolios are available
under the Contract:
* The Vanguard Variable Insurance Funds are available beginning on May 1, 2008
Vanguard Balanced Portfolio
The Balanced Portfolio seeks to provide long-term capital appreciation and
reasonable current income. The Portfolio invests 60% to 70% of its assets in
dividend-paying, and, to a lesser extent, non-dividend-paying common stocks of
established, medium-size and large companies.
Vanguard Capital Growth Portfolio
The Capital Growth Portfolio seeks to provide long-term capital appreciation.
The Portfolio invests in stocks considered to have above-average earnings
growth potential that is not reflected in their current market prices. The
Portfolio consists predominantly of mid- and large-capitalization stocks.
Vanguard Diversified Value Portfolio
The Diversified Value Portfolio seeks to provide long-term capital
appreciation and income. The Portfolio invests mainly in large- and
mid-capitalization companies whose stocks are considered by the advisor to be
undervalued.
Vanguard Equity Index Portfolio
The Equity Index Portfolio seeks to track the performance of a benchmark
index that measures the investment return of large-capitalization stocks. The
Portfolio employs a "passive management"--or indexing--investment approach
designed to track the performance of the Standard & Poor's 500 Index, a widely
recognized benchmark of U.S. stock market performance that is dominated by the
stocks of large U.S. companies.
Vanguard International Portfolio
The International Portfolio seeks to provide long-term capital appreciation.
The Portfolio invests predominantly in the stocks of companies located outside
the United States. In selecting stocks, the Portfolio's advisors evaluate
foreign markets around the world and choose companies with above-average growth
potential.
Vanguard Short-Term Investment-Grade Portfolio
The Short-Term Investment-Grade Portfolio seeks to provide current income
while maintaining limited price volatility. The Portfolio invests in a variety
of high-quality and, to a lesser extent, medium-quality fixed income
securities, at least 80% of which will be short- and intermediate-term
investment-grade securities.
Vanguard Small Company Growth Portfolio
The Small Company Growth Portfolio seeks to provide long-term capital
appreciation. The Portfolio invests at least 80% of its assets primarily in
common stocks of smaller companies.
Vanguard Total Bond Market Index Portfolio
The Total Bond Market Index Portfolio seeks to track the performance of a
broad, market-weighted bond index. The
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Portfolio employs a "passive management"--or indexing--investment approach
designed to track the performance of the Lehman Brothers Aggregate Bond Index.
Vanguard Total Stock Market Index Portfolio
The Total Stock Market Index Portfolio seeks to track the performance of a
benchmark index that measures the investment return of the overall stock
market. The Portfolio employs a "passive management"--or indexing--investment
approach designed to track the performance of the Standard & Poor's (S&P) Total
Market Index by investing all, or substantially all, of its assets in two
Vanguard funds--Vanguard Variable Insurance Fund-Equity Index Portfolio and
Vanguard Extended Market Index Fund. The S&P Total Market Index consists of
substantially all of the U.S. common stocks regularly traded on the New York
and American Stock Exchanges and the Nasdaq over-the-counter market.
Wanger Advisors Trust
Wanger Advisors Trust is a mutual fund with multiple portfolios. The Adviser:
Columbia Wanger Asset Management, L.P. serves as investment adviser to the
funds. The following Investment Portfolios are available under the Contract:
Wanger International Select
Wanger International Select seeks long-term growth of capital. Wanger
International Select invests primarily in the stocks of companies with market
capitalizations of $2 to $25 billion at the time of initial purchase. Although
the Fund primarily invests in small- and medium-sized companies, at times the
Fund may invest in larger-sized companies. The Fund invests in at least three
countries.
Wanger International Small Cap
Wanger International Small Cap seeks long-term growth of capital. Wanger
International Small Cap invests primarily in the stocks of companies based
outside the United States with market capitalizations of less than $5 billion
at the time of initial purchase.
Wanger Select
Wanger Select seeks long-term growth of capital. Wanger Select generally
invests in the stocks of U.S. companies. Wanger Select is a non-diversified
fund that takes advantage of its adviser's research and stock-picking
capabilities to invest in a limited number of companies (between 20-40) with
market capitalizations under $20 billion at the time of initial purchase,
offering the potential to provide above-average growth over time.
Wanger U.S. Smaller Companies
Wanger U.S. Smaller Companies seeks long-term growth of capital. The Fund
invests primarily in the stocks of small- and medium-sized U.S. companies.
Wanger U.S. Smaller Companies generally invests in stocks of companies with
market capitalizations of less than $5 billion at the time of initial purchase.
As long as a stock continues to meet the Fund's other investment criteria, the
Fund may choose to hold the stock even if it grows beyond a capitalization
limit.
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APPENDIX B - Deductions for Taxes - Qualified and Nonqualified Annuity Contracts
- --------------------------------------------------------------------------------
Upon Upon
State Premium Payment Annuitization Nonqualified Qualified
- ----- --------------- ------------- ------------ ---------
California.................... X 2.35% 0.50%
Florida....................... X 1.00 1.00
Maine......................... X 2.00/1/
Nevada........................ X 3.50
South Dakota.................. X 1.25/2/
Texas......................... X 0.04/3/ 0.04
West Virginia................. X 1.00 1.00
Wyoming....................... X 1.00
Commonwealth of Puerto Rico... X 1.00 1.00
NOTE: The above tax deduction rates are as of January 1, 2008. No tax
deductions are made for states not listed above. However, tax statutes
are subject to amendment by legislative act and to judicial and
administrative interpretation, which may affect both the above lists of
states and the applicable tax rates. Consequently, We reserve the right
to deduct tax when necessary to reflect changes in state tax laws or
interpretation.
For a more detailed explanation of the assessment of taxes, see "Expenses
- Premium Taxes."
- -----------------
/1/ Maine changed its tax laws affecting annuities in 2003 retroactive to
January 1, 1999. Under the revised statute, annuity premium payments are
taxed upon premium payment for payments received on or after January 1,
1999.
/2/ South Dakota law exempts premiums received on qualified contracts from
premium tax. Additionally, South Dakota law provides a lower rate of 0.8%
that applies to premium payments received in excess of $500,000 in a single
calendar year.
/3/ Texas charges an insurance department "maintenance fee" of 0.04% on annuity
considerations, but the department allows this to be paid upon
annuitization.
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APPENDIX C - Guaranteed Minimum Withdrawal Benefit Examples
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Example 1: Additional Purchase Payments after the Rider Date
Assume your Contract Value on the Rider Date of March 23, 2008 is $100,000.
The Benefit Base is accordingly set at $100,000. Now assume that you make an
additional Purchase Payment of $15,000 on May 21, 2008. Since this Purchase
Payment was made to the Contract during the Inception Period, the Benefit Base
is increased by the amount of the Purchase Payment. Thus, the Benefit Base is
increased to $115,000.
Now assume that you make another Purchase Payment of $7,000 on October 6,
2008. Since this Purchase Payment was not made during the Inception Period, the
Benefit Base is not affected. Thus, the Benefit Base remains at $115,000.
Example 2: Automatic Step-Up of the Benefit Base
Assume your Contract Value on the Rider Date is $100,000. The Benefit Base is
accordingly set at $100,000. Now assume that on your first Rider Anniversary
your Contract Value is $107,000. Assuming that you have not chosen to suspend
the Automatic Step-Up feature, your Benefit Base will be increased to $107,000.
Assume that on the second Rider Anniversary your Contract Value is $103,000.
Since your Contract Value is less than your Benefit Base, there is no Step-Up
and the Benefit Base remains at $107,000.
Example 3: Withdrawal Prior to Benefit Eligibility Date (Benefit Base Greater
Than Contract Value)
Assume that you make a $25,000 withdrawal on a date prior to your Benefit
Eligibility Date. Also assume that your Contract Value was $125,000 and your
Benefit Base was $150,000 on the date of this withdrawal. Because you made the
withdrawal prior to the Benefit Eligibility Date, your Benefit Base would be
reduced in the same proportion that the withdrawal reduced your Contract Value.
In this case, the reduction in Contract Value was 20% ($25,000 divided by
$125,000), and accordingly, your Benefit Base is reduced by 20% to $120,000
($150,000 x 20% = $30,000 and $150,000 - $30,000 = $120,000).
In this example, the Benefit Base was greater than the Contract Value. This
condition might occur during poor market conditions where the Contract Value
has decreased. In this case, because the Benefit Base was greater than the
Contract Value, the $25,000 withdrawal reduced the Benefit Base by more than
$25,000.
Example 4: Withdrawal Prior to Benefit Eligibility Date (Benefit Base Less Than
Contract Value)
Assume that you make a $25,000 withdrawal on a date prior to your Benefit
Eligibility Date. Also assume that your Contract Value was $125,000 and your
Benefit Base was $100,000 on the date of this withdrawal. Because you made the
withdrawal prior to the Benefit Eligibility Date, your Benefit
Base would be reduced in the same proportion that the withdrawal reduced your
Contract Value. In this case, the reduction in Contract Value was 20% ($25,000
divided by $125,000), and accordingly, your Benefit Base is reduced by 20% to
$80,000 ($100,000 x 20% = $20,000 and $100,000 - $20,000 = $80,000).
In this example, the Benefit Base was less than the Contract Value. This
condition might occur during good market conditions where the Contract Value
has increased. In this case, because the Benefit Base was less than the
Contract Value, the $25,000 withdrawal reduced the Benefit Base by less than
$25,000.
Example 5: Withdrawal of the Total Contract Value Prior to the Benefit
Eligibility Date
Assume your Contract Value is $125,000 on a date prior to the Benefit
Eligibility Date, and you withdrawal the entire Contract Value of $125,000.
Your Contract Value would decrease to $0. Your Benefit Base would be reduced in
the same proportion that the withdrawal reduced your Contract Value (100%).
Therefore, your Benefit Base after the withdrawal would be $0 and your Contract
and rider would terminate.
Example 6: Withdrawals On or After the Benefit Eligibility Date
Assume that your Contract Value is $100,000 on your Benefit Eligibility Date.
Also assume the Benefit Base as of the Benefit Eligibility Date is also
$100,000. The Annual Benefit Amount therefore is $5,000, which is 5% multiplied
by the Benefit Base. Now assume that you take a withdrawal of $5,000 on the
Benefit Eligibility Date. Since your cumulative withdrawals during the Contract
Year have not exceeded the Annual Benefit Amount, the amount withdrawn is not
considered to be an excess withdrawal and there is no adjustment to your
Benefit Base. Your Contract Value will decrease to $95,000 as a result of your
withdrawal, but your Benefit Base will remain at $100,000.
Assume that later that Contract Year, you withdraw an additional $10,000 and
that the Contract Value prior to the withdrawal was $96,000. Your Contract
Value would reduce to $86,000 as a result of the second withdrawal. Your
cumulative withdrawals for the year are now $15,000, which exceeds your Annual
Benefit Amount by $10,000. The excess withdrawal reduced your Contract Value by
10.42% ($10,000 divided by $96,000), and accordingly, your Benefit Base is
reduced by 10.42%, from $100,000 to $89,583.
Assuming that you have made no more withdrawals during the Contract Year,
your Benefit Base on your next Rider Anniversary will still be equal to
$89,583, prior to the application of any Automatic Step-Up. Assuming your
Contract Value is $86,000 on this Rider Anniversary, there would be no Step-Up
and your Benefit Base would remain at $89,583. Therefore, your Annual Benefit
Amount would be recalculated on the Rider Anniversary as 5% of $89,583 or
$4,479.
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