[LOGO] Phoenix Karen A. Peddle, Director
Where Excellence Grows(SM) Life & Annuity, SEC Compliance
One American Row, Hartford, CT 06102-5056
(860) 403-5134
Fax: (860) 403-5296
Toll Free: 1-800-349-9267
Email: karen.peddle@phoenixwm.com
March 23, 2009
Sonny Oh
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
Initial Registration Statement filed on Form N-4
File Nos. 811-08914 and 333-152905
Dear Mr. Oh:
Below please find our responses to the staff's comments received on March 18,
2009 for the referenced filing.
Optional Benefit Fees
New Comment. Page 8. Please provide a cross reference in new footnote number 7
similar to the one contained in footnote numbers 4 and 5.
RESPONSE: We have revised footnote number 7 accordingly.
Contract Summary
New Comment. Page 12. In the section entitled "From the Separate Account," in
the disclosure regarding "Mortality and expense risk fee," please clarify that
the current fee varies based on the death benefit option chosen but not the
guaranteed fee.
RESPONSE: We have revised the disclosure accordingly.
Inherited Stretch Annuity. Pages 27 and 57.
New Comment. Page 27. Put back the first sentence of the prior disclosure in
the fifth paragraph of the GMAB disclosure.
RESPONSE: We have revised the disclosure accordingly.
New Comment. Page 57. The parenthetical "(other than this Phoenix Flexible
Retirement Choice/sm/ Contract)", which appears in the fifth line of the fifth
paragraph of the GMAB disclosure on page 27, does not appear in the disclosure
on page 57.
RESPONSE: We have removed the parenthetical and revised the disclosure
accordingly.
New Comment. The prospectus notes that the roll-up amount is fixed after the
first rider year. Please revise the prospectus to make the following
clarifications:
Page 31. The third example assumes no additional premiums, yet refers to a
roll-up amount for the prior year, suggesting that this may be different than
the roll-up amount fixed at the end of the first rider year. Please clarify the
ambiguity.
RESPONSE: We have revised the example to clarify the ambiguity.
Page 31. Clarify how the roll-up amount changes if there has been additional
premium and demonstrate the change by use of an additional example. If
additional premiums do not change the roll-up amount, then please delete the
parenthetical on page 31. Revise the corresponding disclosure on page 43
accordingly.
RESPONSE: The roll-up amount does not change if there is additional premium
unless there is a step-up. We have deleted a portion of the parenthetical to
reflect that fact. We have also provided an additional example to demonstrate
the interaction of the additional premium with the roll-up amount.
If you should have any questions with regard to this filing, please contact the
undersigned at (860) 403-5134.
Sincerely,
/s/ Karen A. Peddle
- -----------------------------------
Karen A. Peddle
Director
Life & Annuity, SEC Compliance
Phoenix Flexible Retirement Choice/SM/
PHL Variable Accumulation Account
Issued by: PHL Variable Insurance Company ("PHL Variable")
PROSPECTUS March 27, 2009
This prospectus describes a variable and fixed accumulation deferred annuity
contract with optional features offered to groups and individuals. The contract
offers a variety of variable and fixed investment options. You may allocate
premium payments and Contract Value to one or more of the investment options of
the PHL Variable Accumulation Account ("Separate Account"), the Market Value
Adjusted Guaranteed Interest Account ("MVA") and the Guaranteed Interest
Account ("GIA"). The assets of each investment option will be used to purchase,
at Net Asset Value, shares of a Series in the following designated funds.
AIM Variable Insurance Funds - Series . Phoenix Growth and Income Series
I Shares . Phoenix Mid-Cap Growth Series
. AIM V.I. Capital Appreciation Fund . Phoenix Money Market Series
AllianceBernstein Variable Products . Phoenix Multi-Sector Fixed Income
Series Fund, Inc. - Class B Series
. AllianceBernstein Balanced Wealth . Phoenix Multi-Sector Short Term
Strategy Portfolio Bond Series
. AllianceBernstein Wealth . Phoenix Strategic Allocation Series
Appreciation Strategy Portfolio . Phoenix-Aberdeen International
DWS Investments VIT Funds - Class A Series
. DWS Equity 500 Index VIP . Phoenix Small-Cap Growth Series
. DWS Small Cap Index VIP . Phoenix-Duff & Phelps Real Estate
Federated Insurance Series Securities Series
. Federated Fund for U.S. Government . Phoenix Dynamic Asset Allocation
Securities II Series: Aggressive Growth
. Federated High Income Bond Fund II . Phoenix Dynamic Asset Allocation
- Primary Shares Series: Growth
Fidelity(R) Variable Insurance . Phoenix Dynamic Asset Allocation
Products - Service Class Series: Moderate
. Fidelity VIP Contrafund(R) . Phoenix Dynamic Asset Allocation
Portfolio Series: Moderate Growth
. Fidelity VIP Growth Opportunities . Phoenix-Sanford Bernstein Mid-Cap
Portfolio Value Series
. Fidelity VIP Growth Portfolio . Phoenix-Sanford Bernstein
. Fidelity VIP Investment Grade Bond Small-Cap Value Series
Portfolio . Phoenix-Van Kampen Comstock Series
Franklin Templeton Variable Insurance . Phoenix-Van Kampen Equity 500
Products Trust - Class 2 Index Series
. Franklin Flex Cap Growth PIMCO Variable Insurance Trust -
Securities Fund Advisor Class
. Franklin Income Securities Fund . PIMCO VIT CommodityRealReturn(TM)
. Mutual Shares Securities Fund Strategy Portfolio
. Templeton Developing Markets . PIMCO VIT Real Return Portfolio
Securities Fund . PIMCO VIT Total Return Portfolio
. Templeton Foreign Securities Fund Sentinel Variable Products Trust
. Templeton Growth Securities Fund . Sentinel Variable Products
Lord Abbett Series Fund, Inc. - Class Balanced Fund
VC . Sentinel Variable Products Bond
. Lord Abbett Bond-Debenture Fund
Portfolio . Sentinel Variable Products Common
. Lord Abbett Growth and Income Stock Fund
Portfolio . Sentinel Variable Products Mid Cap
. Lord Abbett Mid-Cap Value Portfolio Growth Fund
Neuberger Berman Advisers Management . Sentinel Variable Products Small
Trust - Class S Company Fund
. Neuberger Berman AMT Small Cap Summit Mutual Funds, Inc. - Summit
Growth Portfolio Pinnacle Series
. Neuberger Berman AMT Guardian . Summit S&P MidCap 400 Index
Portfolio Portfolio
Oppenheimer Variable Account Funds - The Universal Institutional Funds,
Service Shares Inc. - Class II Shares
. Oppenheimer Capital Appreciation . Van Kampen UIF Equity and Income
Fund/VA Portfolio
. Oppenheimer Global Securities Wanger Advisors Trust
Fund/VA . Wanger International Select
. Oppenheimer Main Street Small Cap . Wanger International
Fund/VA . Wanger Select
The Phoenix Edge Series Fund . Wanger USA
. Phoenix Capital Growth Series
See Appendix A for additional investment option information.
Expenses for a contract with a Premium Enhancement feature may be higher than
expenses for a contract without such feature. The amount of the Premium
Enhancement may be more than offset by the additional fees and charges
associated with the Premium Enhancement. The contract may be offered with
qualified plans.
The contract is not a deposit of any bank, and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
The contract may go down in value.
The Securities and Exchange Commission ("SEC") has not approved or
disapproved these securities, nor passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Replacing any existing contract with this contract may not be to your
advantage. You should carefully compare this contract with your existing one
and you must also determine if the replacement will result in any tax liability.
Purchasing a variable annuity within a qualified plan does not provide any
additional tax benefit. Variable annuities should not be sold in qualified
plans because of the tax-deferral feature alone, but rather when other
benefits, such as lifetime income payments and death benefit protection support
the recommendation.
This prospectus provides information that you should know before investing.
Keep this prospectus for future reference. A Statement of Additional
Information ("SAI") dated March 27, 2009, is incorporated by reference and has
been filed with the SEC and is available free of charge by contacting us at the
address or phone number listed below. A table of contents of the SAI is
available on the last page of this prospectus. If you have any questions,
please contact:
[GRAPHIC] [GRAPHIC]
PHL Variable Insurance Company Tel. 800/541-0171
Annuity Operations Division
PO Box 8027
Boston, MA 02266-8027
TABLE OF CONTENTS
Heading Page
- -------------------------------------------------------
Glossary of Special Terms......................... 3
Summary of Expenses............................... 5
Expense Examples................................ 9
Contract Summary.................................. 10
Financial Highlights.............................. 13
Financial Statements.............................. 13
Performance History............................... 13
The Variable Accumulation Annuity................. 13
PHL Variable and the Separate Account............. 14
The Variable Investment Options................... 15
GIA............................................... 15
MVA............................................... 16
Deductions and Charges............................ 17
Annual Administrative Charge.................... 17
Daily Administrative Fee........................ 17
Market Value Adjustment......................... 17
Guaranteed Minimum Accumulation Benefit Fee..... 17
Phoenix Flexible Withdrawal Protector Fee....... 17
Phoenix Retirement Protector Fee................ 18
Mortality and Expense Risk Fee.................. 19
Premium Enhancement Fee......................... 19
Surrender Charges............................... 19
Nursing Home Waiver............................ 20
Terminal Illness Waiver........................ 20
Tax............................................. 20
Transfer Charge................................. 20
Reduced Fees, Credits and Excess Interest for
Eligible Groups................................ 21
Other Charges................................... 21
The Accumulation Period........................... 21
Accumulation Units.............................. 21
Accumulation Unit Values........................ 21
Purchase of Contracts........................... 21
Premium Enhancement............................. 22
Additional Programs............................. 23
Optional Benefits............................... 27
Surrender of Contract and Withdrawals........... 48
Contract Termination............................ 48
Payment Upon Death Before Maturity Date......... 48
Heading Page
Internet, Interactive Voice Response and
Telephone Transfers............................. 51
Market Timing and Other Disruptive Trading........ 51
The Annuity Period................................ 52
Annuity Payments................................ 52
Annuity Payment Options......................... 53
Other Conditions............................... 55
Payment Upon Death After Maturity Date.......... 55
Variable Account Valuation Procedures............. 55
Valuation Date.................................. 55
Valuation Period................................ 55
Accumulation Unit Value......................... 55
Net Investment Factor........................... 55
Service Providers............................... 56
Miscellaneous Provisions.......................... 56
Assignment...................................... 56
Payment Deferral................................ 56
Suspension of Payments or Transfers............. 56
Free Look Period................................ 56
Amendments to Contracts......................... 57
Substitution of Fund Shares..................... 57
Ownership of the Contract....................... 57
Inherited/Stretch Annuity Feature............... 57
Federal Income Taxes.............................. 58
Introduction.................................... 58
Income Tax Status............................... 58
Taxation of Annuities in General--Nonqualified
Plans.......................................... 58
Additional Considerations....................... 59
Owner Control................................... 60
Diversification Standards....................... 61
Taxation of Annuities in General--Qualified
Plans.......................................... 61
Sales of Variable Accumulation Contracts.......... 65
Servicing Agent................................... 66
State Regulation.................................. 66
Reports........................................... 66
Voting Rights..................................... 66
Texas Optional Retirement Program................. 67
The Phoenix Companies, Inc. - Legal Proceedings
about Company Subsidiaries...................... 67
SAI Table of Contents............................. 67
APPENDIX A--Investment Options.................... A-1
APPENDIX B--Deductions for Taxes.................. B-1
2
Glossary of Special Terms
- --------------------------------------------------------------------------------
Most of the terms used throughout this prospectus are described within the text
where they appear. Certain terms marked by italics when they first appear are
defined below.
Account Value: The value of all assets held in the Separate Account.
Accumulation Unit: A standard of measurement for each investment option used to
determine the value of a contract and the interest in the investment options
prior to the start of annuity payments.
Accumulation Unit Value: The value of one Accumulation Unit was set at $1.000
on the date assets were first allocated to each investment option. The value of
one Accumulation Unit on any subsequent Valuation Date is determined by
multiplying the immediately preceding Accumulation Unit Value by the applicable
net investment factor for the valuation period just ended.
Annuitant(s)/Joint Annuitant: There may be one or two Annuitants. One is the
primary Annuitant and the other is considered to be the joint Annuitant. Prior
to the Maturity Date, the Annuitant(s) may be changed. However, there may be
tax consequences.
Annuity Payment Option: The provisions under which we make a Series of annuity
payments to the Annuitant or other payee, such as Life Annuity with Ten Years
Certain. See "Annuity Payment Options."
Annuity Unit: A standard of measurement used in determining the amount of each
periodic payment under the variable Annuity Payment Options I, J, K, M and N.
The number of annuity units in each investment option with assets under the
chosen option is equal to the portion of the first payment provided by that
investment option divided by the Annuity Unit Value for that investment option
on the first payment calculation date.
Annuity Unit Value: On the first Valuation Date selected by us, we set all
annuity unit values in each investment option of the Separate Account at $1.00.
The Annuity Unit Value on any subsequent Valuation Date is equal to the Annuity
Unit Value of the investment option on the immediately preceding Valuation Date
multiplied by the net investment factor for that investment option for the
valuation period divided by 1.00 plus the rate of interest for the number of
days in the valuation period based on the assumed investment rate.
Claim Date: The Valuation Date following receipt of a certified copy of the
death certificate at our Annuity Operations Division.
Contract Date: The date that the initial premium payment is invested under a
contract.
Contract Owner(s) (owner(s), you, your): Usually the person, persons, or entity
to whom we issue the contract.
Contract Value: Prior to the Maturity Date, the sum of all Accumulation Units
held in the investment options of the Separate Account and the value held in
the GIA and/or MVA. For Tax-sheltered Annuity plans (as described in Internal
Revenue Code (IRC) Section 403(b)) with loans, the Contract Value is the sum of
all Accumulation Units held in the investment options of the Separate Account
and the value held in the GIA and/or MVA plus the value held in the loan
security account, and less any loan debt.
Death Benefit Options: The selected death benefit option determines the method
of death benefit calculation upon death of the owner or if there is more than
one owner, on the earliest death of any of the owners.
Free Withdrawal Amount: This amount is determined each Contract Year and is
comprised of 10% of premium payments received that are still subject to a
surrender charge. This amount is then reduced by any withdrawals made during
that Contract Year that have occurred without the imposition of surrender
charge.
Fixed Payment Annuity: An Annuity Payment Option providing payments with a
fixed dollar amount after the first payment is made.
Inherited/Stretch Annuity: A post death distribution option that provides an
extended payout option for the beneficiary of a deceased Owner's contract.
MVA, or Market Value Adjusted Guaranteed Interest Account: An account that pays
interest at a guaranteed rate if amounts allocated to the account are held to
the end of the guarantee period. If amounts are withdrawn, transferred or
applied to an Annuity Payment Option before the end of the guarantee period, we
will make a market adjustment to the value of that account. Assets allocated to
the MVA are not part of the assets allocated to the Separate Account or the
general account of PHL Variable but are held in the Market Value Interest
Adjusted Account established by PHL Variable. The MVA is described in a
separate prospectus.
Maturity Date: The date elected by the owner as to when annuity payments will
begin. Unless we agree otherwise, or as required by applicable law, the
Maturity Date will not be any earlier than the fifth contract anniversary and
no later than the oldest Owner's or Annuitant's 95/th/ birthday or ten years
from the Contract Date. The election is subject to certain conditions described
in "The Annuity Period." If there is more than one Annuitant, the younger
Annuitant's age will be used to determine that Maturity Date.
Minimum Initial Payment: The amount that you pay when you purchase a contract.
We require minimum initial premium payments of:
.. Nonqualified plans--$25,000
.. Bank draft program--$150
.. Qualified plans--$3,500
Net Asset Value: Net Asset Value of a Series' shares is computed by dividing
the value of the net assets of the Series by the total number of Series
outstanding shares.
3
- --------------------------------------------------------------------------------
Premium Enhancement: An optional feature where, if elected, an amount will be
credited to the contract value at the time the initial premium payment and each
subsequent premium payment is applied to the contract with certain restrictions.
Valuation Date: A Valuation Date is every day the New York Stock Exchange
("NYSE") is open for trading and PHL Variable is open for business.
PHL Variable (our, us, we, company): PHL Variable Insurance Company.
4
Summary of Expenses
- --------------------------------------------------------------------------------
The following tables describe the fees and expenses that you will pay when
owning and surrendering the contract. There are no additional fees, other than
the contract fees set forth below, charged at the time you purchase this
contract.
This table describes the fees and expenses that you will pay at the time that
you surrender the contract or transfer value between the investment options.
State premium taxes may also be deducted.
CONTRACT OWNER TRANSACTION EXPENSES
9-Year Surrender Charge Schedule (Maximum Surrender
Charge as a % of Premium Payment/1,2/)
Complete Years From Receipt of Each Premium Payment
0...................................... 9%
1...................................... 8%
2...................................... 7%
3...................................... 6% This table describes the fees and expenses that you will pay
4...................................... 5% at the time that you surrender the contract or transfer value
5...................................... 4% between the investment options. State premium taxes
6...................................... 3% ranging from 0.00% to 3.50%, depending on the state, may
7...................................... 2% also be deducted.
8...................................... 1%
9+..................................... 0%
Transfer Charge/3/
Maximum................................ $20
Current................................ None
/1/ These charges may not apply in certain circumstances. For more information,
see the "Deductions and Charges - Surrender Charges" section of this
prospectus.
/2/ These charges are not applicable unless there is a withdrawal or a
surrender.
/3/ We reserve the right to impose a transfer charge of up to $20 per transfer
after the first 12 transfers in each contract year. See "Transfer Charge."
ANNUAL ADMINISTRATIVE CHARGE/1/
Maximum........................................... $35
Current/2/........................................ $35
MAXIMUM ANNUAL SEPARATE ACCOUNT EXPENSES (as a
percentage of average Account Value)
Death Benefit Option 1 - Return of Premium/ 8/
Mortality and Expense Risk Fee Maximum............ 1.88%/3,4/
Daily Administrative Fee.......................... .13%/3/
Total Annual Separate Account Expenses............ 2.00%
Death Benefit Option 2 - Annual Step-Up/ 8/
Mortality and Expense Risk Fee Maximum............ 1.88%/3,5/ This table describes the fees and expenses that you will pay
Daily Administrative Fee.......................... .13%/3/ periodically during the time that you own the contract, not
Total Annual Separate Account Expenses............ 2.00% including annual fund fees and expenses.
Death Benefit Option 3 - Earnings Enhancement Benefit/ 8/
Mortality and Expense Risk Fee Maximum............ 1.88%/3,6/
Daily Administrative Fee.......................... .13%/3/
Total Annual Separate Account Expenses............ 2.00%
Death Benefit Option 4 - Greater of Annual Step-Up or
Annual Roll-Up/ 8/
Mortality and Expense Risk Fee Maximum............ 1.88%/3,7/
Daily Administrative Fee.......................... .13%/3/
Total Annual Separate Account Expenses............ 2.00%
5
/1/ This charge is deducted annually on the contract anniversary on a pro rata
basis from each of the selected investment options. See "Deductions and
Charges."
/2/ This charge is $30.00 for contracts issued in the states of Texas, New
Mexico, and Washington.
/3/ This amount is rounded to the nearest hundredth, and the actual fee charged
is 0.005% lower than the charge shown.
/4/ The current fee charged is 0.725%. The fee is rounded to the nearest
hundredth, and the actual fee charged is 0.005% lower than the charge shown.
/5/ The current fee charged is 0.975%. The fee is rounded to the nearest
hundredth, and the actual fee charged is 0.005% lower than the charge shown.
/6/ The current fee charged is 0.975%. The fee is rounded to the nearest
hundredth, and the actual fee charged is 0.005% lower than the charge shown.
/7/ The current fee charged is 1.225%. The fee is rounded to the nearest
hundredth, and the actual fee charged is 0.005% lower than the charge shown.
/8/ The Mortality and Expense Risk Fee is based on average account value and is
deducted daily. Each investment option bears a pro rata share of such
expense based on the proportionate value of each of the investment options.
For additional information, see the section on "Mortality and Expense Risk
Fee" in this prospectus.
6
Optional Benefit Fees
This table describes the fees and expenses that you will pay
periodically during the time that you own the contract, not including
annual fund fees and expenses, if you elect an optional living benefit
or the Premium Enhancement. These fees are charged in addition to the
Contract Owner Transaction Expenses, Annual Administrative Charge, and
Maximum Annual Separate Account Expenses.
PREMIUM ENHANCEMENT FEE/1/
(Assessed as a Percentage of Separate Account Value)
Maximum.................... 1.50%
Current.................... 0.80%
Duration of charge......... All Contract Years
/1/ The Premium Enhancement Fee is based on average account value and is
assessed and deducted daily in accordance with the Premium Enhancement Fee
table shown above. Each investment option bears a pro rata share expense
based on the proportionate value of each of the investment options. For
additional information, see the section on "Premium Enhancement" in this
prospectus.
Only one of the following Optional Living Benefits can be elected. Consult with
your financial advisor as to which Optional Living Benefit may fit your
particular needs.
GUARANTEED MINIMUM ACCUMULATION BENEFIT (GMAB) FEE/1/
(as a percentage of the greater of the Guaranteed Amount/6/ and Contract Value)
Maximum........................................... 1.00%
Current........................................... 0.85%
PHOENIX FLEXIBLE WITHDRAWAL PROTECTOR/SM/ GUARANTEED MINIMUM WITHDRAWAL BENEFIT
(GMWB) RIDER FEE/2/
(as a percentage of the greater of the Benefit Base/3/ and Contract Value)
Single Spousal
Life Option Life Option
----------- ------------
Maximum fee for contracts without Extended Care Enhancement..................... 2.50% 2.50%
Maximum additional fee to add Extended Care Enhancement......................... 0.50% 0.50%
Range of current fees for contracts without Extended Care Enhancement/4/........ 1.35%-0.60% 1.80%-0.80%
Current additional fee to add Extended Care Enhancement/4/...................... 0.20% 0.20%
PHOENIX RETIREMENT PROTECTOR/SM/ FLEXIBLE COMBINATION BENEFIT RIDER FEE/7/
(as a percentage of the greatest of the GMWB Benefit Base/3/, GMAB Benefit Base/3/ and Contract Value)
Single Spousal
Life Option Life Option
----------- -----------
Maximum fee for contracts without optional Guaranteed Minimum Death Benefit.................... 2.75% 2.75%
Maximum additional fee to add optional Guaranteed Minimum Death Benefit........................ 0.50% 0.50%
Current fees for contracts without optional Guaranteed Minimum Death Benefit/5/................ 1.10% 1.45%
Current additional fee to add optional Guaranteed Minimum Death Benefit/5/..................... 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------------
/1/ The Guaranteed Minimum Accumulation Benefit fee is deducted annually on the
contract anniversary, only if the benefit is selected. The fee percentage
is locked in at the current fee at the time you elect the benefit. If you
choose this rider, you must allocate all premium and contract value to a
single approved asset allocation program. The rider fee does not vary based
upon the asset allocation option chosen. If the benefit is elected at
issue, the Guaranteed Amount will equal the Contract Value on the issue
date and will be recalculated thereafter as described in the Optional
Benefits section of this prospectus. See "Optional Benefits."
/2/ The maximum fee shown in this table is the highest fee for this rider. A
different fee applies to various asset allocation options as shown below.
If you choose this rider, you must allocate all premium and contract value
to a single approved asset allocation program. If you transfer from one
asset allocation program or option to another during a rider year, the fee
percentage you will pay for the rider will be the highest rider fee
associated with the various asset allocation programs in which your
contract value was invested during that rider year. The rider fee is
deducted on each contract anniversary when the rider is in effect for your
contract and is generally deducted on a pro rata basis from each investment
option in which the contract has value and, if allocation to the GIA is
then permitted, the GIA. Upon contract surrender or rider termination, we
will deduct a portion of the annual rider fee for the portion of the
contract year elapsed from the surrender proceeds or the contract value,
respectively.
/3/ The Benefit Base for Phoenix Flexible Withdrawal Protector, and the GMAB
Benefit Base, and the GMWB Benefit Base under the Phoenix Retirement
Protector rider are amounts we calculate solely to determine the value of
the benefit(s) provided by the rider and unlike the Contract Value, are not
available for withdrawals or surrenders. These amounts are affected by
various factors including withdrawals and premium payments. See the
description of these riders in "Optional Benefits" for information about
how each Benefit Base is calculated and used.
7
/4/ The current fees for the Phoenix Flexible Withdrawal Protector by asset
allocation model are shown below.
Asset Allocation Models Single Life Option Spousal Life Option
- ----------------------- ------------------ -------------------
Phoenix-Ibbotson Strategic Asset Allocation--Conservative............ 0.60% 0.80%
Phoenix-Ibbotson Strategic Asset Allocation--Moderately Conservative. 0.60% 0.80%
Phoenix Dynamic Asset Allocation Series: Moderate.................... 0.60% 0.80%
Franklin Templeton Founding Investment Strategy...................... 1.00% 1.35%
Phoenix-Ibbotson Strategic Asset Allocation--Moderate................ 1.00% 1.35%
AllianceBernstein VPS Balanced Wealth Strategy....................... 1.00% 1.35%
Phoenix Dynamic Asset Allocation Series: Moderate Growth............. 1.35% 1.80%
Franklin Templeton Perspectives Allocation Model..................... 1.35% 1.80%
Phoenix-Ibbotson Strategic Asset Allocation--Moderately Aggressive... 1.35% 1.80%
We may change the current fees. If you accept an automatic step-up of the
Benefit Base as provided by the rider, you will then pay the current fee in
effect at the time of this step-up. See "Optional Benefits", "Phoenix
Flexible Withdrawal Protector", and "Automatic Step-Up" for a description of
the automatic step-up feature, the impact of a step-up on your rider fee, and
how you may decline a step-up.
/5/ The current fees for the Phoenix Retirement Protector rider by asset
allocation model are shown below.
Asset Allocation Models Single Life Option Spousal Life Option
- ----------------------- ------------------ -------------------
Phoenix-Ibbotson Strategic Asset Allocation--Conservative............ 1.10% 1.45%
Phoenix-Ibbotson Strategic Asset Allocation--Moderately Conservative. 1.10% 1.45%
Phoenix Dynamic Asset Allocation Series: Moderate.................... 1.10% 1.45%
We may change the current fees. If you elect an automatic step-up of the GMWB
Benefit Base or make an elective step-up of the GMAB Benefit Base as provided
by the rider, you will then pay the current fee in effect at the time of this
step-up. See "Optional Benefits", "Phoenix Retirement Protector" for a
description of the automatic step-up feature of the GMWB component and the
elective step-up feature of the GMAB component of this rider, the impact of a
step-up on your rider fee, and how you may decline an automatic step-up of
the GMWB component.
/6/ The Guaranteed Amount is an amount we calculate solely to determine the
value of the benefit provided by the rider and, unlike the Contract Value,
is not available for withdrawals or surrenders. This amount is affected by
various factors including withdrawals and premium payments. See the
description of this rider in "Optional Benefits" for information about how
the Guaranteed Amount is calculated and used.
/7/ The maximum fee shown in this table is the highest fee for this rider. If
you choose this rider, you must allocate all premium and contract value to
a single approved asset allocation program. The current rider fee does not
vary based upon the asset allocation option chosen. However, we may change
this in the future. If we do this and you accept an automatic step-up, your
rider fee may increase and the rider fee may vary based upon your choice of
asset allocation option. In addition, if we do this and you transfer from
one asset allocation program or option to another during a rider year, the
fee percentage you will pay for the rider will be the highest rider fee
associated with the various asset allocation programs in which your
contract value was invested during that rider year. See "Optional
Benefits", "Phoenix Retirement Protector", and "Automatic Step-Up" for a
description of the automatic step-up feature, the impact of a step-up on
your rider fee, and how you may decline a step-up. The rider fee is
deducted on each contract anniversary when the rider is in effect for your
contract and is generally deducted on a pro rata basis from each investment
option in which the contract has value and, if allocation to the GIA is
then permitted, the GIA. Upon contract surrender or rider termination, we
will deduct a portion of the annual rider fee for the portion of the
contract year elapsed from the surrender proceeds or the contract value,
respectively
The table below shows the minimum and maximum fees and expenses as a percentage
of daily net assets, for the year ended December 31, 2008, charged by the funds
that you may pay indirectly during the time that you own the contract. This
table does not reflect any fees that may be imposed by the funds for short-term
trading. See the section entitled "Market Timing and Other Disruptive Trading"
for more information. Also, the Phoenix Dynamic Asset Allocation Series are
series of a fund of funds. Funds of funds may have higher operating expenses
than other funds since funds of funds invest in underlying funds which have
their own expenses. More detail concerning each of the fund's fees and expenses
is contained in the prospectus for each fund. Total Annual Fund Operating
Expenses are deducted from a fund's assets and include management fees,
distribution fees, distribution and/or 12b-1 fees, and other expenses.
TOTAL ANNUAL FUND OPERATING EXPENSES
Minimum Maximum
------- -------
Total Annual Fund Operating Expenses... 0.31% 3.83%
Net Annual Fund Operating Expenses/1/.. 0.28% 3.83%
/1/ Phoenix Variable Advisors, Inc, advisor to the Phoenix Edge Series
Fund, and other advisors and/or other service providers to the funds
have contractually agreed to reduce the management fees or reimburse
certain fees and expenses for certain funds. The Gross Annual Fund
Operating Expenses shown in the first row of the table do not
reflect the effect of any fee reductions or reimbursements. The Net
Annual Fund Operating Expenses shown in the second row reflects the
effect of fee reductions and waiver arrangements that are
contractually in effect at least through May 1, 2010. 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. See each fund's prospectus
for details about the annual operating expenses of that fund and any
waiver or reimbursement arrangements that may be in effect.
8
EXPENSE EXAMPLES
These examples will help you compare the cost of investing in the contract if
you elect the Premium Enhancement feature and the Phoenix Retirement Protector
rider with the Guaranteed Minimum Death Benefit. These elections will result in
the highest total cost of investing in this contract.
If you surrender your contract at the end of the applicable time period, your
maximum costs would be:
Death Benefit Option 1
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 2
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 3
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 4
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
If you do not surrender or if you annuitize your contract at the end of the
applicable time period (annuitization is not permitted prior to the fifth
contract anniversary), your maximum costs would be:
Death Benefit Option 1
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 2
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 3
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
Death Benefit Option 4
----------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------
$ $ $ $
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 Contract Owner transaction expenses contract fees, separate
account annual expenses, maximum of all applicable riders and benefit fees, and
the maximum fund fees and expenses that were charged for the year ended
12/31/08.
The examples assume that you invest $10,000 in the contract for the time
periods indicated. The examples also assume that your investment has a 5%
return each year and assumes the maximum fees and expenses of any of the funds
and that you have allocated all of your contract value to the fund with the
maximum fees and expenses. Although your actual costs may be higher or lower
based on these assumptions, your costs are shown in the table to the left.
9
Contract Summary
- --------------------------------------------------------------------------------
This prospectus contains information about all of the material rights and
features of the annuity contract that you should understand before investing.
This summary describes the general provisions of the annuity contract.
Overview
The contract is intended for those seeking income and long-term tax-deferred
accumulation of assets to provide income for retirement or other purposes.
Those considering the contract for other purposes should consult with their tax
advisors. Participants in qualified plans should note that this contract does
not provide any additional tax deferral benefits beyond those provided by the
qualified plan and should not consider the contract for its tax treatment, but
for its investment and annuity benefits. For more information, see "Purchase of
Contracts."
The contract offers a combination of variable and fixed investment options.
Investments in the variable options provide results that vary and depend upon
the performance of the underlying funds, and the owner assumes the risk of gain
or loss according to the performance of the underlying funds while investments
in the GIA or MVA provide guaranteed interest earnings subject to certain
conditions. There is no guarantee that at maturity date the contract value will
equal or exceed payments made under the contract. For more information, see
"The Variable Investment Options," "GIA" and "MVA."
The contract offers an optional Premium Enhancement feature. The Premium
Enhancement feature must be elected at the time the contract is issued. If the
optional Premium Enhancement feature is selected, a Premium Enhancement will be
credited to the contract with each premium payment made. The Premium
Enhancement Percentage varies by the age of the oldest owner on the Contract
Date. A Premium Enhancement Fee will apply to this contract for the lifetime of
the contract, which makes the total expenses for this contract during this
period higher than a comparable contract without the Premium Enhancement
feature.
We have applied to the Securities and Exchange Commission (SEC) for
permission to deduct the Premium Enhancement under the circumstances described
in the Premium Enhancement Restrictions section of this prospectus. We will not
deduct Premium Enhancements on your contract unless, and if applicable, until
the SEC grants us permission. The application for exemptive relief (File
No. 812-13568) was filed with the SEC on August 22, 2008.
The contract offers four death benefit options. You select a death benefit
option that is suitable to your financial objectives. The Death Benefit Options
differ in how the death benefit is calculated The current (but not the maximum)
mortality and expense risk fee also differs for each Death Benefit Option.
Certain age restrictions may apply to each death benefit option. For more
information, see "The Accumulation Period--Payment Upon Death Before
the Maturity Date" and "Taxation of Annuities in General--Nonqualified Plans"
and "Taxation of Annuities in General--Qualified Plans."
You may elect one of the following Optional Living Benefits with the contract:
.. a Guaranteed Minimum Accumulation Benefit (GMAB) which provides a guaranteed
minimum return if contract value remains invested according to an asset
allocation program available for use with the rider for the ten year period
following the contract date.
.. a Guaranteed Minimum Withdrawal Benefit (GMWB). The Phoenix Flexible
Withdrawal Protector/SM/ is a GMWB available to you and, for an additional
fee, you may also elect an Extended Care Enhancement with the benefit.
.. a Flexible Combination Benefit Rider providing a GMWB and GMAB, also called
Phoenix Retirement Protector/SM/. For an additional fee, this rider provides
a guaranteed minimum death benefit.
These benefits are provided by rider and have their own fees. The guarantees
provided by the Optional Living Benefits in excess of your Contract Value are
based on the claims-paying ability of PHL Variable. If you elect an Optional
Living Benefit, we require you to allocate all premium and contract value to a
single asset allocation program we have approved for use with these riders.
Taking withdrawals from the contract while an Optional Living Benefit is in
effect may reduce the benefits of the riders. For more information, see
"Deductions and Charges", "Additional Programs" and "Optional Benefits".
Suitability
Annuities are designed for long-term financial planning and are not designed
for short-term investment strategies. You should make sure you understand all
the options for payment, how long you must wait before annuity payments begin
and the limitations on access to contract value.
Additionally, while an annuity offers the potential for appreciation, fees,
charges, and poor investment performance can negatively affect the value of
your annuity. You bear the investment risk, whether a gain or loss, for any
contract value allocated to the Separate Account.
Annuities that are offered to fund a qualified plan, such as an Individual
Retirement Account, do not provide any additional tax deferred advantages. If
your only or main investment objective is tax deferral, an annuity product may
be more expensive than other products that provide tax deferred benefits.
Annuity contracts that have no provision for a Premium Enhancement will not
be subject to a Premium Enhancement Fee and may have lower mortality and
expense risk charges and/or lower surrender charges. The amount of Premium
Enhancement may be more than offset by the Premium Enhancement Fee associated
with the Premium Enhancement. We encourage you to consult with your financial
adviser and determine which annuity contract is most appropriate for you.
10
Replacements
Replacing any existing contract with this contract may not be to your
advantage. Exchanges can result in the payment of substantial commissions to
the brokers who handle these transactions. You should carefully compare the
risks, charges, and benefits of your existing contract to the replacement
policy to determine if replacing your existing contract benefits you. In
particular, if you are replacing an existing contract with this contract and
you have elected the Premium Enhancement feature, you should carefully evaluate
whether this contract provides higher asset based charges, or higher or longer
surrender charge periods and whether or not the Premium Enhancement feature
offsets any potential higher charges you may incur. You should talk with your
registered representative before you replace your existing variable annuity
contract. Additionally, replacing your contract could result in adverse tax
consequences so you should also consult with your tax professional. You should
know that once you have replaced your variable annuity contract, you generally
cannot reinstate it unless the insurer is required to reinstate the previous
contract under state law. This is true even if you choose not to accept your
new variable annuity contract during your "free look" period.
Conflicts of Interest
Broker-dealers and registered representatives often sell products issued by
several different and unaffiliated insurance companies and the amount of
compensation payable may vary significantly. Additionally, compensation paid to
a broker-dealer or registered representative will also vary between products
issued by the same insurance company, including additional compensation payable
as part of certain service arrangements. A broker-dealer and its registered
representatives may have an incentive to promote or sell one product over
another depending on these differences in the compensation, potentially
resulting in the sale of a product that may not be the best product to suit
your needs. You should talk to your registered representative if you have
questions about potential conflicts of interest that may be created by varying
compensation plans. You can find more information about the types of
compensation arrangements we offer in the "Sales of Variable Accumulation
Contracts" section of this prospectus.
Withdrawals
.. You may partially or fully surrender the contract anytime for its Contract
Value less any applicable surrender charge, applicable market value
adjustment and premium tax.
.. Each Contract Year we allow you to withdraw a certain amount from the
contract without the imposition of a surrender charge. This is called the
"Free Withdrawal Amount." This amount is determined each Contract Year and
is comprised of 10% of premium payments received that are still subject to a
surrender charge. The amount is then reduced by any withdrawals made during
that Contract Year that have occurred without the imposition of surrender
charge. If the Free Withdrawal Amount is not taken in any Contract Year, the
amount itself does not carry over to the next Contract Year. Instead, a new
Free Withdrawal Amount is calculated each Contract Year. For more
information, see "Deductions and Charges--Surrender Charges."
.. Withdrawals may be subject to a 10% penalty tax. For more information, see
"Federal Income Taxes."
Deductions and Charges
Contract Charges
.. Annual Administrative Charge--maximum of $35 each year. For more
information, see "Deductions and Charges" below.
Optional Rider Charges
You may only elect one optional living benefit at the time of issue. Optional
Living Benefit Riders may not be elected after issue:
.. Guaranteed Minimum Accumulation Benefit fee--the current fee equals 0.85%
multiplied by the greater of the guaranteed amount and contract value on the
date the fee is deducted. For more information, see "Deductions and Charges"
below.
.. Phoenix Flexible Withdrawal Protector--the fee is equal to a stated
percentage multiplied by the greater of the Benefit Base and the Contract
Value. The fee for this rider depends on whether you choose the single life
option or the spousal life option, and which asset allocation model you have
chosen for allocation of your premium payments and Contract Values.
Additionally, if you choose the Extended Care Enhancement for your rider, we
assess a charge for that feature. The current fees are shown in the table of
"Optional Benefit Fees". The fee for your rider may change if you change
asset allocation models or if you do not decline an automatic step-up
provided by the rider. If you change asset allocation programs during a
contract year and the rider fees related to the use of those programs are
different, you will pay the highest rider fee associated with the various
asset allocation programs in which your Contract Value was invested during
that contract year. Also, you will pay the current rider fee then in effect
beginning on the date of any automatic step-up of the Benefit Base. See
"Optional Benefits" for additional information about the impact of an
automatic step-up on your rider and your ability to decline a step-up. The
maximum fee for the Phoenix Flexible Withdrawal Protector is 2.50% without
the Extended Care Enhancement and 3.00% if the rider is elected with the
Extended Care Enhancement.
.. Phoenix Retirement Protector--the fee is equal to a stated percentage
multiplied by the greatest of the GMWB Benefit Base, the GMAB Benefit Base,
and the Contract Value. The fee for this rider depends on whether you choose
the single life option or the spousal life option. Additionally, if you
choose the Guaranteed Minimum Death Benefit option for your rider, we assess
a charge for that feature. The current fees are shown in the table of
"Optional Benefit
11
Fees". The fee for your rider may change if you change asset allocation
models. If you change asset allocation programs during a contract year and
the rider fees related to the use of those programs are different, you will
pay the highest rider fee associated with the various asset allocation
programs in which your Contract Value was invested during that contract year.
Also, you will pay the current rider fee then in effect beginning on the date
of an automatic step-up of the GMWB Benefit Base or elective step-up of the
GMAB Benefit Base as provided by the rider. See "Optional Benefits" for
additional information about the impact of an automatic or elective step-up
on your rider and your ability to decline an automatic step-up. The maximum
fee for the Phoenix Retirement Protector is 2.75% without the Guaranteed
Minimum Death Benefit and 3.25% if the rider is elected with the Guaranteed
Minimum Death Benefit.
.. Premium Enhancement fee--currently, 0.80%, and is deducted daily from each
investment option. For more information, see "Deductions and Charges" below.
.. Market Value Adjustment--any withdrawal from the MVA is subject to a market
value adjustment and is taken from the withdrawal amount. For more
information, see "MVA."
.. Surrender Charges--may occur when you surrender your contract or request a
withdrawal if the assets have not been held under the contract for a
specified period of time. If we impose a surrender charge, it is deducted
from premium payment withdrawn on a first in first out basis. The surrender
charge is designed to recover the expense of distributing contracts that are
terminated before distribution expenses have been recouped from revenue
generated by these contracts. The surrender charge is a percentage of each
premium payment which is assessed based on complete years from receipt of
each premium payment over a period of 9 years. The maximum surrender charge
fee percentage of 9% applies in the first year of the contract and the
charge declines thereafter. For more information, see the "Deductions and
Charges" section of this prospectus. Additionally, surrender charges are
waived as described above in this section. No surrender charges are taken
upon the death of the owner. A declining surrender charge is assessed on
withdrawals in excess of the free withdrawal amount, based on the date the
premium payments are deposited.
.. Waiver of Surrender Charges--The surrender charge generally does not apply
to the following situations:
. Premium that is out of the surrender charge schedule;
. Contract Value that represents "Free Withdrawal Amount;*
. A death benefit is payable
. Annuitization after the contract has been in effect for a minimum of five
years;
. Required Minimum Distribution Payment;
. Nursing Home Waiver or Terminal Illness Waiver.
*Free Withdrawal Amount
You may always withdraw premium amounts that are no longer subject to
surrender charges without the imposition of a surrender charge. However, in
addition to this right, each Contract Year we allow you to withdraw a certain
amount from the contract without the imposition of a surrender charge. This
is called the "Free Withdrawal Amount." This amount is determined each
Contract Year and is comprised of 10% of premium payments received that are
still subject to a surrender charge. The amount is then reduced by any
withdrawals made during that Contract Year that have occurred without the
imposition of surrender charge. For example, amounts withdrawn during the
contract year that are not assessed a surrender charge because they are out
of the surrender charge period reduce the Free Withdrawal Amount on a dollar
for dollar basis. The Free Withdrawal Amount may be a very attractive feature
to you during the early years of the contract. However, the value computed
under the Free Withdrawal Amount will decline as premium payments age beyond
the surrender charge period.
If the Free Withdrawal Amount is not taken in any Contract Year, the amount
itself does not carry over to the next Contract Year. Instead, a new Free
Withdrawal Amount is calculated each Contract Year.
For more information, see "Deductions and Charges" below.
.. Taxes--taken from the Contract Value upon premium payments or commencement
of annuity payments.
. PHL Variable will reimburse itself for such taxes upon the remittance to
the applicable state. For more information, see "Tax" and Appendix B.
.. Transfer Charge--currently, there is no transfer charge, however, we reserve
the right to charge up to $20 per transfer after the first 12 transfers each
contract year. For more information, see "Deductions and Charges" below.
From the Separate Account
.. Daily administrative fee--currently, 0.125% annually. For more information,
see "Deductions and Charges" below.
.. Mortality and expense risk fee--the current fee varies based on the death
benefit option selected. The maximum fee does not vary regardless of the
death benefit option selected. For more information, see "Deductions and
Charges" below.
Other Charges or Deductions
In addition, certain charges are deducted from the assets of the funds for
investment management services. For more information, see the fund prospectuses.
Death Benefit
The death benefit is calculated differently for each death benefit option and
the amount varies based on the option selected.
Death Benefit Options
The contract offers four Death Benefit Options. At purchase, you select a
death benefit option that best meets your financial needs. Each death benefit
option varies in the method of death benefit calculation. The current (but not
the maximum) mortality and expense risk fee also varies based upon the death
benefit option chosen. Age restrictions apply to certain Death Benefit Options.
12
For more information, see "The Accumulation Period--Payment Upon Death Before
Maturity Date."
Additional Information
Free Look Period
You have the right to review and return the Contract. If for any reason you
are not satisfied, you may return it within 10 days (or later, if applicable
law requires) after you receive it and cancel the Contract. You will receive in
cash the Contract Value plus any charges made under the Contract as of the date
of cancellation. However, if applicable state law requires a return of premium
payments, we will return the greater of premium payments less any withdrawals
or the Contract Value less any applicable surrender charges. In both
situations, we will consider Premium Enhancements credited to the contract as
"earnings" and therefore part of Contract Value.
If the SEC allows us, we will deduct Premium Enhancements credited to your
contract on the date of its cancellation during the free look period. In this
case, you will bear the investment risk of any Premium Enhancements made under
the Contract. For example, if applicable state law provides for a return of
Contract Value, we will return to you your Contract Value plus any charges, and
less any applicable Premium Enhancement made under this Contract as of the date
of cancellation. Our deduction of the Premium Enhancement in this case will not
be adjusted for investment performance. Therefore, although you will benefit
from any investment gain on the Premium Enhancement, if it experiences an
investment loss, we will still deduct the original Premium Enhancement amount.
If the SEC allows us to deduct Premium Enhancements credited to your contract
on the date of its cancellation during the free look period, when applicable
state law requires a return of premium, we will return to you the greater of;
1) premium payments paid less any withdrawals and Premium Enhancements credited
to the contract, or 2) the Contract Value plus any charges, and less any
Premium Enhancement made under this contract as of the date of cancellation.
You should know that in a declining market, your Contract Value may be even
less than your initial investment. For more information, see "Free Look Period"
under "Miscellaneous Provisions" below.
Financial Highlights
- --------------------------------------------------------------------------------
Financial highlights give the historical value for a single unit of each of
the available investment options and the number of units outstanding at the end
of each of the past ten years, or since the investment option began operations,
if less. The Financial Highlights tables are not provided at this time because
no contracts have been sold as of the date of this prospectus. More
information, including the Separate Account and Company financial statements,
is in the SAI and in the annual report. You may obtain a copy of the SAI by
calling the Annuity Operations Division at 800/541-0171.
Financial Statements
- --------------------------------------------------------------------------------
Unaudited financial statements of PHL Variable Accumulation Account for the
12 month period ended December 31, 2008 as well as audited financial statements
for the 12 month period ended December 31, 2007 and the results of its
operations and the changes in its net assets for each of the periods indicated
and the unaudited financial statements of PHL Variable Insurance Company for
the 9 month period ended September 30, 2008 as well as audited financial
statements for the 12 month periods ended December 31, 2007, December 31, 2006,
and December 31, 2005 are contained in the Statement of Additional Information
(SAI), which you can get free of charge by calling the toll free number given
on page one. The financial statements of PHL Variable Insurance Company
included herein should be considered only as bearing upon the ability of PHL
Variable Insurance Company to meet its obligations under the policies. You
should not consider them as bearing on the investment performance of the assets
held in the Separate Account or the Guaranteed Interest Account rates that we
credit during a guarantee period.
Performance History
- --------------------------------------------------------------------------------
We may include the performance history of the investment options in
advertisements, sales literature or reports. Performance information about each
investment option is based on past performance only and is not an indication of
future performance. Historical returns are usually calculated for one year,
five years and ten years. If the investment option has not been in existence
for at least one year, returns are calculated from inception of the investment
option. Standardized average annual total return is measured by comparing the
value of a hypothetical $1,000 investment in the investment option at the
beginning of the relevant period to the value of the investment at the end of
the period, assuming the reinvestment of all distributions at Net Asset Value
and the deduction of all applicable contract and surrender charges except for
taxes (which may vary by state). See the SAI for more information.
The Variable Accumulation Annuity
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"contract") issued by PHL Variable is significantly different from a fixed
annuity contract in that, unless your contract value is allocated and remains
in the GIA or MVA, it is the owner under a contract who bears the risk of
investment gain or loss rather than PHL Variable. To the extent that contract
value is allocated to the investment options of the Separate Account, the
amounts that will be available for annuity payments under a contract will
depend on the investment performance of the amounts allocated to the investment
options. Additionally, the contract has a Premium Enhancement feature which may
be elected at issue. Certain earnings are immediately credited to the contract
value every time you make a premium payment, however, certain restrictions
apply. Upon the maturity of a contract, you may select either a fixed or
variable annuity payment option.
13
Investment Features
Flexible Premium Payments
.. Other than the Minimum Initial Payment, there are no required premium
payments.
.. You may make premium payments anytime prior to the Maturity Date.
.. You can vary the amount and frequency of your premium payments.
Minimum Premium Payment
.. Generally, the minimum initial premium payment is $3,500 for a qualified
plan and $25,000 for nonqualified plans. For more information, see "Purchase
of Contracts."
Allocation of Premiums and Contract Value
.. Premium payments are invested in one or more of the investment options, GIA
and the MVA. Each investment option invests directly in a professionally
managed fund. GIA is not available in Massachusetts or Washington. The MVA
is not available for investment after the Maturity Date.
.. If you elect, the Premium Enhancement feature for your contract, we will add
a Premium Enhancement to Contract Value for each premium payment you make to
the contract until the contract anniversary next following the contract
owner's 80/th/ birthday. The Premium Enhancement will be invested in the
same way as your premium payments are allocated. Certain restrictions apply
to Premium Enhancements. The Premium Enhancement feature and its fees, are
described more fully in the "Premium Enhancement" and "Deductions and
Charges" sections of this prospectus.
.. Prior to the Maturity Date, you may elect to transfer all or any part of the
Contract Value among one or more investment options or the GIA, subject to
the limitations established for the GIA and the restrictions related to
disruptive trading and market timing. After the Maturity Date under variable
annuity payment options, you may elect to transfer all or any part of the
Contract Value among one or more investment options. For more information,
refer to "GIA," "Internet, Interactive Voice Response and Telephone
Transfers," and "Market Timing and Other Disruptive Trading."
.. Transfers between the investment options and from the investment options
into the MVA are subject to disruptive trading and market timing
restrictions. For more information, see "Market Timing and Other Disruptive
Trading." Transfers from the MVA may be subject to market value adjustments
and are subject to certain rules. For more information see "MVA" and the MVA
prospectus.
.. The Contract Value allocated to the investment options varies with the
investment performance of the funds and is not guaranteed.
.. The Contract Value allocated to the GIA will depend on deductions taken from
the GIA and interest accumulated at rates we set. Subject to state insurance
department approval, the Minimum Guaranteed Interest Rate will equal the
statutory required minimum interest rate under applicable state insurance
law where the contract is delivered (generally between 1% and 3%).
.. Payments and transfers to the GIA are subject to a maximum GIA percentage.
The maximum GIA percentage is the maximum amount of a premium payment or
total Contract Value that can be allocated to the GIA. The maximum amount is
expressed as a percentage and that percentage will never be more than 100%.
It currently is 5%.
.. You may participate in one of the asset allocation programs we offer. If you
elect an Optional Living Benefit, we require you to allocate all premium
payments and Contract Value to one of the programs approved for use with
those benefits. We may offer other programs in the future, however, whether
those programs will be made available to both current and prospective
contract owners will be determined at the sole discretion of the Company.
For more information about the programs, refer to "Asset Allocation and
Strategic Programs" below.
PHL Variable and the Separate 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 and
through brokers. Our executive and our administrative offices are located at
One American Row, Hartford, Connecticut, 06102-5056.
PHL Variable is a wholly owned subsidiary of Phoenix Life Insurance Company
("Phoenix") through its holding company, PM Holdings, Inc. 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.
On December 7, 1994, we established the Separate Account, 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 may not be used to pay liabilities arising out of any other
business that we may conduct. The Separate Account has several investment
options that invest in underlying mutual funds. Obligations under the contracts
are obligations of PHL Variable Insurance Company.
Contributions to the GIA and MVA are not invested in the Separate Account.
The GIA is part of the general account of PHL Variable (the "General Account").
The General Account supports all insurance and annuity obligations of PHL
Variable and is made up of all of its general assets other than those allocated
to any separate account such as the Separate
14
Account. The MVA is a non-unitized separate account established pursuant to
Connecticut insurance law. For more complete information see "GIA" and "MVA."
The Variable Investment Options
- --------------------------------------------------------------------------------
You choose the variable investment options to which you allocate your premium
payments. These variable investment options are investment options of the
Separate Account. The investment options invest in the underlying funds. You
are not investing directly in the underlying fund. Each underlying fund is a
portfolio of an open-end management investment company that is registered with
the SEC under the Investment Company Act of 1940. These underlying funds are
not publicly traded and are offered only through variable annuity and variable
life insurance products, or directly to tax qualified plans. They are not the
same retail mutual funds as those offered outside of a variable annuity or
variable life insurance product, or directly to tax qualified plans, although
the investment practices and fund names may be similar, and the portfolio
managers may be identical. Accordingly, the performance of the retail mutual
fund is likely to be different from that of the underlying fund, and you should
not compare the two.
The underlying funds 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 process is whether the
underlying fund or an affiliate of the underlying fund will compensate the
company for providing administrative, marketing, and support services that
would otherwise be provided by the underlying fund, the underlying fund'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 underlying funds based on recommendations made by the fund family or
distributor, whose selection criteria may differ from the company's selection
criteria.
Each underlying fund is reviewed periodically after having been selected.
Upon review, the company may remove an underlying fund or restrict allocation
of additional premium payments to an underlying fund if the company determines
the underlying fund no longer meets one or more of the criteria and/or if the
underlying fund has not attracted significant contract owner assets.
In addition, if any of the underlying funds become unavailable for allocating
premium payments, or if we believe that further investment in an underlying
fund is inappropriate for the purposes of the contract, we may substitute
another variable investment option. However, we will not make any substitutions
without notifying you and obtaining any state and SEC approval, if necessary.
From time to time we may make new variable investment options available.
You will find detailed information about the underlying funds and their
inherent risks in the current prospectuses for the underlying funds. Since each
option has varying degrees of risk, please read the prospectuses carefully.
There is no assurance that any of the underlying funds will meet its investment
objectives. Copies of the fund prospectuses may be obtained by writing to our
Annuity Operations Division or calling us at the address or telephone number
provided on the first page of this prospectus.
Administrative, Marketing and Support Service Fees
The Company and the principal underwriter for the Contracts have entered into
agreements with the investment adviser, subadviser, distributor, and/or
affiliated companies of most of the underlying funds. We have also entered into
agreements with the Phoenix Edge Series Fund and its advisor, Phoenix Variable
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 underlying funds.
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 underlying fund allocated to the variable investment options under the
contract or other contracts offered by the company. The amount of the fee that
an underlying fund and its affiliates pay the company and/or the company's
affiliates is negotiated and varies with each underlying fund. Aggregate fees
relating to the different underlying funds may be as much as 0.45% of the
average net assets of an underlying fund 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 underlying
fund out of its assets as part of its total annual operating expenses and is
not paid directly from the assets of your variable insurance product.
GIA
- --------------------------------------------------------------------------------
Note: Currently if you have an optional living benefit, you cannot transfer
or allocate premiums and Contract Values to the GIA. Your premiums are required
to be allocated in accordance to an asset allocation or strategic program. We
may remove this restriction at any time in the future, e.g. if you participate
in an Enhanced Dollar Cost Averaging Program.
In addition to the Separate Account, you may allocate premiums or transfer
values to the GIA. Amounts you allocate or transfer to the GIA become part of
our general account assets. You do not share in the investment experience of
those assets. Rather, we guarantee a minimum rate of return on the allocated
amount, as provided under the terms of your product. Although we are not
obligated to credit interest at a
15
higher rate than the minimum, we may credit interest at a higher rate than the
minimum for new and existing deposits.
We reserve the right to limit total deposits to the GIA, including transfers,
to no more than $250,000 during any one-week period per policy.
Prior to the Maturity Date you may make transfers into or out of the GIA
subject to the GIA restrictions described in this section. In general, you may
make only one transfer per year out of the GIA. The amount that can be
transferred out is limited to the greater of $1,000 or 25% of the Contract
Value in the GIA as of the date of the transfer. Also, the Contract Value
allocated to the GIA may be transferred out to one or more of the investment
options over a consecutive 4-year period according to the following schedule:
.Year One: 25% of the total value
.Year Two: 33% of remaining value
.Year Three: 50% of remaining value
.Year Four: 100% of remaining value
Transfers from the GIA may also be subject to other rules as described
throughout this prospectus. The GIA is available only during the accumulation
phase of your contract.
Because of exemptive and exclusionary provisions, we have not registered
interests in our general account under the Securities Act of 1933. Also, we
have not registered our general account as an investment company under the 1940
Act, as amended. Therefore, neither the general account nor any of its
interests are subject to these Acts, and the SEC has not reviewed the general
account disclosures. These disclosures may, however, be subject to certain
provisions of the federal securities law regarding accuracy and completeness of
statements made in this prospectus.
GIA Restrictions
Contracts are subject to a Maximum GIA Percentage provision that restricts
investments in the GIA. The Maximum GIA Percentage will never be more than
100%. It currently is 5%. No more than the Maximum GIA Percentage of each
premium payment may be allocated to the GIA. We will not permit transfers into
the GIA during the first year, nor allow any transfers during subsequent years
that would result in GIA investments exceeding the Maximum GIA Percentage of
Contract Value. If you have an Optional Living Benefit, you may not allocate
premiums or transfer values to the GIA. These restrictions as well as the
availability of the GIA are subject to state insurance department approval. GIA
is not available in Massachusetts and Washington.
MVA
- --------------------------------------------------------------------------------
Note: Currently if you elect an Optional Living Benefit, you may not allocate
premiums or transfer values to the MVA.
The MVA is an account that pays interest at a guaranteed rate if amounts
allocated to the MVA are held to the end of the guarantee period. If amounts
are withdrawn, transferred or applied to an Annuity Payment Option before the
end of the guarantee period, a market value adjustment will be made. The MVA is
available only during the accumulation phase of your contract. The MVA option
currently offers different guarantee periods, which provide you with the
ability to earn interest at different guaranteed rates on all or part of your
Contract Value. Each allocation has its own guaranteed rate and expiration
date. Because we change guaranteed rates periodically, amounts allocated to a
guarantee period at different times will have different guaranteed rates and
expiration dates. The applicable guaranteed rate, however, does not change
during the guarantee period.
We will notify you of the expiration of the guarantee period and of your
available options within 30 days of the expiration date. You will have 15 days
before and 15 days following the expiration date ("window period") to notify us
of your election. During this window period, any withdrawals or transfers from
the MVA will not be subject to a market value adjustment. Unless you elect to
transfer funds to a different guarantee period, to the investment options of
the Separate Account, to the GIA or elect to withdraw funds, we will begin
another guarantee period of the same duration as the one just ended and credit
interest at the current rate for that new guarantee period. If you choose a
guarantee period that is no longer available or if your original guarantee
period is no longer available, we will use the guarantee period with the next
longest duration.
We reserve the right, at any time, to discontinue guarantee periods or to
offer guarantee periods that differ from those available at the time your
contract was issued. Since guarantee periods may change, please contact us to
determine the current guarantee periods being offered.
Any withdrawal from or transfer out of the MVA will be subject to a market
value adjustment unless the effective date of the withdrawal is within the
window period. The market value adjustment will be applied to the amount being
withdrawn after the deduction of any applicable administrative charge and
before the deduction of any applicable surrender charges. The market value
adjustment can be positive or negative. The amount being withdrawn after
application of the market value adjustment can be greater than or less than the
amount withdrawn before the application of the market value adjustment.
A market value adjustment will not be applied upon the payment of the death
benefit.
The market value adjustment will reflect the relationship between the current
rate (defined below) for the amount being withdrawn and the guaranteed rate. It
is also reflective of the time remaining in the applicable guarantee period.
Generally, if the guaranteed rate is equal to or lower than the applicable
current rate, the market value adjustment will result in a lower payment upon
withdrawal. Conversely, if the guaranteed rate is higher than the applicable
current rate, the market value adjustment will produce a higher payment upon
withdrawal.
Assets allocated to the MVA are not part of the assets allocated to the
Separate Account or to PHL Variable's general account. The availability of the
MVA is subject to state approval. The MVA is more fully described in a separate
prospectus that should be read carefully before investing.
16
Deductions and Charges
- --------------------------------------------------------------------------------
Annual Administrative Charge
We deduct an annual administrative charge from the Contract Value. This
charge is used to reimburse us for some of the administrative expenses we incur
in establishing and maintaining the contracts.
The maximum annual administrative charge under a contract is $35. The current
annual administrative charge under a contract is $35, except in the states of
Texas, New Mexico, and Washington, in which the current charge is $30. This
charge is deducted annually on the contract anniversary date. It is deducted on
a pro rata basis from the investment options, GIA or MVA in which you have an
interest. If you fully surrender your contract, the full administrative fee if
applicable, will be deducted at the time of surrender. The administrative
charge will not be deducted (either annually or upon withdrawal) if your
Contract Value is $50,000 or more on the day the administrative charge is due.
This charge may be decreased but will never increase. If you elect Annuity
Payment Options I, J, K, M or N, the annual administrative charge after the
Maturity Date will be deducted from each annuity payment in equal amounts.
Daily Administrative Fee
We make a daily deduction from the Contract Value to cover the costs of
administration. This current fee is the maximum charged based on an annual rate
of 0.125% and is taken against the net assets of the investment options. It
compensates the company for administrative expenses that exceed revenues from
the annual administrative charge described above. (This fee is not deducted
from the GIA or MVA).
Market Value Adjustment
Any withdrawal from your MVA will be subject to a market value adjustment.
See the MVA prospectus for information relating to this option.
Guaranteed Minimum Accumulation Benefit Fee
If the Guaranteed Minimum Accumulation Benefit rider is part of your
contract, we will deduct a fee. The fee is deducted on each contract
anniversary during the ten-year term. If this benefit terminates on a contract
anniversary prior to the end of the term for any reason other than death or
commencement of annuity payments, the entire fee will be deducted. If this
benefit terminates on any other day prior to the end of the term for any reason
other than death or commencement of annuity payments, a prorated portion of the
fee will be deducted. The rider fee will be deducted from the total Contract
Value with each investment option bearing a pro rata share of such fee based on
the proportionate Contract Value of each investment option. We will waive the
fee if the benefit terminates due to death or commencement of annuity payments.
Should any of the investment options become depleted, we will proportionally
increase the deduction from the remaining investment options unless we agree
otherwise.
The fee percentage is locked in at the current fee at the time you elect this
benefit. Currently, the fee percentage is equal to 0.85%, multiplied by the
greater of the guaranteed amount and Contract Value on the day that the fee is
deducted. However, we reserve the right to charge up to 1.00%, multiplied by
the greater of the guaranteed amount or Contract Value on the day that the fee
is deducted. The fee for your rider is shown on the rider specifications page.
If you elect the Guaranteed Minimum Accumulation Benefit, you will be unable
to elect any other optional living benefit.
Phoenix Flexible Withdrawal Protector Fee
If you have elected Phoenix Flexible Withdrawal Protector for your contract,
we will deduct the rider fee on each rider anniversary while the rider is in
effect. Currently, the rider anniversary is the same as the contract
anniversary. The fee for this rider is a percentage of the greater of Contract
Value or the rider Benefit Base on the date the fee is deducted. We calculate
and deduct the rider fee amount after any applicable roll-up and before any
automatic step-up of the rider Benefit Base.
Sample calculation of the rider fee
Assume that you have reached the end of first rider year, and that your
rider fee percentage is 2.50%, your initial Benefit Base was $100,000, you
made an additional premium payment of $10,000 during the first rider year and
your Contract Value is $110,500. Also, assume that you made no withdrawals
during the rider year and that you have not elected to opt-out of automatic
step-ups.
The Benefit Base at the end of the first rider year is equal to the Benefit
Base on the rider date ($100,000) plus the amount of the additional premium
payment ($10,000) or $110,000.
Assume that your roll-up percentage is 6.5%. The roll-up amount is equal to
6.5% multiplied by the Benefit Base on the rider date ($100,000) plus the sum
of all subsequent premium payments made during the first rider year or [6.5%*
($100,000 + $10,000)] = $7,150.
The Benefit Base after roll-up is the current Benefit Base ($110,000)
compared to the following amount: the current Benefit Base ($110,000) plus the
roll-up amount for the first rider year ($7,150). The Benefit Base after
roll-up is therefore $117,150 ($110,000 + $7,150).
Your rider fee is $2,929 (2.50% of the greater of $110,500 and the
$117,150). This rider fee is assessed against your Contract Value and your
Contract Value becomes $107,571 ($110,500-$2,929).
When we calculate the step-up, we begin that calculation using the current
Contract Value, which in this example is $107,571.
17
The maximum fee percentage for Phoenix Flexible Withdrawal Protector is 2.50%
and the maximum additional fee percentage to add the optional Extended Care
Enhancement is 0.50%. The current fee for Phoenix Flexible Withdrawal Protector
varies between 0.60% and 1.80% depending on whether the single life or spousal
life option is selected and which asset allocation program is selected. An
additional current fee amount is charged if you add the Extended Care
Enhancement. This fee is currently 0.20% for either the single or spousal life
option regardless of the asset allocation program you select and is assessed
along with and in the same manner as the fee for the Phoenix Flexible
Withdrawal Protector without the Extended Care Enhancement. See the table of
"Optional Benefit Fees" for details.
You should know that if you change asset allocation programs during a rider
year and the rider fees related to the use of those programs are different, you
will pay the highest current rider fee associated with the various asset
allocation programs in which your Contract Value was invested during that rider
year. Additionally, we may increase your fee on the date of any automatic
step-up to the Benefit Base for this rider. If you do not decline an automatic
step-up, you will pay the current rider fee then in effect beginning on the
date of any automatic step-up of the Benefit Base.
Sample calculation of the rider fee after transfer to an asset allocation
program with a higher rider fee percentage
Assume that at the beginning of your rider year, the rider fee for the asset
allocation program you chose was 0.85% and that, during the rider year you
chose to reallocate all your Contract Value to another approved asset
allocation program for which the rider fee was 1.05%.
At the end of this rider year, your rider fee percentage will be 1.05%. This
rider fee percentage is applied to the greater of the Benefit Base and the
Contract Value. If the Benefit Base was $100,000 and the Contract Value was
$98,000, then the rider fee would be $1,050 (1.05% times $100,000).
In any case, the fee will not exceed the maximum percentage. See "Optional
Benefits", "Phoenix Flexible Withdrawal Protector" for additional information
on the potential impact of the step-up feature on the rider fee and your
ability to decline the step-up.
Unless we agree otherwise, the rider fee will be deducted from total Contract
Value with each investment option and, if allocation to the GIA is then
permitted, the GIA in which the contract has value bearing a pro rata share of
such fee based on the proportionate value in each of those accounts.
If this rider terminates on a contract anniversary for any reason other than
death or commencement of annuity payments, the entire rider fee will be
deducted. If this rider terminates on any other day, for any reason other than
death or commencement of annuity payments, a prorated portion of the fee will
be deducted. The prorated rider fee is calculated by multiplying the fee
percentage then in effect for the rider by the greater of the Benefit Base or
the Contract Value on the date the rider terminates, and then multiplying this
amount by the result of the number of days elapsed in the rider year divided by
the total number of days of that year.
If you elect the Phoenix Flexible Withdrawal Protector, you will be unable to
elect any other optional living benefit.
Phoenix Retirement Protector Fee
If you have elected the Phoenix Retirement Protector for your contract, we
will deduct the rider fee on each rider anniversary while the rider is in
effect. Currently, the rider anniversary is the same as the contract
anniversary. The fee for this rider is a percentage of the greatest of
(a) Contract Value, (b) the GMAB Benefit Base, and (c) the GMWB Benefit Base on
the date the fee is deducted. The rider fee amount is calculated and deducted
after any applicable roll-up of the GMWB Benefit Base and before any automatic
step-up of the GMWB Benefit Base and elective step-up of the GMAB Benefit Base.
See the section called "Optional Benefits", "Phoenix Retirement Protector" for
a description of the Benefit Base amounts, the roll-up and step-up features.
The maximum fee percentage for Phoenix Retirement Protector is 2.75% and the
maximum additional fee percentage to add the optional guaranteed minimum death
benefit is 0.50%. The current fee for the Phoenix Retirement Protector varies
between 1.10% and 1.45% depending on whether the single life or spousal life
option is selected. An additional fee amount is charged if you add the optional
guaranteed minimum death benefit. This fee is currently 0.50% for either the
single or spousal life option regardless of the asset allocation program you
select and is assessed along with and in the same manner as the fee for the
Phoenix Retirement Protector without the Guaranteed Minimum Death Benefit. See
the table of "Optional Benefit Fees" for details.
You should know that if you change asset allocation programs during a rider
year and the rider fees related to the use of those programs are different, you
will pay the highest current rider fee associated with the various asset
allocation programs in which your Contract Value was invested during that rider
year. Also, we may increase the rider fee for your rider on the date of any
automatic step-up of the GMWB Benefit Base or elective step-up of the GMAB
Benefit Base. If you do not decline an automatic step-up of the GMWB Benefit
Base or you elect a step-up of the GMAB Benefit Base, you will pay the current
rider fee then in effect beginning on the date of any step-up of the applicable
Benefit Base.
In any case, the rider fee will not exceed the maximum percentage. See
"Optional Benefits" for additional information on the potential impact of the
automatic step-up feature and the elective step-up feature on the rider fee and
your ability to decline the automatic step-up and/or not elect the elective
step-up.
18
Unless we agree otherwise, the rider fee will be deducted from total Contract
Value with each investment option and, if allocation to the GIA is then
permitted, the GIA in which the contract has value bearing a pro rata share of
such fee based on the proportionate value in each of those accounts.
If this rider terminates on a contract anniversary for any reason other than
death or commencement of annuity payments, the entire rider fee will be
deducted. If this rider terminates on any other day, for any reason other than
death or commencement of annuity payments, a prorated portion of the fee will
be deducted. The prorated rider fee is calculated by multiplying the fee
percentage then in effect for the rider by the greatest of the GMWB Benefit
Base, the GMAB Benefit Base and the Contract Value on the date the rider
terminates, and then multiplying this amount by the result of the number of
days elapsed in the rider year divided by the total number of days of that year.
If you elect the Phoenix Retirement Protector, you will be unable to elect
any other optional living benefit.
Mortality and Expense Risk Fee
We make a daily deduction from each investment option for the mortality and
expense risk fee. The charge is assessed daily against the net assets of the
investment options and varies based on the death benefit option you selected.
The maximum charge for any death benefit option is 1.875%. The current charge
under each death benefit option is equal to the following percentages on an
annual basis:
-----------------------------------------------------------------------------
Death Benefit Option 1 Return of
Premium Death Benefit Option 2 Annual Step-Up
-----------------------------------------------------------------------------
0.725% 0.975%
-----------------------------------------------------------------------------
Death Benefit Option 4
Death Benefit Option 3 Earnings Greater of Annual Step-Up or Annual
Enhancement Benefit Roll-Up
-----------------------------------------------------------------------------
0.975% 1.225%
-----------------------------------------------------------------------------
Although you bear the investment risk of the Series in which you invest, once
you begin receiving annuity payments that carry life contingencies the annuity
payments are guaranteed by us to continue for as long as the Annuitant lives.
We assume the risk that Annuitants as a class may live longer than expected
(requiring a greater number of annuity payments) and that our actual expenses
may be higher than the expense charges provided for in the contract.
In assuming the mortality risk, we promise to make these lifetime annuity
payments to the owner or other payee for as long as the Annuitant lives.
No mortality and expense risk fee is deducted from the GIA or MVA. If the
charges prove insufficient to cover actual administrative costs, then the loss
will be borne by us; conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to us.
We have concluded that there is a reasonable likelihood that the distribution
financing arrangement being used in connection with the contract will benefit
the Separate Account and the Contract Owners.
Premium Enhancement Fee
If the Premium Enhancement feature is part of your contract, we apply a
Premium Enhancement Fee. We make a daily deduction from each investment option
for the Premium Enhancement Fee. The charge is assessed daily against the net
assets of the investment options. The maximum charge is 1.50%. Currently, the
charge is 0.80%.
We have applied to the Securities and Exchange Commission (SEC) for
permission to deduct the Premium Enhancement under the circumstances described
in the Premium Enhancement Restrictions section of this prospectus. We will not
deduct Premium Enhancements on your contract unless, and if applicable, until
the SEC grants us permission. The application for exemptive relief (File
No. 812-13568) was filed with the SEC on August 22, 2008.
Surrender Charges
9-Year Surrender Charge Schedule (Maximum Surrender Charge as a % of Premium
Payment)
Complete Years From Receipt of Each Premium Payment
0.................................................. 9%
1.................................................. 8%
2.................................................. 7%
3.................................................. 6%
4.................................................. 5%
5.................................................. 4%
6.................................................. 3%
7.................................................. 2%
8.................................................. 1%
9+................................................. 0%
A surrender charge may apply to withdrawals or a full surrender of the
contract prior to the Maturity Date or after the Maturity Date under Variable
Annuity Payment Options K or L. The amount of a surrender charge depends on the
period of time your premium payments are held under the contract. The surrender
charge is designed to recover the expense of distributing contracts that are
terminated before distribution expenses have been recouped from revenue
generated by these contracts. They are contingent charges because they are paid
only if you surrender your contract within the surrender period. Surrender
charges are waived on the free withdrawal amount and on death benefits.
Surrender charges will not be imposed when you begin taking annuity payments on
or after the contract's Maturity Date. Also, no surrender charge will be taken
after the annuity period has begun except with respect to unscheduled
withdrawals under Annuity Payment Options K or L. For more information, see
"Annuity Payment Options." Any surrender charge imposed is deducted from
amounts withdrawn. The surrender charge is calculated on a first-in, first-out
basis. In other words, we calculate your surrender charge by assuming your
withdrawal is applied to premium payments in the order your premium payments
were received.
.. The surrender charge is deducted from amounts withdrawn in excess of the
Free Withdrawal Amount available at the time of the withdrawal. Each
Contract Year we allow you to withdraw a certain amount from the contract
without the imposition of a surrender charge. This is called the "Free
Withdrawal Amount." This amount
19
is determined each Contract Year and is comprised of 10% of premium payments
received that are still subject to a surrender charge. The amount is then
reduced by any withdrawals made during that Contract Year that have occurred
without the imposition of surrender charge. For example, amounts withdrawn
during the contract year that are not assessed a surrender charge because
they are out of the surrender charge period reduce the Free Withdrawal Amount
on a dollar for dollar basis. The value computed under the Free Withdrawal
Amount will decline as premium payments age beyond the surrender charge
period.
Amounts deducted to pay the surrender charges on partial withdrawals are
subject to a surrender charge. A surrender charge will be deducted from the
affected investment options, GIA and MVA on a pro rata basis. If you request a
net withdrawal of a specified amount, we will deduct the surrender charges from
the remaining Contract Value. This will result in an additional surrender
charge when a net withdrawal is requested. If you request a gross withdrawal of
a specified amount, we will deduct the surrender charges from the amount
requested. Any distribution costs not paid for by surrender charges will be
paid by PHL Variable from the assets of the General Account.
Any withdrawal from the MVA will be subject to a market value adjustment
unless the effective date of the withdrawal is within the window period. The
market value adjustment will be applied to the amount being withdrawn after the
deduction of any applicable administrative charge and before the deduction of
any applicable surrender charges. The market value adjustment can be positive
or negative. The amount being withdrawn after application of the market value
adjustment can be greater than or less than the amount withdrawn before the
application of the market value adjustment. For more information, see "MVA" or
refer to the MVA prospectus.
Under this contract surrender charges may be waived due to two life
situations: admission into a nursing home or a terminal illness. There are no
fees for these waivers.
Nursing Home Waiver. Prior to Maturity Date, you may surrender all or a
portion of the Contract Value (after any applicable market value adjustment is
applied) without a surrender charge, provided that:
(a)more than one year has elapsed since the Contract Date; and
(b)the withdrawal is requested within two years of the owner's admission into
a Licensed Nursing Home Facility; and
(c)the owner has been confined to the Licensed Nursing Home Facility (as
defined below) for at least the preceding 120 days.
If the surrender charge is waived under this waiver, no future Premium
Enhancements will be credited to the contract. If you surrender all or a
portion of the Contract Value, and if the SEC allows us, we will deduct from
the contract value the entire amount of any Premium Enhancement amount credited
to the contract during the 12-month period prior to the date we waive the
surrender charge.
This waiver is subject to state approval (note: this waiver is not available
in Massachusetts).
Licensed Nursing Home Facility: a state licensed hospital or state licensed
skilled or intermediate care nursing facility at which medical treatment is
available on a daily basis. The owner must provide us with satisfactory
evidence of confinement by written notice.
Terminal Illness Waiver. Prior to Maturity Date, you may surrender all or a
portion of the Contract Value (after any applicable market value adjustment is
applied) without a surrender charge, provided that we receive proof,
satisfactory to us, of the owner's terminal illness which is defined as an
illness or condition that is expected to result in the owner's death within six
months.
If the surrender charge is waived under this waiver, no future Premium
Enhancements will be credited to the contract. If you surrender all or a
portion of the Contract Value, and if the SEC allows us, we will deduct from
the contract value the entire amount of any Premium Enhancement amount credited
to the contract during the 12-month period prior to the date we waive the
surrender charge.
This waiver is subject to state approval (note: this waiver is not available
in Massachusetts).
Tax
Tax is considered to be any tax charged by a state or municipality on premium
payments, whether or not characterized as purchase payment premium tax (or
premium tax). It is also other state or local taxes imposed or any other
governmental fees which may be required based on the laws of the state or
municipality of delivery, the owner's state or municipality of residence on the
Contract Date. Taxes on premium payments currently range from 0% to 3.5% (the
amount of state premium payment tax, if any, will vary from state to state),
depending on the state. We will pay any premium payment tax, any other state or
local taxes imposed or other governmental fee due and will only reimburse
ourselves upon the remittance to the applicable state. For a list of states and
taxes, see "Appendix B."
We reserve the right, when calculating unit values, to deduct a credit or fee
with respect to any taxes we have paid for or reserved during the valuation
period that we determine to be attributable to the operation of a fund. No
federal income taxes are applicable under present law and we are not presently
making any such deduction.
Transfer Charge
Currently, there is no charge for transfers; however, we reserve the right to
charge a transfer fee of up to $20 per transfer after the first 12 transfers in
each contract year to defray administrative costs.
20
Reduced Fees, Credits and Excess Interest for Eligible Groups
We may reduce or eliminate the mortality and expense risk fee or the
withdrawal charge, or credit excess interest, when sales of the contracts are
made to certain eligible groups that result in savings of sales expenses. We
will consider the following characteristics:
(1)the size and type of the group of individuals to whom the contract is
offered;
(2)the amount of anticipated purchase payments;
(3)whether there is a preexisting relationship with the Company such as being
an employee of the Company or its affiliates and their spouses; or to
employees or agents who retire from the Company or its affiliates or Phoenix
Equity Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of the principal underwriter and registered representatives
of broker-dealers with whom PEPCO has selling agreements; and
(4)internal transfers from other contracts issued by the Company or an
affiliate, or making transfers of amounts held under qualified plans
sponsored by the Company or an affiliate.
Any reduction or elimination of the mortality and expense risk fee or the
withdrawal charge or credit of excess interest will not unfairly discriminate
against any person. We will make any reduction or credit according to our own
rules in effect at the time the contract was issued. We reserve the right to
change these rules from time to time.
Other Charges
As compensation for investment management services, the advisors to the funds
are entitled to a fee, payable monthly and based on an annual percentage of the
average daily Net Asset Values of each Series. These fund charges and other
fund expenses are described more fully in the fund prospectuses.
The Accumulation Period
- --------------------------------------------------------------------------------
The accumulation period is that time before annuity payments begin during
which your premium payments into the contract remain invested.
Accumulation Units
An Accumulation Unit is used to calculate the value of a contract. Each
investment option has a corresponding accumulation unit value. The number of
Accumulation Units of an investment option purchased with a specific premium
payment will be determined by dividing the premium payment by the value of an
Accumulation Unit in that investment option next determined after receipt of
the premium payment. The value of the Accumulation Units of an investment
option will vary depending upon the investment performance of the applicable
Series of the funds, the expenses charged against the fund and the charges and
deductions made against the investment option.
Accumulation Unit Values
On any date before the Maturity Date of the contract, the total value of the
Accumulation Units in an investment option can be computed by multiplying the
number of such units by the value of an Accumulation Unit on that date. The
value of an Accumulation Unit on a day other than a Valuation Date is the value
of the Accumulation Unit on the next Valuation Date. The number of Accumulation
Units credited to you in each investment option and their current value will be
reported to you at least annually.
Purchase of Contracts
Generally, we require minimum initial premium payments of:
.. Nonqualified plans--$25,000
.. Bank draft program--$150
. You may authorize your bank to draw $150 or more from your personal
checking account monthly to purchase units in any available investment
option or for deposit in the GIA or MVA. The amount you designate will be
automatically invested on the date the bank draws on your account.
.. Qualified plans--$3,500
The initial payment is due and payable before the contract becomes effective.
We require minimum subsequent premium payments of $100.
The minimum age of the proposed owner to purchase a Contract is the age of
majority in the state where the Contract is being purchased, or a guardian must
act on your behalf. Generally, a contract may not be purchased for a proposed
owner who is 86 years of age or older. Total premium payments in excess of
$1,000,000 cannot be made without our permission. While the owner is living and
the contract is in force, premium payments may be made anytime before the
Maturity Date of a contract.
Your initial payments will be applied within two days of our receipt if the
application for a contract is complete. If an incomplete application is
completed within five business days of receipt by our Annuity Operations
Division, your payment will be applied within two days of the completion of the
application. If our Annuity Operations Division does not accept the application
within five business days or if an order form is not completed within five
business days of receipt by our Annuity Operations Division, then your payment
will be immediately returned. You may request us to hold your premium payment
after the five day period while the application is completed and within two
days after completion we will apply your premium payment. Please note that
prior to the completion of your application or order form, we will hold the
premium in a suspense account, which is a noninterest bearing account.
Additional payments allocated to the GIA are deposited on the date of receipt
of payment at our Annuity Operations Division. Additional payments allocated to
investment options are used to purchase accumulation units of the investment
option(s), at the value of such Units next determined after the receipt of the
payment at our Annuity Operations Division.
21
Premium payments received under the contract will be allocated in any
combination to any investment option, GIA or MVA in the proportion you elect or
as otherwise changed by you from time to time; or in an approved asset
allocation or strategic program, as described below.
For certain eligible groups, we may reduce the minimum initial or subsequent
premium payment amount we accept for a contract. Factors in determining
qualifications for any such reduction include:
(1)the make-up and size of the prospective group;
(2)the method and frequency of premium payments; and
(3)the amount of compensation to be paid to registered representatives on each
premium payment.
Any reduction will not unfairly discriminate against any person. We will make
any such reduction according to our own rules in effect at the time the premium
payment is received. We reserve the right to change these rules from time to
time.
Payments to the GIA are subject to the Maximum GIA Percentage. If you elect
an optional living benefit rider, you may not allocate premiums or transfer
values to the GIA or MVA.
Premium Enhancement
Summary
Subject to state availability, this contract offers a Premium Enhancement
feature. You can elect the Premium Enhancement feature for your contract only
at the time you apply for your contract and the election is irrevocable.
If you purchase this feature, a Premium Enhancement will be credited to your
contract value at the time the initial premium payment and each subsequent
premium payment is applied to the contract. For information on how a Premium
Enhancement affects you if you exercise your "Free Look" privilege, please
refer to the sections entitled "Free Look Period" under Miscellaneous
Provisions and "Free Look Period" under the Contract Summary.
The Company expects to profit from the higher fees imposed for electing the
Premium Enhancement feature, Under certain circumstances, the contract owner
may be worse off for having received a Premium Enhancement. The circumstances
where the contract owner may be worse off for selecting the Premium Enhancement
are situations where, over time, Premium Enhancement fees exceed Premium
Enhancements credited to the contract. Also, in cases where there are market
losses, a Premium Enhancement will magnify the impact of those losses.
Additionally, if a contract is held for a longer period of time, the Premium
Enhancement fees paid will exceed the amount of Premium Enhancement credited to
the contract.
The Premium Enhancement amount is payable from the Company's General Account.
The Premium Enhancement amount will be applied to the Contract Value on the
valuation date we apply the premium to the contract. We will allocate each
Premium Enhancement amount to the investment options the same way as your
premium payments are allocated at the time we credit the Premium Enhancement.
Since the Premium Enhancement becomes part of the Contract Value, any charge
which is calculated based on Contract Value will be impacted by the application
of a Premium Enhancement. Additionally, the Premium Enhancements which are
applied to your Contract Value will experience investment gains or losses
associated with the investment option to which you have allocated your premium
and will be included in the calculation of a market value adjustment in the
case of requested withdrawals from the MVA.
Any Premium Enhancement credited to the Contract Value is not considered a
premium payment and will be considered as "earnings." The Enhancement is
treated as "earnings" and included in Contract Value for purposes of computing
Optional Living Benefits such as the GMAB, GMWB (Phoenix Flexible Withdrawal
Protector) or combination GMAB/GMWB (Phoenix Retirement Protector). See the
section of the prospectus that discusses Optional Living Benefit riders. The
Enhancement is treated as "earnings" and included in Contract Value for
purposes of determining the guaranteed benefit under any death benefit option.
The Enhancement is also treated as "earnings" and included in Contract Value
for purposes of withdrawals, free withdrawals, and tax purposes.
Your contractual right to any Premium Enhancement credited to your contract
does not fully vest until the surrender charge period tied to the premium
payment that the Premium Enhancement was credited to expires. As stated
earlier, in general, if you surrender or withdraw premium from your contract
within the surrender charge period, we will deduct a surrender charge from
those amounts at the time of withdrawal.
However, other restrictions apply to Premium Enhancements. Subject to SEC
approval, as discussed above, we will deduct any Premium Enhancement credited
to the Contract Value if the Premium Enhancement was credited:
. 12 months prior to exercising the Nursing Home Waiver or Terminal Illness
Waiver;
. 24 months prior to annuitization;
. During the free look period, if the contract was returned; or
. 12 months prior to the death date of a contract owner, unless a spousal
continuation is in effect.
We have applied to the Securities and Exchange Commission (SEC) for permission
to deduct the Premium Enhancement under the circumstances described in the
Premium Enhancement Restrictions section of this prospectus. We will not deduct
Premium Enhancements on your contract unless, and if applicable, until the SEC
grants us permission. The application for exemptive relief (File No. 812-13568)
was filed with the SEC on August 22, 2008.
Please review the remainder of this section for more complete details
concerning these restrictions.
22
Premium Enhancements are only credited prior to the contract anniversary
immediately following the contract owner's 80/th/ birthday (the age of the
oldest owner will apply if there are multiple owner's and the annuitant's age
will apply if the contract owner is not a natural person). Additionally, no
Premium Enhancements are credited during periods in which surrender charges are
being waived under the Nursing Home Waiver or Terminal Illness Waiver.
In the event that we are required to issue two new contracts to replace your
existing contract as the result of a court order, such as a divorce decree, we
will not apply any Premium Enhancement to existing Contract Value that is
simply being transferred from the original contract to the newly issued
contract.
Premium Enhancement Calculation
The amount of the Premium Enhancement is calculated as the product of the
premium payment and Premium Enhancement Percentage as described in the table
below. We only credit Premium Enhancements for premium payments received prior
to the contract anniversary immediately following the oldest Owner's 80/th/
birthday.
-----------------------------------------------------------------------------
Age of Oldest Owner on Contract Date Premium Enhancement Percentage
-----------------------------------------------------------------------------
Less than 81 7%
-----------------------------------------------------------------------------
81+ Not currently available
-----------------------------------------------------------------------------
Additionally, no Premium Enhancements are credited during periods in which
surrender charges are being waived under the Nursing Home Waiver or Terminal
Illness Waiver.
Premium Enhancement Restrictions
We have the right to deduct Premium Enhancements from the amount of certain
payments or refunds made to you under several circumstances as described below.
Following a transaction for which we deduct the Premium Enhancements, your
Contract Value will retain the investment experience associated with the
Premium Enhancements even after the Premium Enhancements are removed from your
contract.
We will deduct the full amount of all Premium Enhancements in the event that
the Contract Owner exercises the right to cancel the contract. In addition, if
we return the Contract Value upon the owner's exercise of the right to cancel,
the amount of the refund will include any positive or negative performance
associated with the Premium Enhancement. As a result, in a down market if you
have allocated Contract Value to the investment options, you may receive a
smaller refund amount if you chose the Premium Enhancement Feature than if you
had not elected that feature for your contract. Unless the contract has been
continued under the spousal continuation provision, we will deduct the full
amount of all Premium Enhancements (that have not been previously deducted)
applied to the contract within the twelve month period prior to the death date
of a contract owner. Regardless of the death benefit option elected, the
deduction will not cause the death benefit amount to be less than all premiums
paid to the contract less Adjusted Withdrawals.
We will deduct the full amount of any Premium Enhancement credited to the
Contract Value during the 24 months preceding your election to annuitize the
contract so long as those amounts have not been previously deducted.
We will deduct the full amounts of Premium Enhancements (that have not been
previously deducted) credited to the Contract Value during the 12 months
preceding the date we waive a surrender charge on a withdrawal from the
contract under the surrender charge waivers provided by the contract for
Nursing Home Confinement or Terminal Illness.
We have applied to the Securities and Exchange Commission (SEC) for
permission to deduct the Premium Enhancement from payments made to you under
the circumstances described above. We will not deduct Premium Enhancements on
your contract unless, and if applicable, until the SEC grants us permission.
The application for exemptive relief (File No. 812-13568) was filed with the
SEC on August 22, 2008.
There may be circumstances where you may be worse off for having purchased a
contract with the Premium Enhancement as opposed to a contract without the
Premium Enhancement. We issue a variety of contracts designed to meet different
retirement planning goals and other contracts have no Premium Enhancement
feature. These contracts with no Premium Enhancement feature do not have a
Premium Enhancement Fee. Depending on the length of time you own your contract,
and the market performance during that time, the higher expenses associated
with this contract may or may not be offset by the Premium Enhancement. You and
your financial advisor should decide if you may be better off not electing the
Premium Enhancement feature or with one of our other contracts. You and your
financial advisor should consider the following:
.. The length of time you plan to own the contract;
.. The frequency, amount, and timing of any withdrawals; and
.. The amount of any payments.
Additional Programs
If you have any Optional Living Benefit attached to your contract, we require
you to elect and continue to participate in a single approved asset allocation
program or the Optional Living Benefit will terminate. All initial and
subsequent premium payments and Contract Value must be allocated to your chosen
program beginning on the date your chosen rider is effective, which currently
must be the contract date. There is no charge to participate in any approved
program; however, the fee for the Optional Living Benefit may vary depending on
the program you choose and the fee may increase under certain circumstances.
See the table of "Optional Benefit Fees" and "Deductions and Charges."
Provided that you do not have any optional living benefit riders attached to
your contract, you may elect any of the additional programs described below at
any time and at no charge.
23
We may discontinue, modify or amend these programs as well as offer new
programs or change the programs that are approved for use with the Optional
Living Benefits in the future.
Asset Allocation and Strategic Programs
Asset allocation and strategic 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
asset allocation and strategic 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). We currently offer several asset
allocation programs many of which are approved for use with the Optional Living
Benefits. Information about the programs we currently offer and whether each is
approved for use with an Optional Living Benefit is provided below.
For ease of reference throughout this section, we refer to the asset
allocation and strategic programs described, simply as "programs", and we refer
to the asset allocation options available within the programs, as "options".
Some of these programs are funds offered under the contract. We do not charge
for participating in the programs or their options. You may participate in only
one asset allocation program at a time and your ability to use an asset
allocation program with Asset Rebalancing and Dollar Cost Averaging or Enhanced
Dollar Cost Averaging is limited as described in "Use of Dollar Cost Averaging
with Asset Rebalancing and Allocation Programs." Subject to regulatory
requirements and approvals, in the future we may modify or eliminate any
existing program or option within a program, or may offer other asset
allocation services which, at our discretion, may be available to current
and/or prospective contract owners. For the most current information on any
program or option, please contact your registered representative.
Selecting a Program and Option-Contracts without Optional Living Benefits
If you have not elected an Optional Living Benefit for your contract, you are
not required to elect an asset allocation program but may do so if you wish. If
you are interested in electing a program, you should consult with your
registered representative to discuss your choices. For certain programs, a
questionnaire may be used to help you and your registered representative assess
your financial needs, investment time horizon, and risk tolerance. You should
periodically review these factors to determine if you need to change programs
or options.
When you participate in a program, all of your premium payments and Contract
Value will be allocated to the investment options in accordance with your
selected program and, if applicable, the option within that program. You may,
at any time, switch your current program or option, and may elect any modified
or new programs or options the Company may make available subject to our rules
and rates then in effect. You may cancel your participation in a program at any
time, and later re-enroll in a program by contacting our Annuity Operations
Division. If a program is eliminated, we will notify you of the elimination and
you should consult with your registered representative to choose among the
other programs available at that time. To enroll in a program, you must
properly complete the election form we require and return it to our Annuity
Operations Division at the address shown on the first page of your prospectus.
Selecting a Program and Option-Contracts with Optional Living Benefits
If you purchase a contract with an Optional Living Benefit, you are required
to select one of the approved programs through which to allocate your premium
payments and Contract Value. When you participate in one of the approved
programs all your premium payments and Contract Value will be allocated to the
investment options in accordance with your selected program and, if applicable,
the option within that program. 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 or options. You may, at any time, switch your current program or
option to another approved program and may elect any modified or new programs
or options the Company may make available subject to our rules and rates then
in effect. Changing programs or options may change the fee for the Optional
Living Benefit on your contract. See the table of "Optional Benefit Fees" for
more information.
Although you may cancel your participation in a program, you should consult
your registered representative before doing so, as canceling the program will
cause your Optional Living Benefit to terminate without value. You may later
re-enroll in a program but re-enrollment will not reinstate an Optional Living
Benefit. If a program is eliminated, we will notify you of the elimination and
you should consult with your registered representative to choose among the
other programs available at that time. To enroll in a program, you must
properly complete the election form we require and return it to our Annuity
Operations Division at the address shown on the first page of your prospectus.
We currently offer the programs listed below.
.. AllianceBernstein VPS Wealth Appreciation Strategy Portfolio
.. AllianceBernstein VPS Balanced Wealth Strategy Portfolio
.. Franklin Templeton Founding Investment Strategy
.. Franklin Templeton Perspectives Asset Allocation Model
.. Phoenix-Ibbotson Strategic Asset Allocation, and
.. Phoenix Dynamic Asset Allocation Series.
If the GMAB or Phoenix Retirement Protector is part of your contract you may
only participate in the following programs:
.. Phoenix-Ibbotson Strategic Asset Allocation--Conservative Portfolio
24
.. Phoenix-Ibbotson Strategic Asset Allocation--Moderately Conservative
Portfolio
.. Phoenix Dynamic Asset Allocation Series: Moderate
If Phoenix Flexible Withdrawal Protector is part of your contract you may
participate in any of the programs described within this section except:
.. Phoenix-Ibbotson Strategic Asset Allocation--Aggressive Portfolio
.. Phoenix Dynamic Asset Allocation Series: Growth Portfolio
.. AllianceBernstein VPS Wealth Appreciation Strategy Portfolio
.. Phoenix Dynamic Asset Allocation Series: Aggressive Growth
A brief description of each program follows.
.. AllianceBernstein VPS Wealth Appreciation Strategy Portfolio
The AllianceBernstein VPS Wealth Appreciation Strategy portfolio invests in
an equity portfolio that is designed as a solution for investors who seek
equity returns but also want broad diversification of the related risks
across styles, capitalization ranges and geographic regions. In managing the
portfolio, the adviser efficiently diversifies between growth and value
equity investment styles, and between U.S. and non-U.S. markets. Normally,
the adviser's targeted blend for the equity portion of the portfolio is an
equal weighting of growth and value stocks (50% each). The portfolio may also
invest in real estate investment trusts, or REITs. This asset allocation
option is rebalanced as necessary in response to markets.
.. AllianceBernstein VPS Balanced Wealth Strategy
The AllianceBernstein VPS Balanced Wealth Strategy portfolio targets a
weighting of 60% equity securities and 40% debt securities with a goal of
providing moderate upside potential without excessive volatility. Investments
in real estate investment trusts, or REITs, are deemed to be 50% equity and
50% fixed-income for purposes of the overall target blend of the portfolio.
The targeted blend for the non-REIT portion of the equity component is an
equal weighting of growth and value stocks. This asset allocation option is
rebalanced as necessary in response to markets.
.. Franklin Templeton Founding Investment Strategy
Through the Franklin Templeton Founding Investment Strategy, premium payments
and Contract Value are allocated to the three investment options as listed
below. On a monthly basis, we will rebalance the Contract Value allocated to
the three investment options back to the original allocation percentages in
each investment option.
. Franklin Income Securities Fund--34%
. Mutual Shares Securities Fund--33%
. Templeton Growth Securities Fund--33%
.. Franklin Templeton Perspectives Allocation Model
Through the Franklin Templeton Perspectives Allocation Model, premium
payments and Contract Value are allocated to the three investment options as
listed below. On a monthly basis, we will rebalance the Contract Value
allocated to the three investment options back to the original allocation
percentages in each investment option.
. Franklin Flex Cap Growth Securities Fund--34%
. Mutual Shares Securities Fund--33%
. Templeton Growth Securities Fund--33%
.. Phoenix-Ibbotson Strategic Asset Allocation
PHL Variable and Ibbotson Associates have developed five asset allocation
options, each comprised of selected combinations of investment options.
Except as noted above, the options approved for use are:
. Conservative Portfolio which seeks conservation of capital and has a
portfolio allocation more heavily weighted in fixed income investments
than in equities.
. Moderately Conservative Portfolio which primarily seeks current income,
with capital growth as a secondary objective, and has a portfolio
allocation of approximately equal weightings in equities and fixed income
investments.
. Moderate Portfolio which seeks long-term capital growth and current income
with emphasis on current growth, and has a portfolio allocation more
heavily weighted in equities than in fixed income investments.
. Moderately Aggressive Portfolio which seeks long-term capital growth with
current income as a secondary objective, and has more than three quarters
of the portfolio in equities and less than one quarter in fixed income
investments.
. Aggressive Portfolio which seeks long-term capital growth and is invested
primarily in equities.
On a periodic basis (typically annually), Ibbotson evaluates the options and
updates them to respond to market conditions and to ensure style consistency.
If you select one of the Phoenix-Ibbotson options, your premium payments
(Contract Value for in force policies), however, will not be allocated in
accordance with the updated options unless you specifically request we do so.
If you elect to participate in this program, we will reallocate the Contract
Value allocated to the investment options included in the program so that,
following this reallocation, the percentage in each investment option equals
the percentage originally used for the program. We will make this reallocation
effective on the valuation date immediately preceding each anniversary of your
contract date for as long as the asset allocation program is in effect for your
contract. You should consult with your registered representative for the most
current information on this program and the options within the program.
25
.. Phoenix Dynamic Asset Allocation Series
The Phoenix Dynamic Asset Allocation Series are "funds of funds" that invest
in other mutual funds based on certain target percentages. The series were
designed on established principles of asset allocation and are intended to
provide various levels of potential total return at various levels of risk.
Asset allocations are updated quarterly, or more often, depending on changes
in the economy or markets. Each option is rebalanced regularly to maintain
adherence to predetermined asset classifications based on the risk profile
for the series. Except as noted above, the options approved for use are:
. Phoenix Dynamic Asset Allocation Series: Moderate
. Phoenix Dynamic Asset Allocation Series: Moderate Growth
. Phoenix Dynamic Asset Allocation Series: Growth
. Phoenix Dynamic Asset Allocation Series: Aggressive Growth
If you should elect any of the programs listed below, transfers made under
these programs will not reduce the 12 transfers per year limit under this
contract.
Asset Rebalancing Program
The Asset Rebalancing Program allows you to specify the percentage levels you
would like to maintain among the investment options. Asset Rebalancing does not
permit transfers to or from the GIA or the MVA. We will automatically rebalance
contract values among the investment options to maintain your selected
allocation percentages. You can choose to have us make these transfers monthly,
quarterly, semiannually or annually. You may start or discontinue this program
at any time by submitting a written request or calling our Annuity Operations
Division. The Asset Rebalancing Program does not ensure a profit nor guarantee
against a loss in a declining market. Except as described below, the Asset
Rebalancing Program is not available while the Dollar Cost Averaging Program is
in effect.
Dollar Cost Averaging Program
(Reminder that Premium Enhancements are included in the DCA calculations.)
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount to the investment options or GIA on a monthly, quarterly, semiannual or
annual basis. Generally, the minimum initial and subsequent transfer amounts
are $25 monthly, $75 quarterly, $150 semiannually or $300 annually. Also,
premium payments of $1,000,000 or more require our approval before we will
accept them for processing. You must have an initial value of $2,000 in the GIA
or in the investment option from which funds will be transferred (sending
investment option), and if the value in that investment option or the GIA drops
below the amount to be transferred, the entire remaining balance will be
transferred and no more systematic transfers will be processed. Values may be
transferred from only one sending investment option or from the GIA but may be
allocated to multiple receiving investment options. Under the Dollar Cost
Averaging Program, you may transfer approximately equal amounts from the GIA
over a period of 6 months or more. Transfers under the Dollar Cost Averaging
Program are not subject to the general restrictions on transfers from the GIA.
This program is not available for the MVA. There is no charge for participating
in this program.
Upon completion of the Dollar Cost Averaging Program, you must notify us at
800/541-0171 or in writing to our Annuity Operations Division to start another
Dollar Cost Averaging Program.
All transfers under the Dollar Cost Averaging Program will be executed on the
basis of values as of the first of the month rather than on the basis of values
next determined after receipt of the transfer request. If the first of the
month falls on a holiday or weekend, then the transfer will be processed on the
next succeeding Valuation Date.
Except as described below, the Dollar Cost Averaging Program is not available
to individuals who invest via a bank draft program or while the Asset
Rebalancing Program is in effect.
The Dollar Cost Averaging Program does not ensure a profit nor guarantee
against a loss in a declining market.
Transfers to the GIA under the Dollar Cost Averaging Program are subject to
the Maximum GIA Percentage.
We may at different times offer additional or multiple Dollar Cost Averaging
Programs, such as an Enhanced Dollar Cost Averaging Program. If elected, an
Enhanced Dollar Cost Averaging Program would entitle you to an enhanced GIA
interest rate for value, less applicable contract charges, allocated to the GIA
(Net Value) for a specified period of time.
You may cancel an Enhanced Dollar Cost Averaging Program at any time.
Choosing to cancel an Enhanced Dollar Cost Averaging Program prior to the end
of your chosen program period will not change the enhanced GIA interest rate
you are being credited.
In the event of an early cancellation the enhanced GIA rate will only be
applied to the Net Value allocated to your program from the start date of your
program to your cancellation date. The cancellation date is the valuation date
we receive your cancellation request in good order at our Annuity Operations
Division.
After the cancellation date, you may transfer the Net Value that was invested
in the Enhanced Dollar Cost Averaging Program from the GIA to the investment
options without being subject to the Maximum GIA Percentage.
We reserve the right to modify, suspend, or terminate any Dollar Cost
Averaging Program we offer.
Use of Dollar Cost Averaging with Asset Rebalancing and Allocation Programs
If you elect to participate in the Franklin Templeton Perspectives Allocation
Model, Franklin Templeton Founding Investment Strategy, or the Phoenix-Ibbotson
Strategic Asset Allocation Program then you may also elect to participate in
the following programs:
1.Dollar Cost Averaging or Enhanced Dollar Cost Averaging; and
26
2.Asset Rebalancing with monthly rebalancing in the Franklin Templeton
Perspectives Allocation Model or the Franklin Templeton Founding Investment
Strategy, or Asset Rebalancing with annual rebalancing in the
Phoenix-Ibbotson Strategic Asset Allocation Program.
If you elect both the Enhanced Dollar Cost Averaging and the Asset
Rebalancing Program, your entire dollar cost averaging transfer amount must be
allocated to the Allocation Program in effect for your contract.
Interest Investment Program
We may at different times offer an Interest Investment program. Under this
program, interest earned on premium allocated to the GIA will automatically be
transferred out to any of the investment options under the separate account.
You may elect to transfer interest earned on premium allocated to the GIA on
a monthly, quarterly, semiannual or annual basis. The amount that we transfer
under the program will be based on the interest earned for the period you
elect. We will process the automatic transfers on the first day of the month
for the period that applies following our receipt of your transfer request.
Should the first day of the applicable month fall on a holiday or weekend, we
will process the transfer on the next business day.
You must have a value of $10,000 in the GIA at all times to keep this program
in effect. If the value in the GIA drops below $10,000 for any reason, then no
more automatic transfers will be processed under the program. To start or stop
the Interest Investment Program, you must notify us at 800/541-0171 or send a
written request to our Annuity Operations Division.
Transfers under the Interest Investment Program are not subject to the
general restrictions on transfers from the GIA.
The Interest Investment Program is not available to individuals who invest
via a bank draft program or while the Dollar Cost Averaging Program or Asset
Rebalancing Program is in effect.
The Interest Investment Program does not ensure a profit nor guarantee
against a loss in a declining market. There is no charge associated with
participating in this program.
Systematic Withdrawal Program
Prior to the Maturity Date, you may partially withdraw amounts automatically
on a monthly, quarterly, semiannual or annual basis under the Systematic
Withdrawal Program. You may withdraw a specified dollar amount or a specified
percentage. The withdrawals are taken from the Contract Value with each
investment option, MVA and GIA bearing a pro rata share. Withdrawals from the
MVA may be subject to a market value adjustment.
The minimum withdrawal amount is $100. Withdrawals will be processed on each
monthly contract anniversary and any applicable surrender charges, market value
adjustment, and taxes will be applied.
You may start or terminate this program by sending written instructions to
our Annuity Operations Division. This program is not available on or after the
Maturity Date. There is no charge for participating in this program.
Optional Benefits
For an additional charge, you may elect one of the optional living benefits
described below. Generally you must elect a benefit on the Contract Date unless
otherwise stated. If we allow you to elect a benefit after the Contract Date,
the effective date of the benefit will be the next contract anniversary
immediately following your election. Some benefit elections are irrevocable;
others can be cancelled at any time after the Contract Date.
Your ability to elect one of the optional living benefits may be restricted
by minimum and maximum issue age requirements, ownership and beneficiary
limitations, and is subject to state availability and regulation. More details
are included in the form of a rider to your Contract if any of these benefits
are chosen.
If you decide to elect any of the optional living benefits you should
carefully review their provisions to be sure the benefit is something that you
want. You may wish to review these with your financial advisor.
Guaranteed Minimum Accumulation Benefit (GMAB)
The GMAB provides a guaranteed minimum return if funds remain invested
according to a designated asset allocation model for a ten-year term.
Currently, we only allow you to elect this rider on the Contract Date. This
rider may be terminated at any time by request.
A fee for this benefit is deducted on each contract anniversary during the
term of the benefit. See "Deductions and Charges" above.
The benefit is available if each owner and Annuitant are less than 81 years
old on the date that this rider is added to the Contract (the "rider date").
The GMAB is available only if you allocate your premiums to an approved asset
allocation or strategic program, and if you remain fully invested in the
program for the term of the benefit. See "Asset Allocation and Strategic
Programs" above.
The GMAB is also available to you if you have purchased this contract in
order to receive your mandatory after-death distributions using an
Inherited/Stretch Annuity. An Inherited/Stretch Annuity is available to an
individual or trust beneficiary of an Individual Retirement Account (IRA),
(including a Roth IRA), or Qualified Plan or to an individual beneficiary of a
Non-Qualified contract issued by PHL Variable or its affiliates or issued by a
company unaffiliated with PHL Variable. If the beneficiary of a contract issued
by a company unaffiliated with PHL Variable purchases this Phoenix Flexible
Retirement Choice/sm/ Contract, then the GMAB will be available to the
beneficiary. However, the beneficiary of this Phoenix Flexible Retirement
Choice/sm/ Contract cannot elect the GMAB because a beneficiary does not retain
the same rights under this Contract as the deceased owner. Certain limitations,
considerations and tax implications apply to this Feature and may differ
depending upon whether you have a IRA/Qualified or Non-Qualified Plan and
whether the beneficiary is an individual or a trust.
If you have purchased this contract in order to receive your mandatory
after-death distributions using an Inherited/Stretch Annuity, election of the
GMAB may not be in your best interest. Once inherited proceeds are in an
Inherited/Stretch
27
Annuity, mandatory annual distributions must be made based on the life
expectancy of the original beneficiary of the proceeds. Mandatory annual
distributions may diminish the attractiveness of electing the GMAB because
withdrawals made during the ten-year term of the rider decrease the amount of
the benefit available. Consult your financial professional and tax adviser to
determine whether this feature is right for you. See the section of this
prospectus entitled "Inherited/Stretch Annuity Feature" for more details.
Guaranteed Amount
The guaranteed amount is equal to the guaranteed amount base multiplied by
Guaranteed Amount Factor 1. The guaranteed amount base is equal to (A) plus
(B) minus (C), where:
A =the Contract Value on the rider date.
B =100% of each subsequent premium payment paid to the contract during the
first year of the 10-year period beginning on the rider date (the "term").
C =pro rata adjustment for withdrawals from the contract during the term.
The adjustment for each withdrawal is calculated by multiplying the
guaranteed amount base prior to the withdrawal by the ratio of the amount
withdrawn (including any applicable withdrawal fees) to the Contract
Value immediately prior to the withdrawal.
Currently, Guaranteed Amount Factors 1 and 2 are equal to 1.00.
Additional Amount
If on the last day of the term:
.. the Contract Value is less than the guaranteed amount base, we will add an
additional amount to the Contract Value equal to the difference between the
Contract Value and the guaranteed amount.
.. the Contract Value is greater than or equal to the guaranteed amount base,
we will add an additional amount to the Contract Value equal to the
guaranteed amount base multiplied by the difference between the Guaranteed
Amount Factor 2 and 1.00.
.. the contract annuitizes, the death of an owner or Annuitant occurs or a full
surrender is made, the Contract Value will reflect any additional amount
prior to the payment of any annuity, death or full surrender benefits. Note:
no additional amount will be paid if any of the above occurs prior to the
end of the term.
If on any day following the rider date, any portion of the Contract Value is
no longer invested according to an asset allocation or strategic program
established and maintained by us for this benefit, the benefit will terminate
and no additional amount will be added to the Contract Value.
Benefit Termination
This benefit will terminate at the end of the term or upon the occurrence of
any of the following:
.. the date that any portion of the Contract Value is not invested according to
an asset allocation or strategic program established and maintained by us
for the benefit;
.. the date that a full surrender is made;
.. the date of the first death of an owner unless the surviving spouse elects
spousal continuation of the contract and benefit;
.. the date that annuity payments commence; or
.. the date that the contract terminates.
If the benefit terminates for any of the above reasons prior to the end of
the term, an additional amount will not be paid.
Phoenix Flexible Withdrawal Protector/SM/: A Guaranteed Minimum Withdrawal
Benefit
- --------------------------------------------------------------------------------
Summary of Benefit
You may purchase the Phoenix Flexible Withdrawal Protector, which subject to
the rider's terms guarantees a minimum amount in payments or withdrawals from
the contract, and may also select the optional Extended Care Enhancement with
the rider for an additional charge. When you elect the Phoenix Flexible
Withdrawal Protector, the GMWB component is automatically included. You must
elect the Extended Care Enhancement to be included as part of the rider at the
time you purchase the contract. Currently, these benefits are only available
for purchase at the time you buy the contract and you may only purchase one
Optional Living Benefit with the contract. Once you reach the date on which you
can access the benefit according to the rider's terms, Phoenix Flexible
Withdrawal Protector guarantees a minimum amount in payments or withdrawals
from the contract provided you remain within certain restrictions and
limitations which are described below. Phoenix Flexible Withdrawal Protector
provides a lifetime benefit for the lifetime of one person if the single life
option is elected, or for the lifetime of two spouses if the spousal life
option is elected. The rider does not provide access to the benefit prior to
the date the youngest Covered Person reaches a particular age, which is
currently age 60 for the single life option and the younger spouse's age 65 for
the spousal life option. We call the date on which this occurs the Benefit
Eligibility Date. See "Important Terms and Conditions Related to Phoenix
Flexible Withdrawal Protector" below for the definition of "Covered Person" and
other important terms. However, prior to the Benefit Eligibility Date, the
value of the benefit can increase as a result of increases to the Benefit Base.
See "Events and features causing recalculation of the Benefit Base" below for
details. We call the annual amount of the rider's lifetime benefit, the Annual
Benefit Amount. As noted below, the Annual Benefit Amount represents two
distinct values depending on whether or not your Contract Value is greater than
zero. We calculate the Annual Benefit Amount on the later of the date you make
the first withdrawal and the Benefit Eligibility Date. On the date it is
calculated, the Annual Benefit Amount equals a percentage we call the Annual
Benefit Percentage, multiplied by a value we call the Benefit Base. The Annual
Benefit Percentage is an amount ranging from 0%-6% based on the attained age of
the youngest Covered Person on the date of the first withdrawal from the
contract. If you take a
28
withdrawal before the Benefit Eligibility Date, the Annual Benefit Percentage
will be zero and then will be permanently set to 4% on the Benefit Eligibility
Date. The Benefit Base is a value we calculate as described below for
determining the Annual Benefit Amount. Certain transactions and events under
the contract can increase or decrease the Benefit Base. In turn, these
transactions and events can increase or decrease the Annual Benefit Amount
thereby affecting the amount you receive in payments or withdrawals under the
benefit. We further define these terms, and describe the calculation of these
values, and how various contract transactions and events affect these values
below.
Annual Benefit Amount when Contract Value is greater than zero: Guaranteed
Withdrawals
Provided that no withdrawals have been made from the contract prior to the
Benefit Eligibility Date (the youngest Covered Person's 60/th/ birthday for the
single life option and 65/th/ birthday for the spousal life option), Phoenix
Flexible Withdrawal Protector guarantees a minimum amount of withdrawals you
can take from the contract each year after the Benefit Eligibility Date. This
amount is the Annual Benefit Amount. The Annual Benefit Amount is not available
for guaranteed withdrawals prior to the Benefit Eligibility Date. The rider
does not prevent you from taking withdrawals from the contract at any time;
however, taking withdrawals prior to the Benefit Eligibility Date may
significantly reduce or eliminate the value of the rider benefit. Please see
the chart of "Special Risks Associated with Withdrawals" at the end of this
section for details.
If you take withdrawals from the contract prior to the Benefit Eligibility
Date, the Benefit Base will be reduced by the withdrawal in the same proportion
as the Contract Value is reduced by the withdrawal. See "Taking Withdrawals".
So long as your remaining Benefit Base is greater than zero when you reach
the Benefit Eligibility Date, we will then calculate the Annual Benefit Amount
that becomes available to you at that time. The Annual Benefit Amount will be
equal to the Annual Benefit Percentage multiplied by the Benefit Base on that
date. However, if you take withdrawals before the Benefit Eligibility Date and
these withdrawals cause both your Contract Value and Benefit Base to become
zero, your rider will terminate without value. Since this is a lifetime
benefit, postponing withdrawals too long may limit the value of this rider
because your remaining life expectancy shortens as you age. You should
carefully consider your plans for taking withdrawals from the contract in
considering whether this benefit is appropriate for your goals.
After the Benefit Eligibility Date, withdrawals reduce the future value of
this benefit if they exceed the Annual Benefit Amount. We will reduce the
Benefit Base if cumulative withdrawals in a rider year are more than the Annual
Benefit Amount. This reduction affects the amount available for future
guaranteed withdrawals while the Contract Value is greater than zero and for
guaranteed payments when the Contract Value is zero. Please see the chart of
"Special Risks Associated with Withdrawals" at the end of this section for
details. Additionally, withdrawals that exceed the contract's free withdrawal
amount are subject to any surrender charges imposed under the contract.
Annual Benefit Amount when Contract Value is zero: Guaranteed Payments
If your Contract Value goes to zero on or after the Benefit Eligibility Date
(the youngest Covered Person's 60/th/ birthday for the single life option and
65/th/ birthday for the spousal life option), and you have met the conditions
of the benefit, the contract and all rights under the contract and rider
terminate but we will pay you the Annual Benefit Amount each year until the
first death of a Covered Person under the single life option or until the death
of the surviving spouse under the spousal life option. The Annual Benefit
Amount is not available for guaranteed payments until the Benefit Eligibility
Date.
Asset Allocation or Strategic Program Requirement
If you purchase Phoenix Flexible Withdrawal Protector, you must select one of
the approved asset allocation programs when allocating your premium payments
and Contract Value. 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,
at any time, switch your current program to another approved program the
Company may make available; however, the fee for the rider may vary depending
on the program or option you choose and the fee may increase under certain
circumstances. See the table of "Optional Benefit Fees" and "Deductions and
Charges" for details. We reserve the right to restrict availability of
investment options and programs.
Although you may cancel your participation in a program, you should consult
your registered representative before doing so, as canceling out of programs
altogether will cause the rider to terminate without value. You may request to
later re-enroll in a program however, re-enrollment will not reinstate the
rider. If a program is eliminated while the rider is in effect, we will provide
you notice and you must choose among the other approved programs available by
working with your registered representative to make an appropriate selection
and returning the form we require to the Annuity Operations Division.
Descriptions of the programs are found in "Asset Allocation and Strategic
Programs" above.
Important Terms and Conditions Related to Phoenix Flexible Withdrawal Protector
Since the rider is purchased with the contract, the rider date is the same as
the contract date and rider years are measured the same as contract years.
"Annual Benefit Percentage" is a percentage we use to determine the Annual
Benefit Amount. The percentage varies by age as shown below and is established
on the date you make the first withdrawal from the contract. If your first
withdrawal is prior to the Benefit Eligibility Date (the youngest Covered
Person's 60/th/ birthday for the single life option or 65/th/ birthday for the
spousal life option) this percentage is reset to 4% on the Benefit Eligibility
Date.
29
--------------------------------------------------------
Single Life Annual Benefit Spousal Life Annual Benefit
Attained Age Percentage Attained Age Percentage
--------------------------------------------------------
<60 0% <65 0%
--------------------------------------------------------
60-74 4% 65-74 4%
--------------------------------------------------------
75-84 5% 75-84 5%
--------------------------------------------------------
85+ 6% 85+ 6%
--------------------------------------------------------
"Benefit Eligibility Date" is the date the benefit provided by the rider is
first available to you.
. For the single life option, the Benefit Eligibility Date is the later of
the rider date and the date the youngest Covered Person, as defined below,
attains age 60.
. For the spousal life option, the Benefit Eligibility Date is the later of
the rider date and the date the youngest Covered Person attains age 65.
For the spousal life option, if either spouse dies prior to the Benefit
Eligibility Date, we will reset the Benefit Eligibility Date to the later
of the date of the first spousal death, and the date the surviving spouse
attains age 65.
"Covered Person(s)" means the person(s) whose life is used to determine the
duration of the lifetime Annual Benefit Amount payments. A Covered Person must
be a natural person.
. For the single life option, the Covered Person can be one or more lives.
If there is one natural person owner, the owner is the Covered Person. If
there are multiple natural person owners, all owners are Covered Persons.
If the owner is a non-natural person, all annuitants named in the contract
become the Covered Persons.
. For the spousal life option, Covered Persons must be two legal spouses
under federal law. If there is one natural person owner, the owner and the
owner's spouse must be the Covered Persons. The spouse must be the sole
beneficiary. If there are two spousal owners, the Covered Persons are the
spousal owners, and they must both be each other's beneficiary. If there
are multiple non-spousal owners, or if the owner is a non-natural person,
the spousal life option is not allowed.
Benefit Base
The Benefit Base is the amount established for the sole purpose of
determining the Annual Benefit Amount. As noted above, while the Contract Value
is greater than zero, so long as you have reached the Benefit Eligibility Date,
the Annual Benefit Amount is the amount available for withdrawals. When the
Contract Value goes to zero, so long as you have reached the Benefit
Eligibility Date, the Annual Benefit Amount is the amount we will pay to you
each year.
Assuming the Phoenix Flexible Withdrawal Protector rider was issued on the
date the contract was issued, the Benefit Base on that date equals the initial
premium payment. Thereafter, the Benefit Base is re-calculated whenever certain
triggering events occur. At any time while the rider is in effect, we will
reduce the Benefit Base if cumulative withdrawals in a rider year are more than
the Annual Benefit Amount, which, prior to the Benefit Eligibility Date, is
zero. Generally speaking, assuming no withdrawals have been taken, the Benefit
Base will be increased by additional premium payments (but not by any Premium
Enhancements on those payments), and may be increased as a result of the
roll-up and step-up features. Additionally, the Benefit Base may be increased
at a particular rider anniversary following the end of the roll-up period by an
aspect of the roll-up feature we call the Benefit Base Multiplier. We describe
events and features causing recalculation of the Benefit Base below. Under no
circumstances will the Benefit Base ever exceed a maximum amount. This maximum
amount is the sum of the Maximum Benefit Base Percentage, currently 500%,
multiplied by the initial premium plus the Maximum Benefit Base Percentage
multiplied by the sum of subsequent premiums in the first rider year, plus 100%
of other subsequent premiums.
Sample calculation of the Maximum Benefit Base
Assume that the initial premium on the rider date was $100,000 and that the
Maximum Benefit Base Percentage was 500%. On the rider date, your Maximum
Benefit Base is $500,000 (500% times $100,000).
Now assume that you make an additional premium payment of $20,000 during the
first rider year. Your Maximum Benefit Base would be increased to $600,000
[500,000 + (500% times $20,000)].
Then assume that you make another premium payment of $15,000, but that this
premium payment was made in the third rider year. Your Maximum Benefit Base
would be increased to $615,000 [$600,000 + (100% times $15,000)].
Events and features causing recalculation of the Benefit Base
.. Premium Payments Received After the Rider Date
If we receive premium payments after the rider date, and no withdrawals have
been made from the contract, then we will increase the Benefit Base. The
Benefit Base will be increased by the dollar amount of each premium payment
on the date we receive it. However, if you then take withdrawals from the
contract in excess of your Annual Benefit Amount, we will reduce the Benefit
Base as described in "Taking Withdrawals" below.
Withdrawals also stop increases in your Benefit Base that would have occurred
when additional premiums are received by us. If any withdrawal has been made
from the contract on or prior to our receipt of an additional premium, we
will not increase the Benefit Base as a result of premium payments made after
such withdrawal.
.. Roll-up Feature
The GMWB rider includes a roll-up feature. A roll-up feature allows for an
increase, or "roll-up," in the Benefit Base during a specified period of
time, called the roll-up period. The roll-up feature is only available to you
if no withdrawals have been taken from the contract. Currently, the roll-up
period continues until the 10/th/ rider anniversary following the later of
the rider date and the last rider anniversary on which an automatic step-up,
described below, occurs. In no event can the roll-up period extend beyond the
time the younger Covered Person attains a maximum age. This maximum age is
the greater of age 95 or the younger Covered Person's age on the rider date
plus 10 years. The increase in Benefit Base
30
resulting from a roll-up is based upon a comparison of the following three
values on each rider anniversary: (i) the Contract Value, (ii) the Benefit
Base, and (iii) the sum of the Benefit Base on the prior rider anniversary
plus the roll-up amount for the prior rider year, plus subsequent premium
payments received during the prior rider year. For calculation of the
increase in Benefit Base provided by the roll-up feature, "subsequent premium
payments" means premium payments received after the rider date, excluding
premium payments received on any rider anniversary and excluding any Premium
Enhancements. Generally, the roll-up amount is determined by multiplying the
Benefit Base at the end of the first rider year by a percentage, currently
6.5%. In subsequent rider anniversaries during the roll-up period, the
roll-up amount is normally the same value (assuming no withdrawals).
Withdrawals will cause the roll-up feature to become unavailable. If there
has been a prior automatic step-up, the roll-up amount is determined by
multiplying the Benefit Base at the time of the most recent automatic step-up
by a percentage, currently 6.5%.
If you have not taken withdrawals from the contract and therefore are
eligible for the roll-up feature of the rider, we will consider an additional
value in recalculating the Benefit Base on the rider anniversary at or
following the end of the roll-up period on which the youngest Covered Person
has attained age 70. This additional value applies the Benefit Base Multiplier,
currently 200%, to the sum of the Benefit Base on the rider date plus
subsequent premium received in the first rider year. The recalculation of the
Benefit Base under the various situations that can exist at the end of the
roll-up period is described below.
.. Rider Anniversaries During the Roll-up Period
On each rider anniversary during the roll-up period, if no withdrawals have
been made, the Benefit Base will be re-calculated on that rider anniversary.
The re-calculated Benefit Base will be set equal to the greater of the
following unless the automatic step-up feature has been suspended in which
case, it will be set to the second of the two values described below:
. the Contract Value then in effect, (after all fees have been deducted, and
provided the automatic step-up feature has not been suspended);
. the sum of (i) the Benefit Base on the prior rider anniversary plus any
premium payments since the prior rider anniversary and (ii) the roll-up
amount for the prior rider year, if any.
Example 1 - Basic application of a roll-up amount.
Assume that you have reached your first rider anniversary and have not made
any withdrawals. Assume further that your Benefit Base on your rider's
effective date was $100,000, your Contract Value is $105,000, you have not
made any subsequent premium payments during the prior rider year and the
automatic step-up has not been suspended.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $105,000
. Sum of (i) and (ii) = $106,500
(i)Benefit Base on prior rider anniversary = $100,000
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your Benefit Base will be $106,500.
Example 2 - Application of the roll-up amount when there is a prior automatic
step-up.
Assume that you have reached the second rider anniversary and have not made
any withdrawals. Assume further that your Benefit Base as of the last rider
anniversary was $108,000 due to an automatic step-up, your contract value is
$110,000, you have not made any subsequent premium payments during the prior
rider year and the automatic step-up has not been suspended.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $110,000
. Sum of (i) and (ii) = $115,020
(i)Benefit Base on prior rider anniversary = $108,000
(ii)Roll-Up Amount for prior rider year = $108,000 x 6.5% = $7,020
Your Benefit Base will be $115,020.
Example 3 - Application of the roll-up amount when several rider years have
elapsed with no prior automatic step-up.
Assume the Benefit Base on the first rider anniversary prior to any roll-up
calculation was $100,000. Assume that you have reached the fourth rider
anniversary without making any withdrawals and without having an automatic
step-up. The Benefit Bases are increased by the Roll-Up Amounts at the end of
each of the first 3 rider years and equal:
Year 1: $106,500 = $100,000 + $6,500
Year 2: $113,000 = $106,500 + $6,500
Year 3: $119,500 = $113,000 + $6,500
Assume that, on the 4/th/ rider anniversary, your contract value is $115,000
and you have not made any subsequent premium payments.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $115,000
. Sum of (i) and (ii) = $126,000
(i)Benefit Base on prior rider anniversary = $119,500
(ii)Roll-Up Amount for the recently completed rider year = $100,000 x 6.5%
= $6,500
Your Benefit Base will be $126,000.
31
Example 4 - Impact of a Subsequent Premium Payment on the Benefit Base.
Assume the Benefit Base on your rider's effective date was $100,000. Assume
there is no automatic step-up at the end of the first rider year and you have
not taken any withdrawals. The Benefit Base at the end of the 1st rider year
is increased by the Roll-Up Amount and equals $106,500 = $100,000 + $6,500.
Assume that 3 months into the 2/nd/ rider year you make a Subsequent Premium
Payment of $50,000. The Benefit Base is increased to $156,500 ($106,500 +
$50,000) due to the premium payment.
Assume that, on the 2/nd/ rider anniversary, your contract value is $140,000.
Your Benefit Base will be recalculated on your 2/nd/ rider anniversary to be
the greatest of the following:
. Contract Value = $140,000
. Benefit Base in Effect = $156,500
. Sum of (i), (ii), and (ii) = $163,000
(i)Benefit Base on prior rider anniversary = $106,500
(ii)Roll-Up Amount for the recently completed rider year = $100,000 X 6.5%
= $6,500
(iii)Subsequent Premium Payments during the recently completed rider year =
$50,000
Your Benefit Base will be $163,000.
.. The Rider Anniversary Following the End of the Roll-Up Period
If the roll-up period has ended, and no withdrawals have been made from the
contract, we will re-calculate the Benefit Base on the rider anniversary
following the end of the roll-up period.
When we recalculate the Benefit Base on the rider anniversary following the
end of the roll-up period, the amount of the recalculated Benefit Base will
depend on whether the youngest Covered Person has attained the Benefit Base
Multiplier Age, currently age 70, by that rider anniversary. If the youngest
Covered Person has not attained age 70 by the rider anniversary immediately
following the end of the roll-up period, then we will re-calculate the
Benefit Base again on the rider anniversary next following the date the
youngest Covered Person attains age 70. For each situation, the recalculated
Benefit Base is determined as described below.
1.Assuming the youngest Covered Person has not attained age 70 by the rider
anniversary immediately following the end of the roll-up period, then on that
rider anniversary, the Benefit Base will be set equal to the greater of the
following, unless the automatic step-up feature has been suspended in which
case, it will be set to the latter of the two values described below:
. the Contract Value then in effect, (after all fees have been deducted,
provided the automatic step-up feature has not been suspended);
. the sum of (i) the Benefit Base on the prior rider anniversary plus any
premium payments since the prior rider anniversary and (ii) the roll-up
amount for the prior rider year, if any.
Assume the Benefit Base on the first rider anniversary prior to any roll-up
calculation was $100,000 and that you have reached the rider anniversary
following the end of the roll-up period, the youngest Covered Person has not
yet attained age 70 and you have not made any withdrawals. Assume further that
your contract has never had an automatic step-up, your Benefit Base as of your
prior rider anniversary was $158,500, your Contract Value is $105,000, you
have not made any subsequent premium payments during the prior rider year and
the automatic step-up has not been suspended.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $105,000
. Sum of (i) and (ii) = $165,000
(i)Benefit Base on prior rider anniversary = $158,500
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your Benefit Base will be $165,000.
2.Assuming the youngest Covered Person has attained age 70 by the rider
anniversary immediately following the end of the roll-up period, then on that
rider anniversary, the Benefit Base will be set equal to the greatest of the
following, unless the automatic step-up feature has been suspended in which
case, it will be set to the greater of the latter two values described below:
. the Contract Value then in effect, (after all fees have been deducted,
provided the automatic step-up feature has not been suspended);
. the Benefit Base Multiplier, currently 200%, multiplied by the sum of
(i) the Benefit Base on the rider date, and (ii) all subsequent premium
payments received during the first rider year;
. the sum of (i) the Benefit Base on the prior rider anniversary plus any
premium payments since the prior rider anniversary and (ii) the roll-up
amount for the prior rider year, if any.
Assume that you have reached the rider anniversary following the end of the
roll-up period, the youngest Covered Person has attained age 70 and you have
not made any withdrawals. Assume further that your contract has never had an
automatic step-up, your Benefit Base as of your prior rider anniversary was
$158,500, your Benefit Base on the rider date was $100,000, your Contract
Value is $105,000, you have not made any subsequent premium payments after the
rider date and the automatic step-up has not been suspended.
32
Your Benefit Base will be re-calculated on your rider anniversary to be the
greatest of the following:
. Contract Value = $105,000
. 200% x Sum of (i) and (ii) = $200,000
(i)Benefit Base on the rider date = $100,000
(ii)Subsequent premium payments = $0
. Sum of (i) and (ii) = $165,000
(i)Benefit Base on prior rider anniversary = $158,500
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your Benefit Base will be $200,000.
.. Rider Anniversary Next Following Youngest Covered Person's 70/th/ Birthday
Occurring after the Rider Anniversary Immediately Following the End of the
Roll-Up Period
Assuming no withdrawals have been taken and the youngest Covered Person
attained age 70 after the rider anniversary immediately following the end of
the roll-up-period, then, on the next rider anniversary following the date
the youngest Covered Person attains age 70, the Benefit Base will be set
equal to the greatest of the following, unless the automatic step-up feature
has been suspended in which case, it will be set to the greater of the latter
two values described below:
. the Contract Value then in effect, after all fees have been deducted,
(provided the automatic step-up feature has not been suspended);
. the Benefit Base on the prior rider anniversary plus any premium payments
since the prior rider anniversary;
. the Benefit Base Multiplier, currently 200%, multiplied by the sum of
(i) the Benefit Base on the rider date and (ii) all subsequent premium
payments received during the first rider year.
Assume that you reached the rider anniversary following the end of the
roll-up period several years ago, but still have not made any withdrawals from
the contract. However, the youngest Covered Person celebrated his 70th
birthday during the prior rider year. Assume further, your Benefit Base on the
prior rider anniversary was $180,000, your Benefit Base on the rider date was
$100,000, your Contract Value is $105,000, you have not made any subsequent
premium payments after the rider date and the automatic step-up has not been
suspended.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greatest of the following:
. Contract Value = $105,000
. Benefit Base on prior rider anniversary = $180,000
. 200% x Sum of (i) and (ii) = $200,000
(i)Benefit Base on the rider date = $100,000
(ii)Subsequent premium payments = $0
Your Benefit Base will be $200,000.
.. Each Rider Anniversary After the Earlier of the First Withdrawal and the
Rider Anniversary Following the End of the Roll-Up Period (except Rider
Anniversary next following youngest Covered Person's 70/th/ birthday
occurring after the Rider Anniversary immediately following the end of the
Roll-Up Period).
On each rider anniversary after the earlier of the first withdrawal and the
rider anniversary following the end of the roll-up period, we will
re-calculate the Benefit Base. The Benefit Base will be set equal to the
greater of the following unless the automatic step-up feature has been
suspended, in which case it will be set to the second of the two values
described below:
. the Contract Value then in effect, after all fees have been deducted,
(provided the automatic step-up feature, described below, has not been
suspended); and
. the Benefit Base on the prior rider anniversary adjusted for any
withdrawals taken since the prior rider anniversary plus, if no
withdrawals have been made, any premium payments made since the prior
rider anniversary.
Assume that you made a withdrawal from the contract. Assume further, your
Benefit Base on prior rider anniversary was $106,500, your Contract Value is
$110,000 and the automatic step-up has not been suspended.
Your Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $110,000
. Benefit Base on prior rider anniversary = $106,500
Your Benefit Base will be $110,000.
.. Automatic Step-Up Feature
The Phoenix Flexible Withdrawal Protector rider includes an automatic step-up
feature. Like the roll-up feature, the automatic step-up feature allows for
an increase in the Benefit Base. At set intervals, currently on each
anniversary of the rider date, we will automatically compare the Contract
Value, after deduction of all fees, to the Benefit Base then in effect; that
is, the Benefit Base on the prior rider anniversary and, if no withdrawals
have been taken, any premium payments made since the prior rider anniversary
and reduced by withdrawals as described in "Taking Withdrawals". If the
Contract Value, after deduction of all fees, is greater than such Benefit
Base, we will automatically increase, or "step-up" the Benefit Base to equal
the Contract Value. Any step-up occurs after any roll-up as described above.
You should know the fee percentage for the rider may be increased if we
step-up the Benefit Base. If you do not decline the automatic step-up, you
will pay the current rider fee then in effect beginning on the date of any
automatic step-up of the Benefit Base. You can decline the step up and any
associated fee increase by contacting us no later than seven days prior to
the rider anniversary. If you decline the step-up, the automatic step-up will
not occur and the automatic step-up feature will be suspended immediately. If
you decline an automatic step-up in the Benefit Base, we will continue to
calculate any roll-ups as described above.
33
Assuming your rider is still in effect at the next step-up interval, you may
reactivate the automatic step-up option by contacting us at the phone number
or address provided on the first page of the prospectus.
.. Taking Withdrawals
The following section describes how taking withdrawals may impact the Benefit
Base. Prior to the Benefit Eligibility Date, a withdrawal will reduce the
Benefit Base by the same proportion as Contract Value is reduced by the
withdrawal. If the Benefit Base is greater than the Contract Value at the
time of the withdrawal, the withdrawal will reduce the Benefit Base by more
than the withdrawal amount as shown in the example below. Then, on the
Benefit Eligibility Date, which is generally the date the youngest Covered
Person attains age 60, if the single life option is in effect or the date the
younger spouse attains age 65, if the spousal life option is in effect, we
will calculate the Annual Benefit Amount using the reduced Benefit Base.
Assume the Contract Value is $50,000 and the Benefit Base is $75,000. A
withdrawal of $5,000 is made prior to the Benefit Eligibility Date. The
Contract Value is reduced by 10% ($5,000/$50,000) as a result of the
withdrawal. Therefore, the Benefit Base is reduced by 10% or $7,500. The new
Benefit Base is $75,000 - $7,500 = $67,500.
After you reach the Benefit Eligibility Date, whether withdrawals will reduce
the Benefit Base depends on whether cumulative withdrawals in any rider year
exceed the Annual Benefit Amount as described below. The Annual Benefit
Amount is not available to you for withdrawals or payments unless you have
reached the Benefit Eligibility Date.
. If cumulative withdrawals in any rider year after the Benefit Eligibility
Date do not exceed the Annual Benefit Amount then in effect, the Benefit
Base will not be reduced.
. If a withdrawal causes the cumulative withdrawals in any rider year after
the Benefit Eligibility Date to exceed the Annual Benefit Amount, the
amount withdrawn in excess of the Annual Benefit Amount and any subsequent
withdrawals in that rider 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. This reduction in
the Benefit Base reduces the amount of future permitted withdrawals and
may also reduce any amount available for guaranteed payments if the
Contract Value goes to zero.
. You should know that, currently, withdrawals taken after the Benefit
Eligibility Date 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 in a rider year
after the Benefit Eligibility Date will be considered excess withdrawals only
if they exceed the greatest of (a), (b) and (c), where:
(a) = thecurrent Annual Benefit Amount;
(b) = theRMD for the 1/st/ calendar year during the rider year; and
(c) = theRMD for the 2/nd/ calendar year during the same rider year.
Sample calculations showing the effect of a withdrawal that is equal to the
Annual Benefit Amount and then a withdrawal that is more than the Annual
Benefit Amount
Assume that your Contract Value is $100,000 and your Benefit Base is
$120,000. Assume you are making your first withdrawal and that you have
already reached the Benefit Eligibility Date.
Since this is your first withdrawal (and it is occurring after the Benefit
Eligibility Date), the Annual Benefit Percentage is determined by the youngest
Covered Person's attained age on the date of first withdrawal. Assume this
Annual Benefit Percentage is 5%. The Annual Benefit Amount therefore is
$6,000, which is 5% multiplied by the Benefit Base (5% times $120,000). Now
assume that the withdrawal amount is $6,000. Since your cumulative withdrawals
during the rider 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. So your Contract Value will decrease to
$94,000 as a result of your withdrawal, but your Benefit Base will remain at
$120,000.
Assume that later that rider 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 $16,000, 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 $120,000 to $107,500. Your Annual Benefit Amount would
be recalculated as 5% of $107,500 or $5,375.
You should know that withdrawals from the contract have other potential
consequences, including potential imposition of surrender charges and premium
taxes, and federal income tax consequences. Withdrawals, including withdrawals
taken to meet Required Minimum Distribution requirements that do not exceed the
Annual Benefit Amount are considered to be within the contract's free
withdrawal amount. However, withdrawals above the Annual Benefit Amount,
including withdrawals taken to meet Required Minimum Distribution requirements,
are subject to any surrender charges imposed under the contract. Please see
"Surrender of Contract and Withdrawals" and "Federal Income Taxes" for more
information.
Extended Care Enhancement
The Extended Care Enhancement is an optional feature available with the
Phoenix Flexible Withdrawal Protector rider
34
that allows for an increase in the Annual Benefit Amount when the Covered
Person is confined to a nursing home, and meets the conditions specified below.
As with other benefits provided by the rider, this benefit is available only on
and after the Benefit Eligibility Date. This feature is subject to state
availability.
Conditions
We will increase the Annual Benefit Amount when the Covered Person has been
confined to a nursing home as defined below for a least one day of the rider
year, and has met the elimination period and waiting period requirements. This
increase in the Annual Benefit Amount lasts for the same amount of time the
Covered Person is confined and is calculated as described below. To meet the
elimination period requirements, the Covered Person must have been confined to
a nursing home for at least 180 consecutive days within the last 365 days. To
meet the waiting period requirements, the Covered Person must not have been
confined to a nursing home 12 months before the rider date and twelve months
following the rider date. If you are confined to a nursing home during the
waiting period, you will never be eligible for benefits under the Extended Care
Enhancement.
. A nursing home is a facility that is licensed to operate pursuant to the
laws and regulations of the state in which is it located as a nursing home
to provide 24-hour convalescent and related nursing care services 7 days a
week by an on-site registered nurse on a continuing inpatient basis for
persons who are chronically ill or who otherwise require assistance in
performing the basic activities of daily living. The facility must provide
care prescribed by a physician and performed or supervised by a registered
graduate nurse. In addition the facility must have a planned program of
policies and procedures developed with the advice of, and periodically
reviewed by, at least one physician.
. A nursing home does not include a hospital (acute care), a rehabilitation
hospital, an assisted living facility, a facility for the treatment of
alcoholism, drug addiction, mental illness, or nervous disorders, a rest
home (a home for the aged or a retirement home), a residential care
facility, or any other facility which does not, as its primary function,
provide assistance in performing the basic activities of daily living.
No benefits under the Extended Care Enhancement feature will be provided if
other similar benefits have been purchased through the Company, or any of its
subsidiaries or affiliates.
If the Extended Care Enhancement feature is in effect, and you have met the
above conditions, we will determine the Annual Benefit Amount by multiplying
the Benefit Base by a specified percentage, currently 200%, multiplied by the
Annual Benefit Amount Percentage. When the Covered Person is no longer confined
to a nursing home, we will reduce the Annual Benefit Amount to that which is
ordinarily provided under the Phoenix Flexible Withdrawal Benefit.
Payment of the Annual Benefit Amount when the Contract Value is greater than
zero
The Annual Benefit Amount is not available to you before the Benefit
Eligibility Date. After you reach the Benefit Eligibility Date, you may take
withdrawals equal to the Annual Benefit Amount each year the Contract Value is
greater than zero. You can establish a Systematic Withdrawal Program for
payments equal to a specified amount or can request payments according to your
own schedule. See "Systematic Withdrawal Program" for additional details about
how to use this program and the program's restrictions.
Payment of the Annual Benefit Amount when the Contract Value is zero
The Annual Benefit Amount is not available to you before the Benefit
Eligibility Date. If, when the Contract Value goes to zero, the Benefit Base is
greater than zero, then, one month after the later of the date the Contract
Value goes to zero and the Benefit Eligibility Date, we will begin to pay you
equal monthly payments of an amount that will equal the Annual Benefit Amount
divided by twelve. We will make these payments under the single life option or
spousal life option, whichever you selected at the time you purchased the
rider. For the single life option, all Covered Persons must be living on the
date we make the first payment, and for the spousal life option, at least one
spouse must be living. Payments will continue until the first death of any
Covered Person(s) for the single life option, or until the death of the
surviving spouse for the spousal life option. We may change the payment
frequency to annual if a monthly payment would be otherwise less than any
minimum payment requirement.
Maximum Maturity Date Benefit
If your Contract Value is greater than zero and you cannot extend the
maturity date of the contract any later, this rider allows you to exchange the
Contract Value for lifetime payments equal to the Annual Benefit Amount in lieu
of applying the Contract Value to one of the annuity payment options offered
under the contract. Otherwise, your contract will enter the annuity period and
you may choose any of the annuity options then available. See "The Annuity
Period".
Termination of Phoenix Flexible Withdrawal Benefit
The rider will terminate without value on the date the first of any of the
following events occur:
1.any Covered Person is changed;
2.annuity payments begin under an annuity payment option as described in the
contract;
3.the contract, to which the rider is attached, terminates;
4.the owner elects to terminate the rider;
5.any portion of the Contract Value is no longer invested in one of the
approved asset allocation programs;
6.the Contract Value and Benefit Base are both reduced to zero;
7.any Covered Person under the single life option, or the surviving Covered
Person under the spousal life option dies; or
8.you assign any rights or interest in the rider.
Once the rider is terminated it cannot be reinstated and the pro rata portion
of the rider fee will be deducted from the Contract Value on the date the rider
terminates.
35
Special Risks Associated with Withdrawals
The following chart demonstrates special risks that are associated with
taking withdrawals when the Phoenix Flexible Withdrawal Protector is attached
to a contract when the Contract Value and Benefit Base are both greater than
zero. Whether or not a withdrawal is considered "permitted" or "excess" is
described in the section "Taking Withdrawals", in the description of the
Benefit Base. Also, withdrawals taken prior to the Benefit Eligibility Date can
negatively affect the value of the rider. See "Taking Withdrawals" in the
description of the Benefit Base. When the Contract Value is reduced to zero,
lifetime payments will begin and withdrawals are no longer allowed from the
contract.
Permitted Excess
Scenario No Withdrawals Withdrawals Withdrawals
- -------- -------------- ----------- -----------
Automatic Contract Value reduction...................................................... X X
Reduction to Benefit Base............................................................... X
Gives you the highest potential Annual Benefit Amount available under the rider/1/...... X
Cancels your ability to have subsequent premium payments automatically increase the
Benefit Base.......................................................................... X X
Cancels your ability to "roll-up" and increase your Benefit Base........................ X X
Reduces the likelihood of an automatic step-up/2/....................................... X X
Premium payments increase the Benefit Base.............................................. X
Potential to terminate the rider without value if reduces the Contract Value to zero.... X
Permanently sets the Annual Benefit Percentage.......................................... X X
Permanently sets the Annual Benefit Amount if the Contract Value is reduced to zero and
the Benefit Base is greater than zero................................................. X
Potential surrender charges............................................................. X
Potential premium taxes and/or federal income tax consequences.......................... X X
- -----------------
/1/ The potential Annual Benefit Amount is greatest if at the end of the
roll-up period, no withdrawals have been made and the youngest Covered
Person has attained the Benefit Base Multiplier Age.
/2/ In order to obtain an automatic step-up, your Contract Value must be
greater than your Benefit Base on the rider anniversary. If you make
withdrawals, your Contract Value will automatically decline, therefore
reducing the likelihood that your Contract Value will be greater than your
Benefit Base on your next rider anniversary, thus also reducing the
likelihood that you will be able to step-up your Benefit Base.
Phoenix Retirement Protector: A Flexible Combination Benefit
- --------------------------------------------------------------------------------
Summary of Benefit
You may purchase the Phoenix Retirement Protector for an additional charge.
Currently, this benefit is only available for purchase at the time you buy the
contract and you may only purchase one Optional Living Benefit with the
contract.
Phoenix Retirement Protector combines two different guarantees into one
rider: (i) a guaranteed minimum accumulation benefit ("GMAB"), and (ii) a
guaranteed minimum withdrawal benefit ("GMWB"). In addition, you may select an
optional guaranteed minimum death benefit ("GMDB") with the Phoenix Retirement
Protector for an additional charge. When you elect the Phoenix Retirement
Protector, the GMAB and GMWB components are automatically included. You must
elect the GMDB component to be included as part of the rider at the time you
purchase the contract. By purchasing this rider, you are able to obtain a GMAB
and a GMWB through the same contract. This may be appropriate if, at the time
you purchase your contract you want to be able to use the contract either for
maximum accumulation or for maximum ability to provide payments; however, you
should know that certain actions which have a positive impact on one component
of the benefit may have a negative impact on another component of the benefit.
As a result, you should carefully consider the impacts of various events and
transactions on each benefit component.
Additionally, some of the terms and features of the GMAB and GMWB components
of this benefit are different from the individually offered GMAB and GMWB
riders.
.. For example, the GMAB component offered under Phoenix Retirement Protector
provides for a step-up of the GMAB Benefit Base and a new 10-year GMAB
waiting period at the end of each GMAB waiting period; the stand-alone GMAB
rider does not provide for a step-up and only provides the initial 10-year
waiting period. You might want to consider the GMAB component offered under
Phoenix Retirement Protector if you want the opportunity to lock-in market
gains or if you have a longer investment horizon and could potentially
benefit from multiple waiting periods. However, if you simply want a return
of first-year premium at the end of the initial 10-year waiting period, then
the individually offered GMAB may be more appropriate for you.
.. For example, the GMWB component offered under Phoenix Retirement Protector
provides for a lifetime and a non-lifetime Annual Benefit Amount and allows
you to choose between lifetime and non-lifetime payments when the contract
value is reduced to zero; the stand-alone GMWB rider only provides a
lifetime Annual Benefit Amount. You might want to consider the GMWB
component offered under Phoenix Retirement Protector if you want the
flexibility to guarantee lifetime income payments or income payments over a
specified period of time or if you want the flexibility to defer the decision
36
between lifetime and non-lifetime payments to the date the Contract Value is
reduced to zero. However, if you know that you won't have a need for
non-lifetime income payments, then the individually offered GMWB may be more
appropriate for you.
.. In addition, if, on the date your contract is issued, you don't know what
your future accumulation and/or income needs may be, Phoenix Retirement
Protector may be appropriate for you because it provides a GMAB and GMWB
through the same contract and allows you to defer the decision between
accumulation and income. However, if, on the issue date, you know what your
future accumulation or income needs will be (and you know you won't have a
need for both accumulation and income benefits), then the individually
offered GMWB or GMAB may be more appropriate for you.
.. The fee is also different for the individually offered GMWB and GMAB riders
as compared to Phoenix Retirement Protector.
The basic benefits and risks of each component of Phoenix Retirement
Protector are described below and the sections that follow provide more
detailed descriptions of how the benefits are calculated.
The GMAB Component
The GMAB component of Phoenix Retirement Protector guarantees a return of a
specified percentage of premium after a waiting period regardless of the
performance of the asset allocation program(s) in which your premiums and
Contract Value have been invested. This feature may be important to you if you
are interested in maximizing your Contract Value during the accumulation
period. The GMAB does not in any way guarantee the performance of any of the
investment choices under the contract. Due to the potential negative effects of
withdrawals on this benefit, you should know that this benefit may have limited
usefulness if the contract is subject to the IRS minimum distribution
requirements. As a result, you should consult with your tax adviser before
selecting a rider with a GMAB feature.
The GMWB Component
The GMWB component guarantees a minimum amount in payments or withdrawals
from the contract provided you remain within certain restrictions and
limitations which are described below. When you elect this benefit you choose
whether to take withdrawals and payments under the single life option, or the
spousal life option. Once you make this election, you cannot change it. This
choice affects the amount of benefit you may be entitled to receive at various
ages and, once your Contract Value goes to zero, the life for which benefit
payments will be made.
Contract Value is greater than zero: Guaranteed Withdrawals
While the Contract Value is greater than zero, if you have met the GMWB's
terms and conditions, the GMWB component guarantees that you can make
withdrawals from the contract each year up to the Non-Lifetime Annual Benefit
Amount, or the Lifetime Annual Benefit Amount, as these terms are defined
below. The Non-Lifetime Annual Benefit Amount becomes available for withdrawals
on the rider date. The Lifetime Annual Benefit Amount is not available for
withdrawals until the date the youngest Covered Person covered by the rider
reaches a particular age, which is currently age 60 for the single life option
and age 65 for the spousal life option. We call this date the GMWB Benefit
Eligibility Date. The Non-Lifetime Annual Benefit Amount equals a percentage,
currently 7% multiplied by a value we call the "GMWB Benefit Base". The
Lifetime Annual Benefit Amount equals a percentage we call the "Lifetime Annual
Benefit Percentage" multiplied by the GMWB Benefit Base or, if the first
withdrawal occurs prior to the GMWB Benefit Eligibility Date, by the lesser of
the GMWB Benefit Base and the Contract Value. The Lifetime Annual Benefit
Percentage ranges from 0%-6% based on the attained age of the youngest Covered
Person on the date of the first withdrawal.
Withdrawals from the contract affect the Non-Lifetime Annual Benefit Amount,
the Lifetime Annual Benefit Amount, and the GMWB Benefit Base differently. We
have provided a brief summary below. See the "Taking Withdrawals" sections in
the description of the GMWB Component for a fuller discussion of the impact of
withdrawals.
.. Certain types of withdrawals will not impact the Non-Lifetime Annual Benefit
Amount or the Lifetime Annual Benefit Amount. Cumulative withdrawals in any
rider year within the Non-Lifetime Benefit Amount taken before or after the
GMWB Benefit Eligibility Date do not reduce the Non-Lifetime Annual Benefit
Amount. Cumulative withdrawals in any rider year within the Lifetime Annual
Benefit Amount, once you have reached the GMWB Benefit Eligibility Date, do
not reduce the Lifetime Annual Benefit Amount.
.. Certain types of withdrawals will impact the Non-Lifetime Annual Benefit
Amount or the Lifetime Annual Benefit Amount.
. Cumulative withdrawals in any rider year taken before or after the GMWB
Benefit Eligibility Date in excess of the Non-Lifetime Annual Benefit
Amount reduce the Non-Lifetime Annual Benefit Amount in the same
proportion as the Contract Value is reduced by the excess amount of the
withdrawals.
. Withdrawals taken prior to the GMWB Benefit Eligibility Date affect the
Lifetime Annual Benefit Amount in several ways. If you take a withdrawal
from the Contract prior to the GMWB Eligibility Date we will permanently
set the Lifetime Annual Benefit Percentage to 4% on the GMWB Benefit
Eligibility Date. You may also reduce the Lifetime Annual Benefit Amount
that becomes available to you on the GMWB Benefit Eligibility Date because
we will use a different calculation to determine the Lifetime Annual
Benefit Amount than we would have used had a withdrawal not been taken.
Additionally, withdrawals taken prior to the GMWB Benefit Eligibility Date
will reduce your GMWB Benefit Base and we will use the lesser of this
reduced GMWB Benefit Base and the Contract Value in calculating the
Lifetime Annual Benefit Amount on the GMWB Benefit Eligibility Date.
37
. Cumulative withdrawals in any rider year taken after the GMWB Benefit
Eligibility Date in excess of the Lifetime Annual Benefit Amount reduce
the Lifetime Annual Benefit Amount in the same proportion as the Contract
Value is reduced by the excess amount of the withdrawals.
Regardless of when a withdrawal is taken, withdrawals reduce the GMWB Benefit
Base either by the dollar amount of the withdrawal or by the same proportion as
the Contract Value is reduced by the withdrawal. (See the "Taking Withdrawals"
section in the description of the GMWB Component.)
The GMWB Benefit Base, and ultimately the Non-Lifetime and Lifetime Annual
Benefit Amounts, may be increased by premium payments and certain features of
the GMWB. We have described how premium payments, features of the rider, and
withdrawals affect the benefit in the section "GMWB Component" below.
Like Phoenix Flexible Withdrawal Protector, an alternative GMWB available
under this contract, this benefit does not prevent you from taking withdrawals
from the contract at any time; however, taking withdrawals prior to the GMWB
Benefit Eligibility Date or in excess of the Lifetime Annual Benefit Amount may
significantly reduce or eliminate the value of the lifetime guarantees provided
by the GMWB component of Phoenix Retirement Protector as described above and in
the chart of "Special Risks Associated with Withdrawals" at the end of this
section. You should know that withdrawals from the contract have other
potential consequences, including potential imposition of surrender charges and
premium taxes, and federal income tax consequences. Withdrawals that do not
exceed the greater of the Non-Lifetime and Lifetime Annual Benefit Amounts,
including withdrawals taken to meet Required Minimum Distributions, are
considered to be within the contract's free withdrawal amount and are not
subject to surrender charges under the contract. However, withdrawals,
including withdrawals taken to meet Required Minimum Distributions, that exceed
the greater of the Non-Lifetime and Lifetime Annual Benefit Amounts, as defined
below and the contract's free withdrawal amount are subject to any surrender
charges imposed under the contract. Please see "Surrender of Contract and
Withdrawals" and "Federal Income Taxes" for more information.
Contract Value is reduced to zero: Guaranteed Payments
If your Contract Value goes to zero and you have met the conditions of the
benefit, the contract and all rights under the contract and rider terminate,
and you must choose between lifetime or non-lifetime payments. You should know
that the GMWB component does not provide a lifetime benefit amount prior to the
GMWB Benefit Eligibility Date.
If both the lifetime and non-lifetime options are available to you and you
choose lifetime payments, we will pay you the Lifetime Annual Benefit Amount
each year until the first death of a Covered Person under the single life
option or until the death of the surviving spouse under the spousal life
option. If you choose non-lifetime payments, we will pay you the Non-Lifetime
Annual Benefit Amount until the GMWB Benefit Base is reduced to zero.
GMDB Component
As noted above, the Phoenix Retirement Protector offers a guaranteed minimum
death benefit (GMDB) component which you can elect for an additional fee. The
benefit provides a higher GMDB than is provided under the contract so long as
the GMDB Benefit Base under the rider exceeds the GMDB under the contract. You
may wish to consider this benefit if your goal is to provide a higher death
benefit.
Asset Allocation or Strategic Program Requirement
If you purchase Phoenix Retirement Protector, you must select one of the
approved asset allocation programs when allocating your premium payments and
Contract Value. 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,
at any time, switch your current program to another approved program the
Company may make available; however, the fee for the rider may vary depending
on the program or option you choose and the fee may increase under certain
circumstances. See the table of "Optional Benefit Fees" and "Deductions and
Charges" for details. 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 out of programs
altogether will cause the rider to terminate without value. You may request to
later re-enroll in a program however re-enrollment will not reinstate the
Phoenix Retirement Protector rider. If a program is eliminated while the rider
is in effect, we will provide you notice and you must choose among the other
approved programs available by working with your registered representative to
make an appropriate selection and returning the form we require to the Annuity
Operations Division. Descriptions of the programs are found in "Asset
Allocation and Strategic Programs" above.
Important Terms and Conditions related to Phoenix Retirement Protector
Currently, we offer this benefit only at the time you buy a contract. As a
result, the rider date is the same as the contract date and rider years are the
same as contract years.
(i) Guaranteed Minimum Accumulation Benefit ("GMAB") Component
The GMAB component of the rider guarantees a return of a specified percentage
of premiums after each GMAB Waiting Period. A GMAB Waiting Period represents
the period of time that must elapse before you qualify for benefits under the
GMAB component of the rider. Currently, the GMAB Waiting Period is 10 years,
measured from the rider date. The amount of the benefit available after the
waiting period depends on the relationship of the Contract Value to a value we
call the "GMAB Benefit Base", which is described below. After the initial GMAB
Waiting Period, we will automatically compare the GMAB Benefit Base to the
Contract Value after all fees have been deducted. If the GMAB Benefit Base is
greater than the Contract Value after all fees have been deducted, we will add
an additional amount to your Contract Value and therefore your new Contract
Value will equal the GMAB Benefit Base. Whenever such addition occurs, a new
GMAB Waiting Period
38
begins. In addition, you may elect to increase, or "step-up" the GMAB Benefit
Base as specified below. A new GMAB Waiting Period also begins when you step-up
the GMAB Benefit Base. Each new GMAB Waiting Period supersedes any GMAB Waiting
Period already in progress and delays the time when we will determine if an
additional amount will be added to the Contract Value.
GMAB Benefit Base
As noted above, we compare the Contract Value to the GMAB Benefit Base to
determine if an additional amount will be added to the Contract Value at the
end of each GMAB Waiting Period. Assuming the rider was issued on the date the
contract was issued, the GMAB Benefit Base is equal to the initial premium
payment. Thereafter, the GMAB Benefit Base is re-calculated whenever certain
triggering events occur. Generally speaking, the GMAB Benefit Base will be
increased by a percentage of subsequent premium payments, and may be increased
by the elective step up feature. Under no circumstances will the GMAB Benefit
Base ever exceed a maximum amount equal to 500% of subsequent premiums in the
first rider year, plus 100% of other subsequent premiums. The GMAB Benefit Base
will be set equal to zero on the date the Contract Value is reduced to zero.
Events and features causing recalculation of the GMAB Benefit Base
.. Premium Payments Received After the Rider Date
The GMAB Benefit Base will be increased by 100% of any premium payment
received after the rider date and within the first rider year in each GMAB
Waiting Period. Premiums received following the first rider anniversary
within each GMAB Waiting Period do not increase the GMAB Benefit Base.
Sample calculation showing the effect of subsequent premium payments on GMAB
Benefit Base
Assume the rider date is June 12, 2009 and that your initial premium payment
on the rider date is $100,000. Your GMAB Benefit Base is set equal to $100,000.
Assume that you make an additional premium payment of $10,000 on August 24,
2009. Since this premium payment was made in the first year during the GMAB
Waiting Period, 100% of the premium payment is added to the GMAB Benefit Base.
Thus the GMAB Benefit Base is increased to $110,000.
Assume that you make another premium payment of $10,000 on April 5, 2012.
Also assume that you have not made an elective GMAB Step-Up since the rider
date. Since this premium payment was made in the third year during the GMAB
Waiting Period, the GMAB Benefit Base is not increased.
.. Elective GMAB Step-Up
You may elect to increase, or "step up" the GMAB Benefit Base each rider year
when the Contract Value is greater than the GMAB Benefit Base. To elect to
step up the GMAB Benefit Base, you must notify us of this election at least 7
days before the end of the rider year. Then we will increase the GMAB Benefit
Base to equal the Contract Value on the rider anniversary and a new GMAB
Waiting Period will begin. If the GMWB automatic step-up has been suspended
(see "Automatic Step-Up Feature" under Guaranteed Minimum Withdrawal Benefit
Component below), you may not elect the GMAB step-up until you have
reactivated the GMWB automatic step-up.
Sample calculation showing the effect of the elective GMAB Step-Up
Assume the rider date is June 12, 2009 and that your initial premium payment
on the rider date is $100,000. Your GMAB Benefit Base is set equal to $100,000.
Assume that as you approach your June 12, 2015 rider anniversary, you wish
to make an elective GMAB Step-Up because your Contract Value has increased
since the rider date. Assume that you provide notice more than seven days
prior to this anniversary of your request to step up and that you have not
opted out of the GMWB step-ups.
Assume that on June 12, 2015 that Contract Value is $170,000. Since you have
elected a GMAB step-up, your GMAB Benefit Base is increased to $170,000 and
you begin a new GMAB Waiting Period.
Assume that you make an additional premium payment of $10,000 on August 24,
2015. Since this premium payment was made in the first rider year of the
current GMAB Waiting Period, the GMAB Benefit Base is increased by the amount
of the premium payment. Thus the GMAB Benefit Base is increased to $180,000.
.. First Day Following the End of Each GMAB Waiting Period
On the first day following the end of each GMAB Waiting Period, if the GMAB
Benefit Base is less than the Contract Value, the GMAB Benefit Base will be
set equal to the Contact Value, after all fees have been deducted.
.. Withdrawals from the Contract
On the date of any withdrawal from the contract, the GMAB Benefit Base will
be reduced in the same proportion as the Contract Value is reduced by the
withdrawal.
Sample calculation showing the effect of withdrawals on the GMAB Benefit Base
Assume the rider date is June 12, 2009 and that your initial premium payment
on the rider date is $100,000. Your GMAB Benefit Base is set equal to $100,000.
Assume you make a withdrawal of $14,000 on September 7, 2015 and that your
Contract Value on that date was $140,000. In this case, the reduction in
Contract Value is 10% ($14,000 divided by $140,000), and accordingly, your
GMAB Benefit Base is reduced by 10% to $90,000 ($100,000* 10% = $10,000 and
$100,000 - $10,000 = $90,000).
Important Considerations Regarding These Events
If your intention is to obtain the benefit provided by the GMAB component at
the earliest possible date, you need to complete the initial GMAB Waiting
Period, currently ten years.
39
This means that: (1) your initial premium plus subsequent premium payments made
in the first rider year is the amount that you wish to guarantee; and (2) you
should not make subsequent premium payments after the first rider year or elect
to step up your GMAB Benefit Base in the first ten rider years. You should also
understand that although making additional premium payments after the first
rider year may reduce the benefit that could be paid at the end of the initial
GMAB waiting period, they have the potential to increase the GMAB Benefit Base
(elective GMAB Step-Up) and the GMWB Benefit Base. You should work with your
registered representative to determine what decision best suits your financial
needs.
(ii) Guaranteed Minimum Withdrawal Benefit ("GMWB") Component
The GMWB component of this rider provides for a lifetime and non-lifetime
guaranteed minimum withdrawal benefit. On the rider date, you must choose
between the single life option and the spousal life option and you cannot
change your election. On the date the Contract Value is reduced to zero, you
must choose between lifetime and non-lifetime payments.
The following terms are important to an understanding of this component.
"Annual Benefit Percentage" is a percentage we use to determine the Annual
Benefit Amount. The Non-Lifetime Annual Benefit Percentage is currently 7%. For
the Lifetime Annual Benefit Percentage, the percentage varies by age as shown
below and is established on the date you make the first withdrawal from the
contract. If your first withdrawal is prior to the GMWB Benefit Eligibility
Date (youngest Covered Person's 60/th/ birthday for the single life option or
65/th/ birthday for the spousal life option), this percentage is permanently
set to 4% on the GMWB Benefit Eligibility Date.
---------------------------------------------------------------
Lifetime Lifetime
Single Life Annual Benefit Spousal Life Annual Benefit
Attained Age Percentage Attained Age Percentage
---------------------------------------------------------------
<60 0% <65 0%
---------------------------------------------------------------
60-74 4% 65-74 4%
---------------------------------------------------------------
75-84 5% 75-84 5%
---------------------------------------------------------------
85+ 6% 85+ 6%
---------------------------------------------------------------
"Covered Person(s)" means the person(s) whose life is used to determine the
duration of lifetime payments. A Covered Person must be a natural person.
For the single life option, the Covered Person can be one or more lives. If
there is one natural person owner, the owner is the Covered Person. If there
are multiple natural person owners, all owners are Covered Persons. If the
owner is a non-natural person, all annuitants named in the contract become the
Covered Persons.
For the spousal life option, Covered Persons must be two legal spouses under
federal law. If there is one natural person owner, the owner and the owner's
spouse must be the Covered Persons. The spouse must be the sole beneficiary. If
there are two spousal owners, the Covered Persons are the spousal owners, and
they must both be each other's beneficiary. If there are multiple non-spousal
owners, or if the owner is a non-natural person, the spousal life option is not
allowed.
"GMWB Benefit Base" is the amount established for the sole purpose of
determining the Lifetime and Non-Lifetime Annual Benefit Amount. As noted
above, while the Contract Value is greater than zero, the Lifetime or
Non-Lifetime Annual Benefit Amount is the amount available for withdrawals.
When the Contract Value goes to zero the Lifetime or Non-Lifetime Annual
Benefit Amount is the amount we will pay to you each year.
On the rider date, the GMWB Benefit Base is equal to the initial premium.
Thereafter, the GWMB Benefit Base is recalculated whenever certain triggering
events occur. Generally speaking, assuming no withdrawals have been taken, the
GMWB Benefit Base will be increased by additional premium payments, and may be
increased as a result of the roll-up and step-up features. Additionally, the
GMWB Benefit Base may be increased at a particular rider anniversary following
the end of the roll-up period by an aspect of the roll-up feature we call the
Benefit Base Multiplier. We describe events and features causing recalculation
of the GMWB Benefit Base below. Under no circumstances will the GMWB Benefit
Base ever exceed a maximum amount. This maximum amount is the sum of 500% of
the initial premium plus 500% of subsequent premiums in the first rider year,
plus 100% of other subsequent premiums. We will reduce the GMWB Benefit Base
for any withdrawals from the contract. The amount of the reduction depends on
whether cumulative withdrawals in a rider year exceed the Non-Lifetime Annual
Benefit Amount. If they do not exceed this amount, we will reduce the GMWB
Benefit Base by the dollar amount of each withdrawal. If they do exceed the
Non-Lifetime Annual Benefit Amount, we will reduce the GMWB Benefit Base by the
same proportion as the Contract Value is reduced by the amount of the
withdrawal in excess of the Non-Lifetime Annual Benefit Amount.
"GMWB Benefit Eligibility Date" means the date your Lifetime Annual Benefit
Amount becomes available to you.
. For the single life option, the GMWB Benefit Eligibility Date is the later
of the rider date and the date the youngest Covered Person, as defined
below, attains age 60.
. For the spousal life option, the GMWB Benefit Eligibility Date is the
later of the rider date and the date the youngest Covered Person attains
age 65. For the spousal life option, if either spouse dies prior to the
GMWB Benefit Eligibility Date, we will reset the GMWB Benefit Eligibility
Date to the later of the date of the first spousal death, and the date the
surviving spouse attains age 65.
The Non-Lifetime Annual Benefit Amount
The Non-Lifetime Annual Benefit Amount represents two distinct values,
depending on whether your Contract Value is greater than zero, or whether it
has reduced to zero. While your Contract Value is greater than zero, the
Non-Lifetime Annual Benefit Amount represents the maximum amount you
40
can withdraw each year without reducing your Non-Lifetime Annual Benefit
Amount. If your Contract Value is reduced to zero, and non-lifetime payments
are elected, the Non-Lifetime Annual Benefit Amount represents the annual
amount we will pay you until the GMWB Benefit Base is reduced to zero.
On the rider date, the Non-Lifetime Annual Benefit Amount is equal to a
percentage of the GMWB Benefit Base. We call this percentage the "Non-Lifetime
Annual Benefit Percentage". The percentage for your rider is shown on the rider
specification page and is currently 7%. We may change this percentage in the
future and this change would affect riders issued beginning on the date we make
the change. After the rider date, the Non-Lifetime Annual Benefit Amount is
recalculated whenever any of the following triggering events occur.
Events causing recalculation of the Non-Lifetime Annual Benefit Amount
.. GMWB Automatic Step-Ups or GMWB Roll-Ups
Each year when a GMWB automatic step-up or GMWB roll-up occurs, the
Non-Lifetime Annual Benefit Amount will be equal to the greater of the
Non-Lifetime Annual Benefit Amount in effect prior to the GMWB automatic
step-up; and the Non-Lifetime Annual Benefit Percentage multiplied by the
GMWB Benefit Base after any step-up or roll-up calculation.
.. Premium Payments Received After the Rider Date
If we receive premium payments after the rider date, and no withdrawals have
been made from the contract, then we will increase the Non-Lifetime Annual
Benefit Amount on the date we apply premium payments. The amount of this
increase is determined by multiplying the Non-Lifetime Annual Benefit
Percentage by the amount of the premium payment. However, if you then take
withdrawals from the contract in excess of the Non-Lifetime Annual Benefit
Amount, we will reduce the Non-Lifetime Annual Benefit Amount as described in
"Taking Withdrawals" below.
Withdrawals also stop increases in your GMWB Benefit Base that would have
occurred when additional premiums are received by us. If any withdrawals have
been made from the contract on or prior to our receipt of an additional
premium, we will not increase the GMWB Benefit Base as a result of premium
payments made after such withdrawal.
.. Taking Withdrawals
The following section describes how taking withdrawals will impact the
Non-Lifetime Annual Benefit Amount. The Non-Lifetime Annual Benefit Amount
may be the only benefit amount available to you under the GMWB component
unless you have reached the GMWB Benefit Eligibility Date, which is generally
the date the youngest Covered Person attains age 60 if the single life option
is in effect, or the date the younger spouse attains age 65, if the spousal
life option is in effect.
. Taking withdrawals from the contract may impact the Non-Lifetime Annual
Benefit Amount depending on whether they exceed the Non-Lifetime Annual
Benefit Amount. If cumulative withdrawals in any rider year do not exceed
the Non-Lifetime Annual Benefit Amount in that year, the Non-Lifetime
Annual Benefit Amount will not be reduced.
. If a withdrawal causes the cumulative withdrawals in any rider year to
exceed the Non-Lifetime Annual Benefit Amount, the amount withdrawn in
excess of the Non-Lifetime Annual Benefit Amount and any subsequent
withdrawals in that rider year are all considered Non-Lifetime excess
withdrawals. Each non-lifetime excess withdrawal will reduce the
Non-Lifetime Annual Benefit Amount in the same proportion as the Contract
Value is reduced by the non-lifetime excess withdrawal.
. You should know that, currently, withdrawals taken at any time to meet
Required Minimum Distribution requirements as defined by the Internal
Revenue Code do not reduce the Non-Lifetime Annual Benefit Amount.
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 rider
year will be considered non-lifetime excess withdrawals only if they exceed the
greatest of (a), (b) and (c), where:
(a) = the current Non-Lifetime Annual Benefit Amount;
(b) = the RMD for the 1st calendar year during the rider year; and
(c) = the RMD for the 2nd calendar year during the same rider year.
Withdrawals from the contract have other potential consequences, including
potential imposition of surrender charges and premium taxes, and federal income
tax consequences. Withdrawals, including withdrawals taken to meet Required
Minimum Distribution requirements that do not exceed the greater of the
Non-Lifetime and Lifetime Annual Benefit Amounts are considered to be within
the contract's free withdrawal amount. However, withdrawals that exceed the
greater of the Non-Lifetime and Lifetime Annual Benefit Amounts, including
withdrawals taken to meet Required Minimum Distribution requirements, are
subject to any surrender charges imposed under the contract. Please see
"Surrender of Contract and Withdrawals" and "Federal Income Taxes" for more
information.
The Lifetime Annual Benefit Amount
The Lifetime Annual Benefit Amount is not available until you reach the GMWB
Benefit Eligibility Date which is generally the date the youngest Covered
Person attains age 60 if the single life option is in effect, or the date the
younger spouse attains age 65, if the spousal life option is in effect. Like
the Non-Lifetime Annual Benefit Amount, the Lifetime Annual Benefit Amount
represents two distinct values, depending on whether your Contract Value is
greater than zero, or whether it has reduced to zero. While your Contract Value
is greater than zero, the Lifetime Annual Benefit Amount represents the maximum
amount you can withdraw each year after the
41
GMWB Benefit Eligibility Date without reducing your Lifetime Annual Benefit
Amount. If your Contract Value is reduced to zero, and lifetime payments are
elected, the Lifetime Annual Benefit Amount represents the annual lifetime
amount we will pay after the GMWB Benefit Eligibility Date.
We first calculate the Lifetime Annual Benefit Amount on the later of the
date of the first withdrawal and the GMWB Benefit Eligibility Date as described
below. As a result, if you take a withdrawal before the GMWB Benefit
Eligibility Date, we will calculate the Lifetime Annual Benefit Amount on the
GMWB Benefit Eligibility Date.
.. Lifetime Annual Benefit Amount calculated on the GMWB Benefit Eligibility
Date (withdrawal made prior to the GMWB Benefit Eligibility Date): the
Lifetime Annual Benefit Amount equals the Lifetime Annual Benefit
Percentage, as shown above, multiplied by the lesser of the GMWB Benefit
Base and the Contract Value.
.. Lifetime Annual Benefit Amount calculated on the date of the first
withdrawal following the GMWB Benefit Eligibility Date: the Lifetime Annual
Benefit Amount equals the Lifetime Annual Benefit Percentage multiplied by
the GMWB Benefit Base after any GMWB step-up or roll-up calculations.
The Lifetime Annual Benefit Amount is recalculated whenever any of the
following triggering events occur.
Events causing recalculation of the Lifetime Annual Benefit Amount
.. GMWB Automatic Step-Up
Each year when a GMWB Automatic Step-Up occurs, the Lifetime Annual Benefit
Amount will be equal to the greater of the Lifetime Annual Benefit Amount in
effect prior to the GMWB automatic step-up; and the Lifetime Annual Benefit
Percentage multiplied by the GMWB Benefit Base after the step-up calculation.
.. Taking Withdrawals
The following section describes how taking withdrawals after the GMWB Benefit
Eligibility Date affects the Lifetime Annual Benefit Amount after it is first
calculated. Whether withdrawals will change the Lifetime Annual Benefit
Amount depends on whether they exceed the Lifetime Annual Benefit Amount.
. If cumulative withdrawals in any rider year following the GMWB Benefit
Eligibility Date do not exceed the Lifetime Annual Benefit Amount in that
year, the Lifetime Annual Benefit Amount will not be reduced.
. If a withdrawal causes the cumulative withdrawals in any rider year
following the GMWB Benefit Eligibility Date to exceed the Lifetime Annual
Benefit Amount, the amount withdrawn in excess of the Lifetime Annual
Benefit Amount and any subsequent withdrawals in that rider year are all
considered lifetime excess withdrawals. Each lifetime excess withdrawal
will reduce the Lifetime Annual Benefit Amount in the same proportion as
the Contract Value is reduced by the lifetime excess withdrawal.
. You should know that, currently, withdrawals taken after the GMWB Benefit
Eligibility Date to meet Required Minimum Distribution requirements as
defined by the Internal Revenue Code do not reduce the Lifetime Annual
Benefit Amount. However, we may change this rule at our discretion in
which case such withdrawals taken following this change may be considered
lifetime excess withdrawals and reduce the Lifetime Annual Benefit Amount
as described below.
For IRA and qualified plan contracts, cumulative withdrawals in a rider year
after the GMWB Benefit Eligibility Date will be considered excess withdrawals
only if they exceed the greatest of (a), (b) and (c), where:
(a) = thecurrent Lifetime Annual Benefit Amount;
(b) = the RMD for the 1/st/ calendar year during the rider year; and
(c) = theRMD for the 2/nd/ calendar year during the same rider year.
Withdrawals from the contract have other potential consequences, including
potential imposition of surrender charges and premium taxes, and federal income
tax consequences. Withdrawals, including withdrawals taken to meet Required
Minimum Distribution requirements that do not exceed the greater of the
Non-Lifetime and Lifetime Annual Benefit Amounts are considered to be within
the contract's free withdrawal amount. However, withdrawals that exceed the
greater of the Non-Lifetime and Lifetime Annual Benefit Amounts, including
withdrawals taken to meet Required Minimum Distribution requirements, are
subject to any surrender charges imposed under the contract. Please see
"Surrender of Contract and Withdrawals" and "Federal Income Taxes" for more
information.
Events causing recalculation of the GMWB Benefit Base
.. Premium Payments Received After the Rider Date
If we receive premium payments after the rider date, and no withdrawals have
been made from the contract, then we will increase the GMWB Benefit Base. The
GMWB Benefit Base will be increased by the dollar amount of each premium
payment on the date we receive it. However, if you then take withdrawals from
the contract, we will reduce the GMWB Benefit Base as described in "Taking
Withdrawals" below.
Withdrawals also stop increases in your GMWB Benefit Base that would have
occurred when additional premiums are received by us. If any withdrawal has
been made from the contract on or prior to our receipt of additional premium,
we will not increase the GMWB Benefit Base as a result of premium payments
made after such withdrawal.
.. Roll-up Feature
The GMWB roll-up feature allows for an increase, or "roll-up," in the GMWB
Benefit Base during a specified period of time, called the GMWB roll-up
period. The roll-up feature is only available to you if no withdrawals have
been taken from the contract. Currently, the GMWB roll-up period continues
until the 10/th/ rider anniversary following the later of the rider date and
the last rider anniversary on which a GMWB automatic step-up, described
below, occurs. In no event can the GMWB roll-up period extend beyond the time
42
the younger Covered Person attains a maximum age. This maximum age is the
greater of age 95 or the younger Covered Person's age on the rider date plus
10 years. The increase in GMWB Benefit Base resulting from the roll-up is
based upon a comparison of the following three values on each rider
anniversary: (i) Contract Value, (ii) GMWB Benefit Base, and (iii) the sum of
the GMWB Benefit Base on the prior rider anniversary plus the roll-up amount
for the prior rider year, plus subsequent premium payments received during
the prior rider year. For calculation of the increase in GMWB Benefit Base
provided by the roll-up feature, "subsequent premium payments" means premiums
received after the rider date, excluding premium payments received on any
rider anniversary and excluding any Premium Enhancements. Generally, the
roll-up amount is determined by multiplying the GMWB Benefit Base at the end
of the first rider year by a percentage, currently 6.5%. In subsequent rider
anniversaries during the roll-up period, the roll-up amount is normally the
same value (assuming no withdrawals). Withdrawals will cause the roll-up
feature to become unavailable. If there has been a prior automatic step-up,
the roll-up amount is determined by multiplying the GMWB Benefit Base at the
time of the most recent automatic step-up by a percentage, currently 6.5%.
If you have not taken withdrawals from the contract and therefore are
eligible for the roll-up feature of the rider, we will consider an additional
value in recalculating GMWB Benefit Base on the rider anniversary at or
following the end of the GMWB roll-up period on which the youngest Covered
Person has attained age 70. This additional value applies the Benefit Base
Multiplier, currently 200%, to the sum of the GMWB Benefit Base on the rider
date plus subsequent premium received in the first rider year.
The recalculation of the GMWB Benefit Base under the various situations that
can exist at the end of the GMWB roll-up period is described below.
.. Each Rider Anniversary During the GMWB Roll-Up Period
On each rider anniversary, if no withdrawals have been made, the
re-calculated GMWB Benefit Base will be set equal to the greater of the
following, unless the GMWB automatic step-up feature has been suspended in
which case, it will be set to the second of the two values described below:
. the Contract Value then in effect, (after all fees have been deducted, and
provided the GMWB automatic step-up feature has not been suspended);
. the sum of (i) the GMWB Benefit Base on the prior rider anniversary plus
any premium payments since the prior rider anniversary and (ii) the
roll-up amount for the prior rider year, if any.
Example 1 - Basic application of a roll-up amount.
Assume that you have reached your first rider anniversary and have not made
any withdrawals. Assume further that your GMWB Benefit Base on your rider's
effective date was $100,000, your Contract Value is $105,000, you have not
made any subsequent premium payments during the prior rider year and the GMWB
automatic step-up has not been suspended.
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greater of the following:
. Contract Value = $105,000
. Sum of (i) and (ii) = $106,500
(i)GMWB Benefit Base on prior rider anniversary = $100,000
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your GMWB Benefit Base will be $106,500.
Example 2 - Application of the roll-up amount when there is a prior automatic
step-up.
Assume that you have reached the second rider anniversary and have not made
any withdrawals. Assume further that your GMWB Benefit Base as of the last
rider anniversary was $108,000 due to an GMWB automatic step-up, your contract
value is $110,000, you have not made any subsequent premium payments during
the prior rider year and the GMWB automatic step-up has not been suspended.
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greater of the following:
. Contract Value = $110,000
. Sum of (i) and (ii) = $115,020
(i)GMWB Benefit Base on prior rider anniversary = $108,000
(ii)Roll-Up Amount for prior rider year = $108,000 x 6.5% = $7,020
Your GMWB Benefit Base will be $115,020.
Example 3 - Application of the roll-up amount when several rider years have
elapsed with no prior automatic step-up.
Assume the GMWB Benefit Base on the first rider anniversary prior to any
roll-up calculation was $100,000. Assume that you have reached the fourth
rider anniversary without making any withdrawals and without having an
automatic step-up. The GMWB Benefit Bases are increased by the Roll-Up Amounts
at the end of each of the first 3 rider years and equal:
Year 1: $106,500 = $100,000 + $6,500
Year 2: $113,000 = $106,500 + $6,500
Year 3: $119,500 = $113,000 + $6,500
Assume that, on the 4/th/ rider anniversary, your contract value is $115,000
and you have not made any subsequent premium payments.
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greater of the following:
. Contract Value = $115,000
. Sum of (i) and (ii) = $126,000
(i)GMWB Benefit Base on prior rider anniversary = $119,500
(ii)Roll-Up Amount for the recently completed rider year = $100,000 x 6.5%
= $6,500
Your GMWB Benefit Base will be $126,000.
43
Example 4 - Impact of a Subsequent Premium Payment on the GMWB Benefit Base.
Assume the GMWB Benefit Base on your rider's effective date was $100,000.
Assume there is no automatic step-up at the end of the first rider year and
you have not taken any withdrawals. The GMWB Benefit Base at the end of the
1/st/ rider year is increased by the Roll-Up Amount and equals $106,500 =
$100,000 + $6,500.
Assume that 3 months in to the 2/nd/ rider year you make a Subsequent
Premium Payment of $50,000. The GMWB Benefit Base is increased to
$156,500 ($106,500 = $50,000) due to the premium payment.
Assume that, on the 2/nd/ rider anniversary, your contract value is $140,000.
Your GMWB Benefit Base will be recalculated on your 2/nd/ rider anniversary
to be the greatest of the following:
. Contract Value = $140,000
. GMWB Benefit Base in Effect = $156,500
. Sum of (i), (ii), and (ii) = $163,000
(iv)GMWB Benefit Base on prior rider anniversary = $106,500
(v)Roll-Up Amount for the recently completed rider year = $100,000 x 6.5%
= $6,500
(vi)Subsequent Premium Payments during the recently completed rider year =
$50,000
Your GMWB Benefit Base will be $163,000.
.. The Rider Anniversary Following the End of the GMWB Roll-Up Period.
If the GMWB roll-up period has ended, and no withdrawals have been made from
the contract, we will re-calculate the GMWB Benefit Base on the rider
anniversary following the end of the GMWB roll-up period.
When we recalculate the GMWB Benefit Base on the rider anniversary following
the end of the roll-up period, the amount of the recalculated GMWB Benefit Base
will depend on whether the youngest Covered Person has attained the Benefit
Base Multiplier Age, currently age 70, by that rider anniversary. If the
youngest Covered Person has not attained age 70 by the rider anniversary
immediately following the end of the roll-up period, then we will re-calculate
the Benefit Base again on the rider anniversary next following the date the
youngest Covered Person attains age 70. For each situation, the recalculated
GMWB Benefit Base is determined as described below.
1.Assuming the youngest Covered Person has not yet attained age 70 by the rider
anniversary immediately following the end of the GMWB roll-up period, then,
on that rider anniversary, the GMWB Benefit Base will be set equal to the
greater of the following, unless the GMWB automatic step-up feature has been
suspended in which case, it will be set to the second of the two values
described below:
. the Contract Value then in effect, (after all fees have been deducted,
provided the GMWB automatic step-up feature has not been suspended);
. the sum of (i) the GMWB Benefit Base on the prior rider anniversary plus
any premium payments since the prior rider anniversary and (ii) the
roll-up amount for the prior rider year, if any.
Assume the GMWB Benefit Base on the first rider anniversary prior to any
roll-up calculation was $100,000 and that you have reached the rider
anniversary following the end of the roll-up period, the youngest Covered
Person has not yet attained age 70 and you have not made any withdrawals.
Assume further that your contract has never had an automatic step-up, your
GMWB Benefit Base as of your prior rider anniversary was $158,500, your
Contract Value is $105,000, you have not made any subsequent premium payments
during the prior rider year and the automatic step-up has not been suspended.
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greater of the following:
. Contract Value = $105,000
. Sum of (i) and (ii) = $165,000
(i)GMWB Benefit Base on prior rider anniversary = $158,500
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your GMWB Benefit Base will be $165,000.
2.Assuming the youngest Covered Person has attained age 70 by the rider
anniversary immediately following the end of the GMWB roll-up period, then,
on that rider anniversary, the GMWB Benefit Base will be set equal to the
greatest of the following, unless the GMWB automatic step-up feature has been
suspended in which case, it will be set to the greater of the latter two
values described below:
. the Contract Value then in effect, (after all fees have been deducted,
provided the GMWB automatic step-up feature has not been suspended);
. the Benefit Base Multiplier, currently 200%, multiplied by the sum of
(i) the GMWB Benefit Base on the rider date, plus (ii) all subsequent
premium payments received during the first rider year;
. the sum of (i) the GMWB Benefit Base on the prior rider anniversary plus
any premium payments since the prior rider anniversary and (ii) the
roll-up amount for the prior rider year, if any.
Assume that you have reached the rider anniversary following the end of the
roll-up period, the youngest Covered Person has attained age 70 and you have
not made any withdrawals. Assume further that your contract has never had an
GMWB automatic step-up, your GMWB Benefit Base as of your prior rider
anniversary was $158,500, your GMWB Benefit Base on the rider date was
$100,000, your Contract Value is $105,000, you have not made any subsequent
premium payments after the rider date and the automatic step-up has not been
suspended.
44
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greatest of the following:
. Contract Value = $105,000
. 200% x Sum of (i) and (ii) = $200,000
(i)GMWB Benefit Base on the rider date = $100,000
(ii)Subsequent premium payments = $0
. Sum of (i) and (ii) = $165,000
(i)GMWB Benefit Base on prior rider anniversary = $158,500
(ii)Roll-Up Amount for prior rider year = $100,000 x 6.5% = $6,500
Your GMWB Benefit Base will be $200,000.
.. Rider Anniversary Next Following Youngest Covered Person's 70/th/ Birthday
Occurring After the Rider Anniversary Immediately Following the End of the
GMWB Roll-Up Period
Assuming no withdrawals have been taken and the youngest Covered Person
attains age 70 after the rider anniversary immediately following the end of the
roll-up period, then on the next rider anniversary following the date the
youngest Covered Person attains age 70, the GMWB Benefit Base will be set equal
to the greatest of the following, unless the GMWB automatic step-up feature has
been suspended in which case, it will be set to the greater of the latter two
values described below:
. the Contract Value then in effect, after all fees have been deducted,
(provided the GMWB automatic step-up feature has not been suspended);
. the GMWB Benefit Base on the prior rider anniversary plus any premium
payments since the prior rider anniversary;
. the Benefit Base Multiplier, currently 200%, multiplied by sum of the GMWB
Benefit Base on the rider date plus all subsequent premium payments
received during the first rider year.
Assume that the Benefit Base Multiplier is 200% and that you reached the
rider anniversary following the end of the GMWB roll-up period several years
ago, but still have not made any withdrawals from the contract. However, the
youngest Covered Person celebrated his 70/th/ birthday during the prior rider
year. Assume further, your GMWB Benefit Base on the prior rider anniversary was
$180,000, your GMWB Benefit Base on the rider date was $100,000, your Contract
Value is $105,000, you have not made any subsequent premium payments after the
rider date and the GMWB automatic step-up has not been suspended.
Your GMWB Benefit Base will be re-calculated on your rider anniversary to be
the greatest of the following:
. Contract Value = $105,000
. GMWB Benefit Base on prior rider anniversary = $180,000
. 200% x Sum of (i) and (ii) = $200,000
(i)GMWB Benefit Base on the rider date = $100,000
(ii)Subsequent premium payments = $0
Your GMWB Benefit Base will be $200,000.
.. Each Rider Anniversary After the Earlier of the First Withdrawal and the
Rider Anniversary Following the End of the GMWB Roll-Up Period (except Rider
Anniversary next following youngest Covered Person's 70/th/ birthday after
the end of the GMWB Roll-Up Period)
On each rider anniversary after the earlier of the first withdrawal and the
rider anniversary following the end of the GMWB roll-up period, we will
re-calculate the GMWB Benefit Base. The GMWB Benefit Base will be set equal to
the greater of the following, unless the GMWB automatic step-up feature has
been suspended, in which case, it will be set to the second of the two values
described below:
. the Contract Value then in effect, after all fees have been deducted,
(provided the GMWB automatic step-up feature, described below, has not
been suspended); and
. the GMWB Benefit Base on the prior rider anniversary adjusted for any
withdrawals taken since the prior rider anniversary plus, if no
withdrawals have been made, any premium payments made since the prior
rider anniversary.
Assume that you are out of the GMWB roll-up period. Assume further, your
GMWB Benefit Base on the prior rider anniversary is $106,500, your Contract
Value is $110,000 and the GMWB automatic step-up has not been suspended. Your
GMWB Benefit Base will be re-calculated on your rider anniversary to be the
greater of the following:
. Contract Value = $110,000
. GMWB Benefit Base on prior rider anniversary = $106,500
Your GMWB Benefit Base will be $110,000.
.. GMWB Automatic Step-Up Feature
The GMWB component of Phoenix Retirement Protector includes an automatic
step-up feature. Like the GMWB roll-up feature, the GMWB automatic step-up
feature allows for an increase in the GMWB Benefit Base. At set intervals,
currently on each anniversary of the rider date, we will automatically
compare the Contract Value, after deduction of all fees, to the GMWB Benefit
Base then in effect; that is, the GMWB Benefit Base on the prior rider
anniversary and, if no withdrawals have been taken, any premium payments made
since the prior rider anniversary and reduced by withdrawals as described in
"Taking Withdrawals". If the Contract Value, after deduction of all fees, is
greater than such GMWB Benefit Base, we will automatically increase, or
"step-up" the GMWB Benefit Base to equal the Contract Value. You should know
that
45
the fee percentage for the rider may be increased if we step-up the GMWB
Benefit Base. If you do not decline the automatic step-up, you will pay the
current rider fee then in effect beginning on the date of any automatic
step-up of the GMWB Benefit Base. You can decline the increase by contacting
us no later than seven days prior to the rider anniversary. If you decline
the step-up, the GMWB automatic step-up will not occur, and the automatic
GMWB step-up feature will be suspended immediately and GMAB step-ups provided
under the GMAB component of the rider cannot be elected. If you decline a
GMWB automatic step-up in the GMWB Benefit Base, we will continue to
calculate any roll-ups as described above. Assuming your rider is still in
effect at the next step-up interval, you may reactivate the automatic GMWB
step-up option by contacting us at the phone number or address provided on
the first page of the prospectus.
.. Taking Withdrawals
The GMWB Benefit Base is reduced for all withdrawals regardless of whether
they occur before or after the GMWB Benefit Eligibility Date. The amount by
which the GMWB Benefit Base is reduced for withdrawals depends on whether and
by how much the withdrawals taken in a rider year exceed the Non-Lifetime
Annual Benefit Amount. Cumulative withdrawals in any rider year that do not
exceed the Non-Lifetime Annual Benefit Amount reduce the GMWB Benefit Base by
the amount of the withdrawals. Cumulative withdrawals in any rider year that
exceed the Non-Lifetime Annual Benefit Amount (Non-Lifetime excess
withdrawals) reduce the GMWB Benefit Base by the same proportion as the
Contract Value is reduced by Non-Lifetime excess withdrawal.
Payment of the Lifetime or Non-Lifetime Annual Benefit Amount when the Contract
Value is greater than zero
Each year when the Contract Value is greater than zero, you may take
withdrawals equal to the Lifetime Annual Benefit Amount so long as you have
reached the GMWB Benefit Eligibility Date. You may take withdrawals equal to
the Non-Lifetime Annual Benefit Amount then in effect at any time when the
Contract Value is greater than zero. You can establish a Systematic Withdrawal
Program for payments of a specified amount or can request payments according to
your own schedule. See "Systematic Withdrawal Program" for additional details
about how to use this program and the program's restrictions.
Payment of the Lifetime or Non-Lifetime Annual Benefit Amount when the Contract
Value goes to zero
If, when the Contract Value goes to zero, the GMWB Benefit Base is greater
than zero, you must choose between receiving non-lifetime and lifetime monthly
payments. The Lifetime Annual Benefit Amount is not available to you before the
GMWB Benefit Eligibility Date.
We may, at our discretion, permit or require other payment frequencies
subject only to our minimum amount per payment requirement.
. Non-Lifetime Payments
If the GMWB Benefit Base is greater than zero you may choose to receive
monthly non-lifetime payments. The non-lifetime payments will be equal to one
twelfth of Non-Lifetime Annual Benefit Amount. Payments will begin one month
after the Contract Value is reduced to zero and will end when the GMWB Benefit
Base is reduced to zero. The GMWB Benefit Base is reduced by each non-lifetime
payment.
. Lifetime Payments
If the GMWB Benefit Base is greater than zero, you may choose to receive
monthly lifetime payments. The lifetime benefit payments will be equal to one
twelfth of Lifetime Annual Benefit Amount. Payments will begin one month
following later of the date the Contract Value goes to zero and the GMWB
Benefit Eligibility Date. We will make these payments under the single life
option or the spousal life option, whichever you selected at the time you
purchased the rider. For the single life option, all Covered Persons must be
living on the date we make the first payment, and for the spousal life option,
at least one spouse must be living. Payments will continue until the first
death of any Covered Person(s) for the single life option, or until the death
of the surviving spouse for the spousal life option.
Maximum Maturity Date Benefit
If your Contract Value is greater than zero and you cannot extend the
maturity date of the contract any later, this rider allows you to exchange the
Contract Value for lifetime payments equal to the Lifetime Annual Benefit
Amount or non-lifetime payments equal to the Non-Lifetime Annual Benefit Amount
in lieu of applying the Contract Value to one of the annuity payment options
offered under the contract. Otherwise, your contract will enter the annuity
period and you may choose any of the annuity options then available. See "The
Annuity Period".
(iii) Guaranteed Minimum Death Benefit ("GMDB")
The GMDB component of the Phoenix Retirement Protector rider is optional. The
GMDB component guarantees a minimum death benefit if the GMDB Benefit Base,
which is the same as the GMWB Benefit Base prior to the GMDB Maximum Age, is
greater than the death benefit payable under the contract when any Covered
Person dies prior to the earliest of the following dates:
1.the maturity date of the contract,
2.the date the Contract Value is reduced to zero,
3.the rider anniversary following the date the oldest Covered Person attains a
particular age specified in rider. We call this the GMDB Maximum Age.
Currently, this age is 85.
If the GMDB Benefit Base is greater than the death benefit payable under the
contract, this optional GMDB guarantees an additional death benefit amount.
This guaranteed amount is the difference between the contract's death benefit
and the GMDB Benefit Base. You should know that this optional component does
not provide any value once the Contract Value goes to zero or the oldest
Covered Person attains age the GMDB Maximum Age.
46
Sample calculation showing the value of the GMDB component before and after
the GMDB Maximum Age
Death Prior to Age 85
Assume you die prior to attaining age 85. Assume the death benefit available
under your contract is equal $125,000 on the date of death. Further assume
that the GMDB Benefit Base is equal to $130,000 on the date of death. The
optional GMDB will pay you an additional death benefit amount equal to $5,000.
Death After Age 85
Assume you die after attaining age 85. Assume the death benefit available
under your contract is equal $95,000 on the date of death. The GMDB Death
Benefit Base is equal to your contract value or $80,000 on the date of death.
The optional GMDB will not pay you an additional death benefit amount. You
will receive the $95,000 death benefit available under your base contract.
Termination of Phoenix Retirement Protector Rider
The rider will terminate without value on the date the first of any of the
following events occur:
. any Covered Person is changed;
. annuity payments begin under an annuity payment option as described in the
base contract;
. the contract, to which the rider is attached, terminates;
. the owner elects to terminate the rider;
. that any portion of the Contract Value is no longer invested in one of the
approved asset allocation programs;
. the Contract Value and GMWB Benefit Base are both reduced to zero;
. if the Contract Value has been reduced to zero and lifetime payments have
been elected, if any Covered Person under the Single Life Option, or the
surviving Covered Person under the Spousal Life Option dies;
. you assign any rights or interest in this rider.
Once the rider is terminated, it cannot be reinstated.
47
Special Risks Associated with Withdrawals
The following chart demonstrates special risks associated with taking
withdrawals when the Phoenix Retirement Protector Rider is attached to a
contract when the Contract Value and Benefit Base are both greater than zero.
Whether or not a withdrawal is considered "permitted" or "excess" is described
in the section "Taking Withdrawals", in the description of the GMWB Benefit
Base. When the Contract Value is reduced to zero, non-lifetime or lifetime
payments (whichever selected) will begin and withdrawals are no longer allowed
from the contract.
Permitted Excess
Scenario No Withdrawals Withdrawals Withdrawals
- -------- -------------- ----------- -----------
Automatic Contract Value reduction.................................................... X X
Reduction to GMWB Benefit Base and GMAB Benefit Base.................................. X X
Reduction to current Non-Lifetime Annual Benefit Amount............................... X
Reduction to current Lifetime Annual Benefit Amount................................... X
Gives you the highest potential Annual Benefit Amount available under the rider/1/.... X
Cancels your ability to have subsequent premium payments automatically increase the
GMWB Benefit Base................................................................... X X
Cancels your ability to "roll-up" and increase your GMWB Benefit Base................. X X
Reduces the likelihood of a GMWB automatic step-up/2/................................. X X
Premium payments increase the GMWB Benefit Base....................................... X
Potential to terminate the rider without value if reduces the Contract Value to zero.. X
Permanently sets the Lifetime Annual Benefit Percentage............................... X X
Permanently sets the Lifetime and Non-Lifetime Annual Benefit Amounts if the Contract
Value is reduced to zero and the GMWB Benefit Base is greater than zero............. X
Potential surrender charges........................................................... X
Potential premium taxes and/or federal income tax consequences........................ X X
- -----------------
/1/ The potential Annual Benefit Amount is greatest if at the end of the GMWB
roll-up period, no withdrawals have been made and the youngest Covered
Person has attained the Benefit Base Multiplier Age.
/2/ In order to obtain a GMWB automatic step-up, your Contract Value must be
greater than your GMWB Benefit Base on the rider anniversary. If you make
withdrawals, your Contract Value will automatically decline, therefore
reducing the likelihood that your Contract Value will be greater than your
Benefit Base on your next rider anniversary, thus also reducing the
likelihood that you will be able to step-up your Benefit Base.
Surrender of Contract and Withdrawals
If the owner is living, amounts held under the contract may be withdrawn in
whole or in part prior to the Maturity Date, or after the Maturity Date under
Variable Annuity Payment Options K or L. Prior to the Maturity Date, you may
withdraw, free of any surrender charges, premium payments that have not
previously been withdrawn and are no longer subject to a surrender charge . You
may also withdraw, without the imposition of a surrender charge, during each
contract year following the contract anniversary, the Free Withdrawal Amount. A
signed written request for withdrawal must be sent to our Annuity Operations
Division. If you have not yet reached age 59 1/2, a 10% penalty tax may apply
on taxable income withdrawn. See "Federal Income Taxes."
The appropriate number of Accumulation Units of an investment option will be
redeemed at their value next determined after the receipt by our Annuity
Operations Division of a written notice in a form satisfactory to us.
Accumulation Units redeemed in a withdrawal from multiple investment options
will be redeemed on a pro rata basis unless you designate otherwise. Contract
Values in the GIA or MVA will also be withdrawn on a pro rata basis unless you
designate otherwise. Withdrawals from the MVA may be subject to the market
value adjustment. See the MVA prospectus. The resulting cash payment will be
made in a single sum, ordinarily within seven days after receipt of such
notice. However, redemption and payment may be delayed under certain
circumstances. See "Payment Deferral." There may be adverse tax consequences to
certain surrenders and partial withdrawals. See "Surrenders or Withdrawals
Prior to the Contract Maturity Date." Certain restrictions on redemptions are
imposed on contracts used in connection with Internal Revenue Code
Section 403(b) plans. Although loans are available under 403(b) plans only,
certain limitations may apply. See "Qualified Plans--Tax Sheltered Annuities."
A deduction for surrender charges may be imposed on partial withdrawals from,
and complete surrender of, a contract. See "Surrender Charges." Any surrender
charge imposed is deducted from amounts withdrawn. The surrender charge is
calculated on a first-in, first-out basis. In other words, we calculate your
surrender charge by assuming your withdrawal is applied to premium payments in
the order your premium payments were received. Requests for partial withdrawals
or full surrenders should be mailed to our Annuity Operations Division.
Contract Termination
The contract will terminate without value, if on any valuation date the
Contract Value is zero, unless you meet the terms and conditions of the riders.
PHL Variable will notify you in writing that the contract has terminated.
Payment Upon Death Before Maturity Date
When is the Death Benefit Payable?
A death benefit is payable when the owner (or primary Annuitant when the
contract is owned by a non-natural person) dies. If there is more than one
owner, a death benefit is payable upon the first owner to die.
Who Receives Payment?
.. Death of an Owner/Annuitant
If the owner/annuitant dies before the contract Maturity Date, the death
benefit will be paid to the owner/annuitant's beneficiary. If the spouse is
the beneficiary, see "Spousal Beneficiary Contract Continuance."
.. Death of an Owner--Multiple Owners
If one of the owners dies prior to the Maturity Date, the death benefit will
be paid to the surviving owner(s), if any, who will be deemed to be the
designated beneficiary(s).
.. Death of an Annuitant who is not the Owner
If the owner and the Annuitant are not the same individual and the Annuitant
dies prior to the Maturity Date, the owner becomes the Annuitant and the
contract continues, unless the owner appoints a new Annuitant. If a Joint
Annuitant dies prior to the Maturity Date, the owner may appoint a new Joint
Annuitant. The death of the Annuitant or Joint Annuitant will not cause the
death benefit to be paid.
.. Death of Owner who is not the Annuitant
If the owner who is not the annuitant dies before the contract maturity date,
the death benefit will be paid under the contract to the owner's beneficiary,
unless the beneficiary is the spouse. The survival of the annuitant does not
affect this payment. If the spouse is the beneficiary, see "Spousal
Beneficiary Contract Continuance."
.. Spousal Beneficiary Contract Continuance
If the owner/annuitant or owner non-annuitant dies and the spouse of the
owner is the named contract beneficiary, the spousal beneficiary can continue
the contract as the new owner. This election is allowed only prior to the
Maturity Date and can be elected only one time. When the spouse elects to
continue the contract, the death benefit that the spouse is entitled to
receive will become the new Contract Value for the continued contract and the
current death benefit option will remain in effect.
.. Ownership of the Contract by a Non-Natural Person
If the owner is not an individual, and the primary Annuitant dies before the
Maturity Date, we will pay the death benefit to the owner. If a Joint
Annuitant dies before the Maturity Date, a death benefit is not paid. The
owner may appoint a new Joint Annuitant.
.. Compliance with the Internal Revenue Code
In all events, the death of the owner will result in distributions in accord
with section 72(s) of the Internal Revenue Code for nonqualified contracts
and section 401(a)(9) for IRA and qualified plan contracts.
.. What is the Death Benefit Amount?
The owner shall elect any of the available Death Benefit Options at the time
of the initial premium payment. If no option is elected, Death Benefit Option
1 will apply. If we grant your request to change ownership, Death Benefit
Option 1 shall apply, unless we agree otherwise.
.. Change of Death Benefit Option
After the contract is issued, you may not change your Death Benefit Option.
48
.. Death Benefit Option 1--Return of Premium
Upon the death of the owner (or if there is more than one owner, on the death
of the owner who dies first), the death benefit is the greater of:
a) the sum of all of premium payments, less adjusted partial withdrawals
(as defined below); or
b) the Contract Value on the Claim Date.
.. Death Benefit Option 2--Annual Step-Up
This death benefit is based on the age of the owner. If there is more than
one owner, it is based upon the age of the eldest owner at issue.
Upon the death of the owner who has not attained age 81, the death benefit is
the greatest of:
a) the sum of all premium payments, less adjusted partial withdrawals (as
defined below); or
b) the Contract Value next determined following receipt of a certified
copy of the death certificate at our Annuity Operations Division; or
c) the annual step-up amount (as defined below).
Upon the death of the owner who has attained age 81, the death benefit is the
greater of:
a) the death benefit amount at the end of the contract year prior to the
owner attaining age 81, plus the sum of all premium payments less
adjusted partial withdrawals (as defined below) made since the end of
the contract year prior to the owner attaining age 81; or
b) the Contract Value on the Claim Date.
If the owner is not an individual, the age of the primary Annuitant will be
used to calculate the death benefit amount. If the spouse elects to continue
the contract under Death Benefit Option 2, the death benefit will be
calculated using the surviving spouse's attained age.
.. Death Benefit Option 3--Earnings Enhancement Benefit
This option is only available if it is approved and made available in your
applicable state by us.
This death benefit is based on the age of the owner. If there is more than
one owner, it is based upon the age of the eldest owner at issue. This option
is available only for owners less than age 76 on the Contract Date.
Upon the death of the owner who has not attained age 70 on the Contract Date,
the death benefit is the greater of:
a) the sum of all of premium payments, less adjusted partial withdrawals
(as defined below); or
b) the Contract Value on the Claim Date plus 40% of the relief amount (as
defined below).
Upon death of the owner who has attained age 70, but is less than 76 on the
Contract Date, the death benefit is the greater of:
a) the sum of all of premium payments, less adjusted partial withdrawals
(as defined below); or
b) the Contract Value on the Claim Date plus 25% of the relief amount (as
defined below).
If the owner is not an individual, the age of the primary Annuitant will be
used to calculate the death benefit amount. If the spouse elects to continue
the contract under Death Benefit Option 3, the death benefit will be
calculated using the surviving spouse's attained age. The spouse's attained
age at the death of the deceased owner will be used to determine the
percentage of Relief Amount, if any.
.. Death Benefit Option 4--Greater of Annual Step-Up or Annual Roll-Up
This option is only available if it is approved and made available in your
applicable state by us.
This death benefit is based on the age of the owner. If there is more than
one owner, it is based upon the age of the eldest owner at issue. This option
is available only for owners less than age 81 on the Contract Date.
Upon the death of the owner who has not attained age 81 on the Contract Date,
the death benefit is the greater of:
a) the sum of all of premium payments, less adjusted partial withdrawals
(as defined below); or
b) the Contract Value on the Claim Date; or
c) the Annual Step-up Amount (as defined below) on the Claim Date; and
d) the Annual Roll-up Amount (as defined below) on the Claim Date.
On the contract anniversary following the oldest owner's attained age 81, the
death benefit is the greater of:
a) the death benefit calculated at the end of the contract year prior to
the oldest owner's attained age 81, plus the sum of all premium
payments, less adjusted partial withdrawals (as defined below); and
b) the Contract Value on the Claim Date.
If the owner is not an individual, the age of the primary Annuitant will be
used to calculate the death benefit amount. If the spouse elects to continue
the contract under Death Benefit Option 4, the death benefit will be
calculated using the surviving spouse's attained age.
Adjusted Partial Withdrawals: The result of multiplying the ratio of the
amount of the withdrawal to the Contract Value and the death benefit (prior
to the withdrawal) on the withdrawal date.
Annual Roll-Up Amount: In the first contract year the Annual Roll-up Amount
is equal to the sum of all premium payments, less adjusted partial
withdrawals At the beginning of the second contract year or any subsequent
contract year, the Annual Roll-up Amount is equal to the Annual Roll-up
Amount at the end of the previous contract year multiplied by a factor of
1.05, plus 100% of premium payments, less Adjusted Partial Withdrawals made
since the end of the previous contract year. The Annual Roll-up Amount may
not exceed 200% of total premium payments less Adjusted Partial Withdrawals.
Annual Step-up Amount: In the first contract year the Annual Step-Up Amount
is equal to the sum of all
49
premium payments less adjusted partial withdrawals. After that, in any
following contract year the Annual Step-Up Amount equals the greater of
(1) the Annual Step-Up amount at the end of the prior contract year, plus any
premium payments made since the end of the prior contract year, less any
adjusted partial withdrawals made since the end of the prior year; or (2) the
Contract Value.
Modified Premium Payments: Modified Premium Payments equal the sum of all
premium payments made less any withdrawals of premiums. If there are no
withdrawals or the withdrawal does not exceed the difference between the
Contract Value and cumulative premiums made, the value is zero.
Relief Amount: the Relief Amount is equal to the Contract Value less modified
premium payments, not to exceed the following maximum amount:
. When the age of the eldest owner on the Contract Date is less than 70, the
maximum relief amount equals 200% multiplied by:
1) the sum of modified premium payments (made prior to the date of the
death benefit calculation) minus
2) the sum of premium payments (made during the prior 12 months of the
death benefit calculation date).
. When the eldest owner on the Contract Date has attained age 70 but has not
attained age 76, the maximum relief amount equals 100% multiplied by:
1) the sum of modified premium payments (made prior to the date of the
death benefit calculation) minus
2) the sum of premium payments (made during the 12 months prior to the
death benefit calculation date).
Death benefit proceeds will be payable in a single lump sum, and you should
know that we offer the Phoenix Concierge Account ("PCA") as the default method
of payment for all death claims greater or equal to $5,000 when the beneficiary
is an individual, trust or estate. The PCA is generally not offered to
corporations or similar entities. The PCA is an interest bearing checking
account that is made available to beneficiaries in lieu of a single check.
The PCA is not insured by the FDIC, NSUSIF, or any other state or federal
agency which insures deposits. The guarantee of principal is based on the
claims-paying ability of the company. Also, if the recipient chooses, death
benefit proceeds will be payable in the form of an annuity option. Any such
annuity option is subject to all restrictions (including minimum amount
requirements) as are other annuities under this contract. In addition, there
may be legal requirements that limit the recipient's annuity options and the
timing of payments. See "Distributions at Death" under "Federal Income Taxes."
A recipient should consult a qualified tax adviser before electing to receive
an annuity.
Depending upon state law, the amounts paid to the owner may avoid probate and
the death benefit may be reduced by any tax due. For more information, see
"Tax." and "Distribution at Death" under "Federal Income Taxes." We reserve the
right to discontinue offering any one of the available Death Benefit Options in
the future.
If you are the beneficiary of a deceased Owner's contract and are utilizing
this contract as an Inherited/Stretch Annuity, only the Return of Premium death
benefit is available to you.
Additional Optional Death Benefit under GMAB/GMWB Combination Rider (Phoenix
Retirement Protector)
If you elect the Phoenix Retirement Protector, you may also elect an optional
guaranteed minimum death benefit (GMDB) for an additional charge. The optional
GMDB provides you with an opportunity to receive a death benefit amount over
and above the contract's death benefit.
The GMDB guarantees a minimum death benefit if the GMDB Benefit Base, which
is the same as the GMWB Benefit Base prior to the GMDB Maximum Age, is greater
than the death benefit payable under the contract when any Covered Person dies
prior to the earliest of: 1) the contract's maturity date, 2) the date the
Contract Value is reduced to zero, or 3) the rider anniversary following the
date the oldest Covered Person attains a particular age specified in the rider
(the GMDB Maximum Age).
If the GMDB Benefit Base is greater than the death benefit payable under the
contract, the optional GMDB guarantees an additional death benefit amount. This
guaranteed amount is the difference between the contract's death benefit and
the GMDB Benefit Base. This optional component does not provide any value once
the Contract Value goes to zero or the oldest Covered Person attains the GMDB
Maximum Age.
Please refer to the section entitled "Optional Guaranteed Minimum Death
Benefit (GMDB) Component" under "Phoenix Retirement Protector" for further
information.
How Premium Enhancement Affects Death Benefit
Subject to state availability, this contract offers a Premium Enhancement
feature. You can elect the Premium Enhancement feature for your contract only
at the time you apply for your contract and the election is irrevocable. If you
purchase this feature, a Premium Enhancement will be credited to your contract
value at the time the initial premium payment and each subsequent premium
payment is applied to the contract. Any Premium Enhancement credited to the
Contract Value is not considered a premium payment and will be considered as
"earnings." The Enhancement is treated as "earnings" and included in Contract
Value for purposes of determining the guaranteed benefit under the contract's
death benefit option or any additional optional death benefit. Subject to SEC
approval, we will deduct any Premium Enhancement credited to the Contract Value
if the Premium Enhancement was credited 12 months prior to the contract owner's
death, unless a spousal continuation is in effect. However, in no event will
the amount payable upon death be less than a return of premium, even after the
deduction of any Premium Enhancement. Please refer to the section entitled
"Premium Enhancement" for further information.
50
Internet, Interactive Voice Response and Telephone Transfers
- --------------------------------------------------------------------------------
You may transfer your Contract Value among the available investment options
and make changes to your premium payment allocations by Internet, Interactive
Voice Response ("IVR") or telephone. The Company may discontinue any of these
options and may provide other options at any time.
PHL Variable and Phoenix Equity Planning Corporation ("PEPCO"), our national
distributor, will use reasonable procedures to confirm that transfer
instructions are genuine. We require verification of account information and
will record telephone instructions on tape. You will receive written
confirmation of all transfers. PHL Variable and PEPCO may be liable for
following unauthorized instructions if we fail to follow our established
security procedures. However, you will bear the risk of a loss resulting from
instructions entered by an unauthorized third party that PHL Variable and PEPCO
reasonably believe to be genuine.
We may modify or terminate your transfer and allocation privileges. You may
find it difficult to exercise these privileges during times of extreme market
volatility. In such a case, you should submit your request in writing.
If you have authorized your registered representative to make transfers on
your behalf, he or she may submit your transfer request in a batch of requests
for multiple contract owners. Like an individual transfer request, the transfer
request must be submitted in good order to be processed.
Prior to the Maturity Date of your contract, you may elect to transfer all or
any part of the Contract Value among one or more investment options, the GIA or
MVA subject to the limitations established for the GIA and MVA. A transfer from
an investment option will result in the redemption of Accumulation Units and,
if another investment option is selected, in the purchase of Accumulation
Units. The exchange will be based on the values of the Accumulation Units next
determined after the receipt by our Annuity Operations Division of notice of
election in a form satisfactory to us. A transfer among investment options, the
GIA or MVA does not automatically change the premium payment allocation
schedule of your contract.
You may also request transfers and changes in premium payment allocations
among available investment options, the GIA or MVA by Internet, Interactive
Voice Response and telephone by calling us at 800/541-0171 between the hours of
8:30 a.m. and 4:00 p.m. Eastern Time on any Valuation Date, or by writing to
the address listed on the first page of this prospectus. You may permit your
registered representative to submit transfer requests on your behalf. We will
employ reasonable procedures to confirm that transfer instructions are genuine.
We will require verification of account information and will record telephone
instructions on tape. All transfers and allocation changes will be confirmed in
writing to you. To the extent that procedures reasonably designed to prevent
unauthorized transfers are not followed, we may be liable for following
transfer instructions for transfers that prove to be fraudulent. However, you
will bear the risk of loss resulting from instructions entered by an
unauthorized third party we reasonably believe to be genuine. These transfer
and allocation change privileges may be modified or terminated at any time on a
case-by-case basis. In particular, during times of extreme market volatility,
transfer privileges may be difficult to exercise. In such cases you should
submit written instructions.
Unless we otherwise agree or unless the Dollar Cost Averaging Program has
been elected, (see below), you may make only one transfer per contract year
from the GIA. Nonsystematic transfers from the GIA and MVA will be made on the
date of receipt by our Annuity Operations Division except as you may otherwise
request. For nonsystematic transfers, the amount that may be transferred from
the GIA at any one time cannot exceed the greatest of $1,000 or 25% of the
Contract Value in the GIA at the time of transfer. For nonsystematic transfers
from the MVA, the market value adjustment may be applied. See the MVA
prospectus for more information.
No surrender charge will be assessed when a transfer is made. The date a
premium payment was originally credited for the purpose of calculating the
surrender charge will remain the same. Currently, 12 transfers are permitted
from the investment options and one transfer from the GIA; however, we reserve
the right to change our policy to limit the number of transfers made during
each contract year if we determine, in our sole opinion, that your exercise of
the transfer privilege may disadvantage or potentially harm the rights or
interests of other Contract Owners. There are additional restrictions on
transfers from the GIA as described above and in the section titled, "GIA." See
the MVA prospectus for information regarding transfers from the MVA.
Transfers to the GIA are not permitted during the first Contract Year. After
the first Contract Year, a transfer into the GIA will not be permitted if such
transfer would cause the percentage of the Contract Value in the GIA to exceed
the Maximum GIA Percentage shown on the schedule page.
Market Timing and Other Disruptive Trading
- --------------------------------------------------------------------------------
We discourage market timing activity, frequent transfers of contract value
among investment options and other activity determined to be "Disruptive
Trading", as described below. Your ability to make transfers among investment
options under the contract is subject to modification if we determine, in our
sole opinion, that your exercise of the transfer privilege constitutes
"Disruptive Trading" that may disadvantage or potentially harm the rights or
interests of other contract owners.
"Disruptive Trading" includes, but is not limited to: frequent purchases,
redemptions and transfers; transfers into and then out of an investment option
in a short period of time; and transfers of large amounts at one time. The
risks and harmful effects of Disruptive Trading include:
.. dilution of the interests of long-term investors in an investment option, if
market timers or others transfer into or out of the investment option
rapidly in order to take advantage of market price fluctuations;
.. an adverse affect on portfolio management, as determined by portfolio
management in its sole discretion, such as causing the underlying fund to
maintain a higher level of cash than would otherwise be the case, or causing
the underlying fund to liquidate investments prematurely; and
.. increased brokerage and administrative expenses.
51
To protect our contract owners and the underlying funds from Disruptive
Trading, we have adopted certain policies and procedures.
Under our Disruptive Trading policy, we can modify your transfer privileges
for some or all of the investment options. Modifications include, but are not
limited to, not accepting a transfer request from you or from any person, asset
allocation service, and/or market timing service made on your behalf. We may
also limit the amount that may be transferred into or out of any investment
option at any one time. Unless prohibited by the terms of your contract, we may
(but are not obligated to):
.. limit the dollar amount and frequency of transfers (e.g., prohibit more than
one transfer a week, or more than two a month, etc.),
.. restrict the method of making a transfer (e.g., require that all transfers
into a particular investment option be sent to our Service Center by first
class U.S. mail and/or rescind telephone, internet, IVR or fax transfer
privileges),
.. require a holding period for some investment options (e.g., prohibit
transfers into a particular investment option within a specified period of
time after a transfer out of that investment option),
.. implement and administer redemption fees on short-term trading that may be
imposed by one or more of the underlying funds, or
.. impose other limitations or restrictions.
Currently we attempt to detect Disruptive Trading by monitoring both the
dollar amount of individual transfers and the frequency of a contract owner's
transfers. With respect to both dollar amount and frequency, we may consider an
individual transfer alone or when combined with transfers from other contracts
owned by or under the control or influence of the same individual or entity. If
you have authorized your registered representative to make transfers on your
behalf, he or she may submit your transfer request in a batch of requests for
multiple contract owners. We monitor these transfers on an individual basis,
rather than on a batch basis.
We currently review transfer activity on a regular basis. We also consider
any concerns brought to our attention by the managers of the underlying funds.
We may change our monitoring procedures at any time without notice.
Because we reserve discretion in applying these policies, they may not be
applied uniformly. However, we will to the best of our ability apply these
policies uniformly. Consequently, there is a risk that some contract owners
could engage in Disruptive Trading while others will bear the effects of their
activity.
Currently we attempt to detect Disruptive Trading by monitoring activity for
all contracts. Possible Disruptive Trading activity may result in our sending a
warning letter advising the owner of our concern. Regardless of whether a
warning letter is sent, once we determine that Disruptive Trading activity has
occurred, we may revoke the owner's right to make Internet and IVR transfers.
We will notify contract owners in writing (by mail to their address of record
on file with us) if we limit their trading.
We have adopted these policies and procedures as a preventative measure to
protect all contract owners from the potential affects of Disruptive Trading,
while recognizing the need for contract holders to have available reasonable
and convenient methods of making transfers that do not have the potential to
harm other contract owners.
We currently do not make any exceptions to the policies and procedures
discussed above to detect and deter Disruptive Trading. We may reinstate
Internet, IVR, telephone and fax transfer privileges after they are revoked,
but we will not reinstate these privileges if we have reason to believe that
they might be used thereafter for Disruptive Trading.
We cannot guarantee that our monitoring will be 100% successful in detecting
and restricting all transfer activity that constitutes Disruptive Trading.
Moreover, we cannot guarantee that revoking or limiting a contract owner's
Internet, IVR, telephone and fax transfer privileges will successfully deter
all Disruptive Trading. In addition, some of the underlying funds are available
to insurance companies other than Phoenix and we do not know whether those
other insurance companies have adopted any policies and procedures to detect
and deter Disruptive Trading, or if so what those policies and procedures might
be. Because we may not be able to detect or deter all Disruptive Trading and
because some of these funds are available through other insurance companies,
some contract owners may be treated differently than others, resulting in the
risk that some contract owners could engage in Disruptive Trading while others
will bear the effects of their activity.
Orders for the purchase of underlying fund shares are subject to acceptance
by the relevant fund. Phoenix has entered into information sharing agreements
with the underlying funds of this variable product as required by Rule 22c-2
under the Investment Company Act of 1940. The purpose of the information
sharing is to provide information to the underlying funds so that they can
monitor, warn, and restrict policyholders who may be engaging in disruptive
trading practices as determined by the underlying funds. We reserve the right
to reject, without prior notice, any transfer request into any investment
option if the purchase of shares in the corresponding underlying fund is not
accepted for any reason. We may, without prior notice, take whatever action we
deem appropriate to comply with or take advantage of any state or federal
regulatory requirement.
We do not include transfers made pursuant to the Dollar Cost Averaging,
Automatic Asset Rebalancing or other similar programs when applying our
Disruptive Trading policy.
The Annuity Period
- --------------------------------------------------------------------------------
The annuity period begins after the accumulation period of the contract, when
annuity payments are made to you.
Annuity Payments
Annuity payments will begin on the contract's Maturity Date if the owner is
alive and the contract is still in force. Beginning on the Maturity Date,
investment in the Separate Account is continued unless a Fixed Payment Annuity
is selected.
52
Surrender charges will not be imposed when you begin taking annuity payments on
or after the contract's Maturity Date. In addition, no surrender charge will be
taken after the annuity period has begun except with respect to unscheduled
withdrawals under Annuity Payment Options K or L. If you have not selected an
Annuity Payment Option by the Maturity Date, the default is Annuity Payment
Option I--Variable Life Annuity with 10-Year Period Certain. For more
information, see "Annuity Payment Options."
If the amount to be applied on the Maturity Date is less than $2,000, we may
pay such amount in one lump sum in lieu of providing an annuity. If the initial
monthly annuity payment under an Annuity Payment Option would be less than $20,
we may make a single sum payment equal to the total Contract Value on the date
the initial annuity payment would be payable, or make periodic annuity payments
quarterly, semiannually or annually in place of monthly annuity payments.
Your contract specifies a Maturity Date at the time of its issuance. However,
you may subsequently elect a different Maturity Date. The Maturity Date may not
be earlier than the fifth contract anniversary. The latest Maturity Date is the
contract anniversary nearest the Annuitant's 95/th/ birthday or ten years from
the Contract Date, unless agreed otherwise. Generally, under qualified plans
and Individual Retirement Annuities ("IRA"), distributions from the contract
should begin no later than April 1/st/ 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
IRAs. Distributions can be made through maturity of the contract or by periodic
withdrawals.
The Maturity Date election must be made by written notice and must be
received by our Annuity Operations Division 30 days before the default Maturity
Date. The default Maturity Date will be no later than the oldest Owner's or
Annuitant's 95/th/ birthday or ten years from the Contract Date. Particular
care should be taken in electing the Maturity Date of a contract issued under a
Tax Sheltered Annuity (TSA), a Keogh Plan or an IRA plan. For more information,
see "Tax Sheltered Annuities," "Keogh Plans" and "Individual Retirement
Accounts."
Annuity Payment Options
Unless an alternative Annuity Payment Option is elected on or before the
Maturity Date, the amounts held under a contract on the Maturity Date will be
applied to provide a Variable Life Annuity with 10-Year Period Certain (Option
I) as described below. Instead of Option I, you may, by sending a written
request to our Annuity Operations Division on or before the Maturity Date of
the contract, elect any of the other Annuity Payment Options described below.
After the first annuity payment, you may not change the elected Annuity Payment
Option. No surrender charge will be assessed under any Annuity Payment Option,
unless unscheduled withdrawals are made under Variable Annuity Payment Options
K or L. The MVA will apply to any amounts held in the MVA that we applied to
any Annuity Payment Option. See the MVA prospectus for more information.
With the exception of the Fixed Annuity Payment Options and Annuity Payment
Option L, each annuity payment will be based upon the value of the annuity
units credited to the contract. The number of annuity units in each investment
option to be credited is based on the value of the Accumulation Units in that
investment option and the applicable annuity payment rate. The contract is
issued with guaranteed minimum annuity payment rates, however, if the current
rate is higher, we'll apply the higher rate. The annuity payment rate differs
according to the Annuity Payment Option selected and the age of the
Annuitant(s). The annuity payment rate is applied and will determine all
annuity payments for the fixed Annuity Payment Options and the first annuity
payment for the variable Annuity Payment Options. The value of the annuity
units will vary with the investment performance of each investment option to
which annuity units are credited.
The initial annuity payment will be calculated based on an assumed investment
return of 4.5% per year. This rate is a fulcrum return around which variable
annuity payments will vary to reflect whether actual investment experience of
the investment option is better or worse than the assumed investment return.
The assumed investment return is set at the time of your first annuity payment.
If investment performance is higher than the assumed investment return, your
subsequent annuity payments will be larger than your first annuity payment.
However, if investment performance is lower than the assumed investment rate,
your subsequent annuity payments will be less than the first annuity payment.
If the assumed and actual investment performances are the same, your annuity
payments will be level. The assumed investment return and the calculation of
variable annuity payments for a 10-year period certain variable payment life
annuity and for Annuity Payment Options J and K described below are described
in more detail in the contract and in the SAI.
The level of annuity payments payable under the following Annuity Payment
Options is based upon the option selected.
In addition, factors such as the age at which annuity payments begin, the
form of annuity, annuity payment rates, assumed investment rate (for variable
annuity payments) and the frequency of annuity payments will affect the level
of annuity payments. The longer the duration and more frequent the payments,
the lower the annuity payment amount.
The assumed investment rate is 4.5% per year. We use this rate to determine
the first annuity payment under Variable Annuity Payment Options I, J, K, M and
N. Under Option L, We determine the amount of the annual distribution by
dividing the amount of Contract Value as of the payment calculation date by the
life expectancy of the Annuitant or the joint life expectancy of the Annuitant
and Joint Annuitant at that time.
We deduct a daily charge for mortality and expense risks and a daily
administrative fee from Contract Values held in the investment options. For
more information, see "Charges For Mortality and Expense Risks" and "Charges
for Administrative Services." Therefore, electing Option K will result in a
53
deduction being made even though we assume no mortality risk under that option.
The following are descriptions of the Annuity Payment Options available under
a contract. These descriptions should allow you to understand the basic
differences between the options, however, you should contact our Annuity
Operations Division well in advance of the date you wish to elect an option to
obtain estimates of annuity payments under each option.
Option A--Life Annuity with Specified Period
A fixed payout annuity payable monthly while the Annuitant is living or, if
later, the end of the specified period certain. The period certain may be
specified as 5, 10, or 20 years. The period certain must be specified at the
time this option is elected.
Option B--Non-Refund Life Annuity
A fixed payout annuity payable monthly while the Annuitant is living. No
monthly payment, death benefit or refund is payable after the death of the
Annuitant.
Option C--[Reserved]
Option D--Joint and Survivor Life Annuity
A fixed payout annuity payable monthly while either the Annuitant or Joint
Annuitant is living. You must designate the Joint Annuitant at the time you
elect this option. The Joint Annuitant must be at least age 40 on the first
payment calculation date.
Option E--Installment Refund Life Annuity
A fixed payout annuity payable monthly while the Annuitant is living. If the
Annuitant dies before the annuity payments made under this option total an
amount which refunds the entire amount applied under this option, we will make
a lump sum payment equal to the entire amount applied under this option less
the sum of payments already made.
Option F--Joint and Survivor Life Annuity with 10-Year Period Certain
A fixed payout annuity payable monthly while either the Annuitant or joint
Annuitant is living, or if later, the end of 10 years. You must designate the
Joint Annuitant at the time you elect this option. The Joint Annuitant must be
at least age 40 on the first payment calculation date.
Option G--Payments for Specified Period
A fixed payout annuity payable monthly over a specified period of time.
Payments continue whether the Annuitant lives or dies. The specified period
must be in whole numbers of years from 5 to 30, but cannot be greater than 100
minus the age of the Annuitant. However, if the beneficiary of any death
benefits payable under this contract elects this payment option, the period
selected by the beneficiary may not extend beyond the life expectancy of such
beneficiary.
Option H--Payments of Specified Amount
Equal income installments of a specified amount are paid until the principal
sum remaining under this option from the amount applied is less than the amount
of the installment. When that happens, the principal sum remaining will be paid
as a final payment. The amount specified must provide for payments for a period
of at least 5 years.
Option I--Variable Life Annuity with 10-Year Period Certain
A variable payout annuity payable monthly while the Annuitant is living or,
if later, for ten years. If the beneficiary of any death benefits payable under
this contract elects this option, the period certain will equal the shorter of
10 years or the life expectancy of such beneficiary.
Option J--Joint Survivor Variable Life Annuity with 10-Year Period Certain
A variable payout annuity payable monthly while either the Annuitant or joint
Annuitant is living, or if later, the end of 10 years. You must designate the
Joint Annuitant at the time you elect this option. The Joint Annuitant must be
at least age 40 on the first payment calculation date. This option is not
available for the payment of any death benefit under this contract.
Option K--Variable Annuity for a Specified Period
A variable payout annuity payable monthly over a specified period of time.
Payments continue whether the Annuitant lives or dies. The specified period
must be in whole numbers of years from 5 to 30, but cannot be greater than 100
minus the age of the Annuitant. However, if the beneficiary of any death
benefits payable under this contract elects this payment option, the period
selected by the beneficiary may not extend beyond the life expectancy of such
beneficiary. This option also provides for unscheduled withdrawals. An
unscheduled withdrawal will reduce the number of fixed annuity units in each
investment option and affect the amount of future payments. For details, see
"Variable Annuity Payments" and "Calculation of Annuity Payments" in the SAI.
Option L--Variable Life Expectancy Annuity
This option provides a variable income which is payable over the Annuitant's
annually recalculated life expectancy or the annually recalculated life
expectancy of the Annuitant and joint Annuitant. This option also provides for
unscheduled withdrawals. An unscheduled withdrawal will reduce the Contract
Value and affect the amount of future payments. Upon the death of the Annuitant
(and joint Annuitant, if applicable), any remaining Contract Value will be paid
in a lump sum to the beneficiary. For details, see "Variable Annuity Payments"
and "Calculation of Annuity Payments" in the SAI.
Option M--Unit Refund Variable Life Annuity
This option provides variable monthly payments as long as the Annuitant
lives. In the event of the death of the Annuitant, the monthly payments will
stop and the beneficiary will receive a lump sum payment equal to the value of
the remaining annuity units. This value is equal to the sum of the number of
remaining annuity units for each investment option multiplied by the current
Annuity Unit Value for that investment option. The number of remaining annuity
units for each investment option will be calculated as follows:
1.the net amount in the investment option applied under this option on the
first payment calculation date divided by the corresponding Annuity Unit
Value on that date, minus
2.the sum of the annuity units released from the investment option to make the
payments under this option.
54
You may not transfer any assets under Annuity Payment Option M, unless we
agree otherwise.
Option N--Variable Non-Refund Life Annuity
A variable payout annuity payable monthly while the Annuitant is living. No
monthly payment, death benefit or refund is payable after the death of the
Annuitant.
Other Options and Rates
We may offer other annuity payment options at the time a contract reaches its
Maturity Date. In addition, in the event that annuity payment rates for
contracts are at that time more favorable than the applicable rates guaranteed
under the contract, the then current settlement rates shall be used in
determining the amount of any annuity payment under the Annuity Payment Options
above.
Other Conditions
Federal income tax requirements currently applicable to most qualified plans
provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse.
Federal income tax requirements also provide that participants in regular or
SIMPLE IRAs must begin minimum distributions by April 1 of the year following
the year in which they attain age 70 1/2. Minimum distribution requirements do
not apply to Roth IRAs. Distributions from qualified plans generally must begin
by the later of actual retirement or April 1 of the year following the year
participants attain age 70 1/2. Any required minimum distributions must be such
that the full amount in the contract will be distributed over a period not
greater than the participant's life expectancy or the combined life expectancy
of the participant and his or her spouse or designated beneficiary.
Distributions made under this method are generally referred to as Life
Expectancy Distributions ("LEDs"). An LED program is available to participants
in qualified plans or IRAs. Requests to elect this program must be made in
writing.
Under the LED program, regardless of contract year, amounts up to the
required minimum distribution may be withdrawn without a deduction for
surrender charges, even if the minimum distribution exceeds the free withdrawal
amount. See "Surrender Charges." Any amounts withdrawn that have not been held
under a contract for at least nine years and are in excess of both the minimum
distribution and the free withdrawal amount will be subject to any applicable
surrender charge.
If the initial monthly annuity payment under an annuity payment option would
be less than $20, we may make a single sum payment equal to the Contract Value
on the date the initial annuity payment would be payable, in place of all other
benefits provided by the contract, or may make periodic annuity payments
quarterly, semiannually or annually in place of monthly annuity payments.
Currently, transfers between investment options are available for amounts
allocated to any of the variable annuity payment options except Annuity Payment
Option M.
Payment Upon Death After Maturity Date
If an owner dies on or after the Maturity Date and there is no surviving
owner, any remaining certain period annuity payments will be paid to the
beneficiary under the annuity payment option in effect on the date of death.
Generally, payments may not be deferred or otherwise extended. (For information
regarding the Inherited/Stretch Annuity feature of this contract, see the
section of this prospectus entitled "Inherited/Stretch Annuity Feature.") If
there is a surviving owner, the payments continue as if there had been no death.
If the Annuitant and joint Annuitant, if any, die and are survived by any
owner(s), any remaining certain period annuity payments will be paid to such
owner(s). Payments will continue under the annuity payment option in effect at
the date of death and may not be deferred or otherwise extended.
Variable Account Valuation Procedures
- --------------------------------------------------------------------------------
Valuation Date
A Valuation Date is every day the New York Stock Exchange ("NYSE") is open
for trading and we are open for business. However, transaction processing may
be postponed for the following reasons:
1.the NYSE is closed or may have closed early;
2.the SEC has determined that a state of emergency exists; or
3.on days when a certain market is closed (e.g., the U.S. Government bond
market is closed on Columbus Day and Veteran's Day).
The NYSE Board of Directors reserves the right to change the NYSE schedule as
conditions warrant. On each Valuation Date, the value of the Separate Account
is determined at the close of the NYSE (usually 4:00 p.m. eastern time).
Valuation Period
Valuation period is that period of time from the beginning of the day
following a Valuation Date to the end of the next following Valuation Date.
Accumulation Unit Value
The value of one Accumulation Unit was set at $1.000 on the date assets were
first allocated to an investment option. The value of one Accumulation Unit on
any subsequent Valuation Date is determined by multiplying the immediately
preceding Accumulation Unit Value by the applicable net investment factor for
the valuation period ending on such Valuation Date. After the first valuation
period, the Accumulation Unit Value reflects the cumulative investment
experience of that investment option.
Net Investment Factor
The net investment factor for any valuation period is equal to 1.000 plus the
applicable net investment rate for such valuation period. A net investment
factor may be more or less than 1.000 depending on whether the assets gained or
lost value that day. To determine the net investment rate for any valuation
period for the funds allocated to each investment option, the following steps
are taken: (a) the aggregate
55
accrued investment income and capital gains and losses, whether realized or
unrealized, of the investment option for such valuation period is computed,
(b) the amount in (a) is then adjusted by the sum of the charges and credits
for any applicable income taxes and the deductions at the beginning of the
valuation period for mortality and expense risk fees and daily administration
fee, and (c) the results of (a) as adjusted by (b) are divided by the aggregate
unit values in the investment option at the beginning of the valuation period.
Service Providers
Under an Administrative and Accounting Services Agreement between PNC Global
Investment Servicing ("PNC") (formerly PFPC, INC.) and the Company, PNC
provides certain services related to the Separate Account. These services
include computing investment option unit value for each investment option of
the Separate Account on each valuation date, preparing annual financial
statements for the Separate Account, filing the Separate Account annual reports
on Form N-SAR with the SEC, and maintaining certain books and records required
by law on behalf of the Separate Account. The principal business address of PNC
is 301 Bellevue Parkway, 2/nd/ Floor, Wilmington, DE.
Under a contract with Phoenix Life Insurance Company ("PLIC"), Ibbotson
Associates provides certain asset allocation services, including a risk
tolerance questionnaire to assist the contract owner, for use in conjunction
with the contract. The principal business address of Ibbotson Associates is 225
North Michigan, 7/th/ Floor, Chicago, Il.
Under a contract with PLIC, Tata Consulting Services augments our U.S. based
staff in processing premium payments, investment option transfers, asset
allocation changes, changes of address, and issuance of new variable annuity
business. The principal business address of Tata Consulting Services is 101
Park Avenue, 26/th/ Floor, New York, NY.
Miscellaneous Provisions
- --------------------------------------------------------------------------------
Assignment
Owners of contracts issued in connection with non-tax qualified plans may
assign their interest in the contract to a spouse or a grantor trust. This
assignment may result in taxable income to the Contract Owner. We will not be
on notice of such an assignment unless we receive written notice of such
assignment filed with our Annuity Operations Division.
A pledge or assignment of a contract is treated as payment received on
account of a partial surrender of a contract. For more information, see
"Surrenders or Withdrawals Prior to the Contract Maturity Date." Transfer of
ownership will nullify the original death benefit option and the death benefit
option will become Death Benefit Option 1.
In order to qualify for favorable tax treatment, contracts issued in
connection with tax qualified plans or IRAs may not be sold, assigned,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation, or for any other purpose, to any person.
Payment Deferral
Payment of the Contract Value, attributable to the Separate Account, in a
single sum upon a withdrawal or full surrender of the contract will ordinarily
be made within 7 days after receipt of the written request by our Annuity
Operations Division. 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.
Payment of the Contract Value attributable to the GIA may be deferred for 6
months from the date of receipt of a withdrawal or surrender request at our
Annuity Operations Division. If payment is delayed for more than 10 days, we
will credit additional interest at a rate equal to that paid under Annuity
Options G and H.
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.
Free Look Period
We may mail the contract to you or we may deliver it to you in person. You
may return a contract for any reason within ten days after you receive it and
receive in cash the Contract Value plus any charges made under this contract as
of the date of cancellation (A longer Free Look Period may be required by your
state). You may receive more or less than the initial premium payment depending
on investment experience within the investment options during the Free Look
Period. If a portion or all of your initial premium payment has been allocated
to the GIA, we also will refund any earned interest. If a portion or all of
your initial premium payment has been allocated to the MVA, we will apply the
Market Value Adjustment that can increase or decrease your initial premium
payment. We will consider Premium Enhancements credited to the contract as
"earnings" and therefore part of Contract Value. If applicable state law
requires a return of premium payments, we will return the greater of premium
payments less any withdrawals or the Contract Value less any applicable
surrender charges.
56
We have applied to the Securities and Exchange Commission (SEC) for
permission to deduct any Premium Enhancements made to your Contract upon the
Contract's cancellation during the free look period (as well as under other
circumstances described in this prospectus). We will not deduct Premium
Enhancements upon cancellation of the Contract unless, and if applicable, until
the SEC grants us permission.
If we receive permission from the SEC, we will deduct Premium Enhancements
from payments made to you as a result of Contract cancellation. In this case,
you will bear the investment risk of any Premium Enhancements made under the
Contract. For example, if applicable state law provides for a return of
Contract Value, we will return to you your Contract Value plus any charges, and
less any applicable Premium Enhancement made under this Contract as of the date
of cancellation. Our deduction of the Premium Enhancement in this case will not
be adjusted for investment performance. Therefore, although you will benefit
from any investment gain on the Premium Enhancement, if it experiences an
investment loss, we will still deduct the original Premium Enhancement amount.
If applicable state law requires a return of premium, we will return to you the
greater of; 1) premium payments paid less any withdrawals and Premium
Enhancements credited to the contract, or 2) the Contract Value plus any
charges, and less any applicable Premium Enhancement made under this contract
as of the date of cancellation.
You should know that in a declining market, your Contract Value may be even
less than your initial investment.
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
federal or state tax law may require a change in contract administration. Upon
any such tax law change, we will administer the contract so that it will be in
continued compliance with applicable provisions of any state or federal tax
law. 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.
Substitution of Fund Shares
If, in the judgment of PHL Variable's management, one or more of the funds
becomes unsuitable for investment by Contract Owners, we reserve the right to
substitute Accumulation Units of another investment option for Accumulation
Units already purchased or to be purchased in the future by premium payments
under this contract. Any substitution will be subject to approval by the SEC,
if required, and where required one or more state insurance departments.
Ownership of the Contract
Ordinarily, the purchaser of a contract is both the owner and the Annuitant
and is entitled to exercise all the rights under the contract. However, the
owner may be an individual or entity other than the Annuitant. More than one
owner may own a contract as joint owner. Transfer of the ownership of a
contract may involve federal income tax consequences, and a qualified advisor
should be consulted before any such transfer is attempted.
Inherited/Stretch Annuity Feature
This Contract provides for an Inherited/Stretch Annuity Feature that may be
requested by the beneficiary of a deceased Contract Owner's interest. Under
this Feature we will administer the Contract to accommodate an inherited or
"stretch" payout. A stretch payout is a method in which the death benefit is
paid out over a period of time, which is generally based upon the life
expectancy of the beneficiary. By electing a stretch payout, a death benefit
beneficiary can "stretch" payments over his or her life expectancy rather than
receive the entire death benefit in one lump sum or within five years of the
Contract Owner's death. The amount of each stretch payment will be at least the
required minimum distribution ("RMD") required under the Internal Revenue Code
and its accompanying rules and regulations (see "Federal Income Taxes").
Electing a "stretch" payout may provide tax advantages to the beneficiary.
This Feature is available to an individual or trust beneficiary of an
Individual Retirement Account (IRA), (including a Roth IRA), or Qualified Plan
or to an individual beneficiary of a Non-Qualified contract issued by PHL
Variable (or its affiliates) or issued by a company unaffiliated with PHL
Variable. If the beneficiary of a contract issued by a company unaffiliated
with PHL Variable purchases this Phoenix Flexible Retirement Choice/sm/
Contract for this Feature, then all contract rights will be available to the
purchaser. However, if a beneficiary of this Phoenix Flexible Retirement
Choice/sm/ Contract elects this Feature, only certain rights will remain with
the beneficiary because a beneficiary does not retain the same rights under
this Contract as the deceased owner. Certain limitations, considerations and
tax implications apply to this Feature and may differ depending upon whether
you have a IRA/Qualified or Non-Qualified Plan and whether the beneficiary is
an individual or a trust.
If this Feature is elected, we will calculate the RMD under the Internal
Revenue Code ("Code") and its accompanying rules and regulations and will
distribute this calculated amount to the beneficiary. However, it is the
responsibility of the beneficiary to ensure that the correct RMD is actually
withdrawn from the contact each year.
The following guidelines will apply when we administer this Feature:
.. We will calculate the RMD each year in accordance with the Code using the
Fair Market Value (year-end account value, plus any actuarial value assigned
to living benefits) of the account.
.. With certain limitations, a beneficiary's share of the death benefit will be
distributed over his or her life expectancy, based on IRS tables. If there
are multiple beneficiaries and a separate beneficiary account is not
established by December 31/st/ of the calendar year following the year of
death, the death benefit will be distributed over the life expectancy of the
oldest beneficiary.
57
.. For a Non-Qualified contract, if the deceased Owner had begun receiving
annuitization proceeds, the RMD payments will be based on the life
expectancy of the deceased Owner at the time of death.
.. If the beneficiary is a non-natural person under an IRA/Qualified plan, and
the deceased Owner died after his or her required beginning distribution
date, we will use the remaining life expectancy of the deceased to compute
remaining payments.
.. The annual RMD must be withdrawn each year. For a Non-Qualified contract,
the first RMD must be distributed no later than the anniversary of the
deceased Owner's date of death. For IRAs/Qualified plans, the first RMD must
be distributed on or before December 31/st/ of the calendar year following
the year of the deceased's death.
.. For an IRA/Qualified plan, if the beneficiary is a surviving spouse, the
surviving spouse beneficiary can postpone RMDs until the year the deceased
spouse would have turned 70 1/2. In the alternative, the spouse can also add
the IRA/Qualified plan proceeds to his or her own IRA and delay RMDs until
the surviving spouse turns 70 1/2.
.. For a Non-Qualified contract, if the beneficiary is a surviving spouse, the
surviving spouse can take the contract as his or her own and delay RMDs
until the surviving spouse's death.
.. The RMD may be paid on an installment basis with the payment frequency
chosen by the beneficiary; in all cases, the RMDs must be paid at least
annually.
.. In addition to RMD amounts, additional funds may be withdrawn from the
Contract. Any withdrawal in excess of the RMD may be subject to a surrender
charge (see the sections of this prospectus entitled "Summary of Expenses"
and "Surrender of Contracts and Withdrawals").
.. The beneficiary who elects this Feature may continue or change the funding
vehicle that the deceased Owner selected.
For more information regarding our administration of this feature, please see
your Required Minimum Distribution (RMD) Request and Acknowledgment Form. This
feature may not be suitable for some beneficiaries. We are not providing tax,
financial or legal advice. You should consult with your financial professional
and tax adviser to determine whether this feature is right for you. This
feature may not be available in all states.
Federal Income Taxes
- --------------------------------------------------------------------------------
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. However, 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 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,
58
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," 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 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
59
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 taxable income 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 if specific conditions
are met. Exchanges are permitted of 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 contract
or other annuity contracts 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 Internal Revenue Service ("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 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
60
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 investment options, all investment decisions concerning the
investment options 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 Profit-sharing
Plans and State Deferred Compensation Plans will be treated, for purposes of
this discussion, as qualified plans. The tax rules applicable to participants
in such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. No attempt is made here to provide more than
general information about the use of the contracts with the various types of
qualified plans. 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 option that does 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 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.
61
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 Code 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 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) 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 the contract issuer such as PHL Variable to monitor
compliance with these requirements.
If we are directed by the participant, the loan may be taken from specific
investment options. Otherwise, the loan is taken
62
proportionately from all investment options. 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. Amounts borrowed
from the Market Value Adjustment ("MVA") account are subject to the same market
value adjustment as applies to transfers from the MVA.
Interest will be charged on the loan, in the amount set forth in the
contract. This interest is payable to Phoenix.
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
investment options of the Separate Account or the GIA in accordance with the
participant's most recent premium payments allocation on file with us, except
that no amount will be transferred to the MVA.
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 under 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. 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.
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
63
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. 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
after 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.
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 must be a man or
a woman legally joined. Individuals married under State or foreign laws that
permit a marriage between two men or two women are
64
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.
Sales of Variable Accumulation Contracts
- --------------------------------------------------------------------------------
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 (e.g. commissions payable to retail broker-dealers
who sell 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 100 Pearl Street,
Hartford, Connecticut 06103. 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, or ("FINRA")
(formerly known as the National Association of Securities Dealers, Inc. or
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 firms. Such 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.
Compensation
Broker-dealers who have selling agreements with PEPCO and PHL Variable are
paid compensation for the promotion and sale of the Contracts. Registered
representatives who solicit sales of the Contract typically receive a portion
of the compensation payable to the broker-dealer firm, depending on the
agreement between the firm and the registered representative. A broker-dealer
firm or registered representative of a firm may receive different compensation
for selling one product over another and/or may be inclined to favor or
disfavor one product provider over another product provider due to differing
compensation rates.
The compensation schedule may differ between the contracts that elect the
Premium Enhancement feature and the contracts that do not. We generally pay
compensation as a percentage of purchase payments invested in the Contract.
Alternatively, we may pay lower compensation on purchase payments but pay
periodic asset-based compensation in all or some years based on all or a
portion of the Contract Value. The amount and timing of compensation may vary
depending on the selling agreement and the payment option selected by the
broker- dealer and/or the registered representative but is not expected to
exceed 6.0% of purchase payments if up-front compensation is paid to registered
representatives). Broker-dealer firms may receive up to 6% of purchase payments
(if up-front compensation is elected) and up to 1.00% annually of contract
value (if asset based compensation is paid). In addition, Equity Services
Incorporated, an affiliate of National Life of Vermont, is paid an additional
0.15% on assets on an annual basis in arrears, beginning in 2007. Also, we pay
Linsco Private Ledger Corporation and certain of its affiliates up to 0.09% on
an annual basis on assets held in variable annuities issued by the Company and
its insurance company affiliates.
To the extent permitted by FINRA rules, overrides and promotional incentives
or cash and non-cash payments also may be provided to such broker-dealers based
on sales volumes, the assumption of wholesaling functions, or other
sales-related criteria. Additional payments may be made for other services not
directly related to the sale of the contract, including the recruitment and
training of personnel, production of promotional literature and similar
services.
This Contract does not assess a front-end sales charge, so you do not
directly pay for sales and distribution expenses. Instead, you indirectly pay
for sales and distribution expenses through the overall charges and fees
assessed under the Contract. For example, any profits PHL Variable may realize
through assessing the mortality and expense risk charge under your Contract may
be used to pay for sales and distribution expenses. PHL Variable may also pay
for sales and distribution expenses out of any payments PHL Variable or PEPCO
may receive from the underlying funds for providing administrative, marketing
and other support and services to the underlying funds. If your Contract
assesses a surrender charge, proceeds from this charge may be used to reimburse
PHL Variable for sales and distribution expenses. No additional sales
compensation is paid if you select any optional benefits under your Contract.
We have unique arrangements for compensation with select broker-dealer firms
based on the firm's aggregate or anticipated sales of contracts or other
factors. We enter into such arrangements at our discretion and we may negotiate
customized arrangements with firms based on various
65
criteria. As such, special compensation arrangements are not offered to all
broker-dealer firms. Compensation payments made under such arrangements will
not result in any additional charge to you.
PHL Variable and PEPCO have also entered into so-called preferred
distribution arrangements with certain broker-dealer firms. These arrangements
have sometimes been called "shelf space" arrangements. Under these
arrangements, PHL Variable and PEPCO pay separate, additional compensation to
the broker-dealer firm for services the broker-dealer provides in connection
with the distribution of the PHL Variable's products. The payments are made
from the Company's general assets and they may be significant. The
broker-dealer may realize a profit on these payments. These services may
include providing PHL Variable with access to the distribution network of the
broker-dealer, the hiring and training of the broker-dealer's sales personnel,
the sponsoring of conferences and seminars by the broker-dealer, or general
marketing services performed by the broker-dealer. The broker-dealer may also
provide other services or incur other costs in connection with distributing PHL
Variable's products.
Any such compensation payable to a broker-dealer firm will be made by PEPCO
or PHL Variable out of their own assets and will not result in any additional
direct charge to you. Such compensation may cause the broker-dealer firm and
its registered representatives to favor PHL Variable's products. PHL Variable
and PEPCO have entered into a preferred distribution arrangement with Sigma
Financial Corporation, State Farm VP Management Corporation ("State Farm"),
Linsco/Private Ledger Corporation ("LPL"), Janney Montgomery Scott, LLC, CUSO
Financial Services, Sammons Securities, and Equity Services, Incorporated, an
affiliate of National Life of Vermont. Also, State Farm distributes PHL
Variable products as its exclusive unaffiliated variable annuity to its
customers.
We may periodically establish compensation specials whereby we pay a higher
amount for sales of a contract during a specified period. While a compensation
special is in effect, registered representatives may be inclined to favor a
product that pays a higher compensation over another product where a
compensation special is not in effect.
Servicing Agent
- --------------------------------------------------------------------------------
The Phoenix Edge Series Fund reimburses Phoenix Life Insurance Company for
various shareholder services provided by the Annuity Operations Division, PO
Box 8027, Boston, MA 02266-8027. The functions performed include investor
inquiry support, shareholder trading, confirmation of investment activity,
quarterly statement processing and Web/Interactive Voice Response trading. For
2009, The Phoenix Edge Series Fund will be reimbursed a flat fee rate of $1.6
million. The total administrative service fees paid by the fund for the last
three fiscal years follow:
-----------------------------------------------------------------------------
Year Ended December 31, Fee Paid
-----------------------------------------------------------------------------
2006 $1.5 million
-----------------------------------------------------------------------------
2007 $1.7 million
-----------------------------------------------------------------------------
2008 $1.3 million
-----------------------------------------------------------------------------
State Regulation
- --------------------------------------------------------------------------------
We are subject to the provisions of the Connecticut insurance laws applicable
to life insurance companies and to regulation and supervision by the
Connecticut Superintendent of Insurance. We are also subject to the applicable
insurance laws of all the other states and jurisdictions in which it does an
insurance business.
State regulation of PHL Variable includes certain limitations on the
investments that may be made for its General Account and separate accounts,
including the Separate Account. It does not include, however, any supervision
over the investment policies of the Separate Account.
Reports
- --------------------------------------------------------------------------------
Reports showing the Contract Value will be furnished to you at least annually.
Voting Rights
- --------------------------------------------------------------------------------
As stated above, all of the assets held in an available investment option
will be invested in shares of a corresponding Series of the funds. We are the
legal owner of those shares and as such have the right to vote to elect the
Board of Trustees of the funds, to vote upon certain matters that are required
by the 1940 Act to be approved or ratified by the shareholders of a mutual fund
and to vote upon any other matter that may be voted upon at a shareholders'
meeting. We will send you or, if permitted by law, make available
electronically, proxy material, reports and other materials relevant to the
investment options in which you have a voting interest. In order to vote you
must complete the proxy form and return it with your voting instructions. You
may also be able to vote your interest by telephone or over the Internet if
such instructions are included in the proxy material. We will vote all of the
shares we own on your behalf, in accordance with your instructions. We will
vote the shares for which we do not receive instructions, and any other shares
we own, in the same proportion as the shares for which we do receive
instructions. This process may result in a small number of contractowners
controlling the vote.
In the future, to the extent applicable federal securities laws or
regulations permit us to vote some or all shares of the fund in its own right,
it may elect to do so.
Matters on which owners may give voting instructions may include the
following: (1) election or removal of the Board of Trustees of a fund;
(2) ratification of the independent accountant for a fund; (3) approval or
amendment of the investment advisory agreement for the Series of the fund
corresponding to the owner's selected investment option(s); (4) any change in
the fundamental investment policies or restrictions of each such Series; and
(5) any other matter requiring a vote of the shareholders of a fund. With
respect to amendment of any investment advisory agreement or any change in a
Series' fundamental investment policy, owners participating in such Series will
vote separately on the matter.
66
The number of votes that you have the right to cast will be determined by
applying your percentage interest in an investment option to the total number
of votes attributable to the investment option. In determining the number of
votes, fractional shares will be recognized. The number of votes for which you
may give us instructions will be determined as of the record date for fund
shareholders chosen by the Board of Trustees of a fund.
Texas Optional Retirement Program
- --------------------------------------------------------------------------------
Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a contract, or apply
them to provide annuity payment options prior to retirement except in the case
of termination of employment in the Texas public institutions of higher
education, death or total disability. Such proceeds, however, may be used to
fund another eligible retirement vehicle.
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.
SAI Table of Contents
- --------------------------------------------------------------------------------
The SAI contains more specific information and financial statements relating
to the Separate Account and PHL Variable. The Table of Contents of the SAI is
set forth below:
.. PHL Variable Insurance Company
.. Underwriter
.. Services
.. Information Sharing Agreements
.. Performance History
.. Calculation of Yield and Return
.. Calculation of Annuity Payments
.. Experts
.. Separate Account Financial Statements
.. Company Financial Statements
Contract Owner inquiries and requests for an SAI should be directed, in
writing, to our Annuity Operations Division, or by calling us at 800/541-0171.
67
APPENDIX A - Investment Options
- --------------------------------------------------------------------------------
Fund Name Investment Objective
AIM V.I. Capital Appreciation Fund Growth of capital
- -----------------------------------------------------------------------------------------------------------
AllianceBernstein Balanced Wealth Strategy To maximize total return consistent with the Adviser's
Portfolio determination of reasonable risk
- -----------------------------------------------------------------------------------------------------------
AllianceBernstein Wealth Appreciation Strategy Long-term growth of capital
Portfolio
- -----------------------------------------------------------------------------------------------------------
DWS Equity 500 Index VIP Seeks to replicate, as closely as possible, before the
deduction of expenses, the performance of the
Standard & Poor's 500 Composite Stock Price Index,
which emphasizes stocks of large U.S. companies
- -----------------------------------------------------------------------------------------------------------
DWS Small Cap Index VIP Seeks to replicate, as closely as possible, before the
deduction of expenses, the performance of the
Russell 2000(R) Index, which emphasizes stocks of
small US companies.
- -----------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II Current income by investing primarily in U.S.
government securities and U.S. Treasury and agency
debenture securities
- -----------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II High current income by investing in high yield, lower
rated corporate bonds
- -----------------------------------------------------------------------------------------------------------
Fidelity VIP Contrafund(R) Portfolio Long-term capital appreciation
- -----------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities Portfolio Capital growth
- -----------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio Capital appreciation
- -----------------------------------------------------------------------------------------------------------
Fidelity VIP Investment Grade Bond Portfolio As high a level of current income as is consistent with
the preservation of capital
- -----------------------------------------------------------------------------------------------------------
Franklin Flex Cap Growth Securities Fund Capital appreciation
- -----------------------------------------------------------------------------------------------------------
Franklin Income Securities Fund Maximize income while maintaining prospects for
capital appreciation
- -----------------------------------------------------------------------------------------------------------
Lord Abbett Bond-Debenture Portfolio High current income and the opportunity for capital
appreciation to produce a high total return
- -----------------------------------------------------------------------------------------------------------
Lord Abbett Growth and Income Portfolio Long-term growth of capital and income without
excessive fluctuations in market value
- -----------------------------------------------------------------------------------------------------------
Lord Abbett Mid-Cap Value Portfolio Capital appreciation through investments, primarily in
equity securities which are believed to be undervalued
in the marketplace
- -----------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund Capital appreciation with income as a secondary goal
- -----------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Small Cap Growth Portfolio Long term capital growth
- -----------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Guardian Portfolio Long term growth of capital; current income is a
secondary goal
- -----------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA Capital appreciation by investing in securities of well-
known, established companies
- -----------------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor
AIM V.I. Capital Appreciation Fund Invesco Aim Advisors, Inc.
Subadvisor(s):
Invesco Trimark Ltd.;
Invesco Global Asset Management
(N.A.), Inc.;
Invesco Institutional
(N.A.), Inc.;
Invesco Senior Secured
Management, Inc.;
Invesco Hong Kong Limited;
Invesco Asset Management
Limited;
Invesco Asset Management
(Japan) Limited;
Invesco Asset Management
Deutschland, GmbH; and
Invesco Australia Limited
- -----------------------------------------------------------------------------------------------
AllianceBernstein Balanced Wealth Strategy AllianceBernstein L.P.
Portfolio
- -----------------------------------------------------------------------------------------------
AllianceBernstein Wealth Appreciation Strategy AllianceBernstein L.P.
Portfolio
- -----------------------------------------------------------------------------------------------
DWS Equity 500 Index VIP Deutsche Investment Management Americas Inc.
Subadvisor: Northern Trust Investments, N.A
- -----------------------------------------------------------------------------------------------
DWS Small Cap Index VIP Deutsche Investment Management Americas Inc.
Subadvisor: Northern Trust Investments, N.A
- -----------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II Federated Investment Management Company
- -----------------------------------------------------------------------------------------------
Federated High Income Bond Fund II Federated Investment Management Company
- -----------------------------------------------------------------------------------------------
Fidelity VIP Contrafund(R) Portfolio Fidelity Management and Research Company
- -----------------------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities Portfolio Fidelity Management and Research Company
- -----------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio Fidelity Management and Research Company
- -----------------------------------------------------------------------------------------------
Fidelity VIP Investment Grade Bond Portfolio Fidelity Management and Research Company
Subadvisor: Fidelity Investments Money
Management, Inc.
- -----------------------------------------------------------------------------------------------
Franklin Flex Cap Growth Securities Fund Franklin Advisers, Inc.
- -----------------------------------------------------------------------------------------------
Franklin Income Securities Fund Franklin Advisers, Inc.
- -----------------------------------------------------------------------------------------------
Lord Abbett Bond-Debenture Portfolio Lord, Abbett & Co. LLC
- -----------------------------------------------------------------------------------------------
Lord Abbett Growth and Income Portfolio Lord, Abbett & Co. LLC
- -----------------------------------------------------------------------------------------------
Lord Abbett Mid-Cap Value Portfolio Lord, Abbett & Co. LLC
- -----------------------------------------------------------------------------------------------
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
- -----------------------------------------------------------------------------------------------
Neuberger Berman AMT Small Cap Growth Portfolio Neuberger Berman Management LLC
Subadvisor: Neuberger Berman, LLC
- -----------------------------------------------------------------------------------------------
Neuberger Berman AMT Guardian Portfolio Neuberger Berman Management LLC
Subadvisor: Neuberger Berman, LLC
- -----------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund/VA OppenheimerFunds, Inc.
- -----------------------------------------------------------------------------------------------
A-1
Fund Name Investment Objective
Oppenheimer Global Securities Fund/VA Long-term capital appreciation by investing in
securities of foreign insurers, "growth-type"
companies, cyclical industries and special situations
- ---------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small-Cap Fund/VA Capital appreciation
- ---------------------------------------------------------------------------------------------------------------
Phoenix Capital Growth Series Intermediate and long-term capital appreciation with
income as a secondary consideration
- ---------------------------------------------------------------------------------------------------------------
Phoenix Growth and Income Series Capital appreciation and current income
- ---------------------------------------------------------------------------------------------------------------
Phoenix Mid-Cap Growth Series Capital appreciation
- ---------------------------------------------------------------------------------------------------------------
Phoenix Money Market Series As high a level of current income as is consistent with
the preservation of capital and maintenance of liquidity
- ---------------------------------------------------------------------------------------------------------------
Phoenix Multi-Sector Fixed Income Series Long-term total return
- ---------------------------------------------------------------------------------------------------------------
Phoenix Multi-Sector Short Term Bond Series High current income while attempting to limit changes
in the series' net asset value per share caused by
interest rate changes
- ---------------------------------------------------------------------------------------------------------------
Phoenix Strategic Allocation Series High total return over an extended period of time
consistent with prudent investment risk
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series High total return consistent with reasonable risk
- ---------------------------------------------------------------------------------------------------------------
Phoenix Small-Cap Growth Series Long-term capital growth
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series Capital appreciation and income with approximately
equal emphasis
- ---------------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Long-term capital growth
Aggressive Growth
- ---------------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Growth Long-term capital growth with current income as a
secondary consideration
- ---------------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Moderate Current income with capital growth as a secondary
consideration
- ---------------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Long-term capital growth and current income with a
Moderate Growth greater emphasis on capital growth
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value Series Long-term growth of capital
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value Series Long-term growth of capital by investing primarily in
small-capitalization stocks that appear to be
undervalued
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Van Kampen Comstock Series Long-term capital appreciation with current income as
a secondary consideration
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Van Kampen Equity 500 Index Series High total return
- ---------------------------------------------------------------------------------------------------------------
PIMCO CommodityRealReturn/TM/ Strategy Portfolio Seeks maximum real return consistent with prudent
investment management
- ---------------------------------------------------------------------------------------------------------------
PIMCO Real Return Portfolio Seeks maximum real return, consistent with
preservation of real capital and prudent investment
management
- ---------------------------------------------------------------------------------------------------------------
PIMCO Total Return Portfolio Seeks maximum total return, consistent with
preservation of capital and prudent investment
management
- ---------------------------------------------------------------------------------------------------------------
Sentinel SVP Balanced Fund Seeks a combination of growth of capital and current
income, with relatively low risk and relatively low
fluctuations in value
- ---------------------------------------------------------------------------------------------------------------
Sentinel SVP Bond Fund Seeks high current income while seeking to control
risk
- ---------------------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor
Oppenheimer Global Securities Fund/VA OppenheimerFunds, Inc.
- ---------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small-Cap Fund/VA OppenheimerFunds, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Capital Growth Series Phoenix Variable Advisors, Inc.
Subadvisor: Neuberger Berman Management LLC
- ---------------------------------------------------------------------------------------------------------
Phoenix Growth and Income Series Phoenix Variable Advisors, Inc.
Subadvisor: Virtus Investment Advisers, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Mid-Cap Growth Series Phoenix Variable Advisors, Inc.
Subadvisor: Neuberger Berman Management LLC
- ---------------------------------------------------------------------------------------------------------
Phoenix Money Market Series Phoenix Variable Advisors, Inc.
Subadvisor: Goodwin Capital Advisers, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Multi-Sector Fixed Income Series Phoenix Variable Advisors, Inc.
Subadvisor: Goodwin Capital Advisers, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Multi-Sector Short Term Bond Series Phoenix Variable Advisors, Inc.
Subadvisor: Goodwin Capital Advisers, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Strategic Allocation Series Phoenix Variable Advisors, Inc.
Subadvisors: Goodwin Capital Advisers, Inc. (fixed
income portion) Virtus Investment
Advisers, Inc. (equity portion)
- ---------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series Phoenix Variable Advisors, Inc.
Subadvisor: Aberdeen Asset Management Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Small-Cap Growth Series Phoenix Variable Advisors, Inc.
Subadvisor: Neuberger Berman Management LLC
- ---------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series Phoenix Variable Advisors, Inc.
Subadvisor: Duff & Phelps Investment
Management Company
- ---------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Phoenix Variable Advisors, Inc., Limited Services
Aggressive Growth Subadvisor: Ibbotson Associates, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Growth Phoenix Variable Advisors, Inc., Limited Services
Subadvisor: Ibbotson Associates, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Moderate Phoenix Variable Advisors, Inc., Limited Services
Subadvisor: Ibbotson Associates, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix Dynamic Asset Allocation Series: Phoenix Variable Advisors, Inc., Limited Services
Moderate Growth Subadvisor: Ibbotson Associates, Inc.
- ---------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value Series Phoenix Variable Advisors, Inc.
Subadvisor: AllianceBernstein L.P.
- ---------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value Series Phoenix Variable Advisors, Inc.
Subadvisor: AllianceBernstein L.P.
- ---------------------------------------------------------------------------------------------------------
Phoenix-Van Kampen Comstock Series Phoenix Variable Advisors, Inc.
Subadvisor: Morgan Stanley Investment
Management Inc., d/b/a Van Kampen
- ---------------------------------------------------------------------------------------------------------
Phoenix-Van Kampen Equity 500 Index Series Phoenix Variable Advisors, Inc.
Subadvisor: Morgan Stanley Investment
Management Inc., d/b/a Van Kampen
- ---------------------------------------------------------------------------------------------------------
PIMCO CommodityRealReturn/TM/ Strategy Portfolio Pacific Investment Management Company LLC
- ---------------------------------------------------------------------------------------------------------
PIMCO Real Return Portfolio Pacific Investment Management Company LLC
- ---------------------------------------------------------------------------------------------------------
PIMCO Total Return Portfolio Pacific Investment Management Company LLC
- ---------------------------------------------------------------------------------------------------------
Sentinel SVP Balanced Fund Sentinel Asset Management, Inc.
- ---------------------------------------------------------------------------------------------------------
Sentinel SVP Bond Fund Sentinel Asset Management, Inc.
- ---------------------------------------------------------------------------------------------------------
A-2
Fund Name Investment Objective
Sentinel SVP Common Stock Fund Seeks a combination of growth of capital, current
income, growth of income and relatively low risk as
compared with the stock market as a whole
- -----------------------------------------------------------------------------------------------------
Sentinel SVP Mid Cap Growth Fund Seeks growth of capital
- -----------------------------------------------------------------------------------------------------
Sentinel SVP Small Company Fund Seeks growth of capital
- -----------------------------------------------------------------------------------------------------
Summit S&P MidCap 400 Index Portfolio Seeks investment results that correspond to the total
return performance of U.S. common stock, as
represented by the S&P MidCap 400 Index
- -----------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund Long-term capital appreciation
- -----------------------------------------------------------------------------------------------------
Templeton Foreign Securities Fund Long-term capital growth
- -----------------------------------------------------------------------------------------------------
Templeton Growth Securities Fund Long-term capital growth
- -----------------------------------------------------------------------------------------------------
Van Kampen UIF Equity and Income Portfolio Capital appreciation and current income
- -----------------------------------------------------------------------------------------------------
Wanger International Select Long-term growth of capital
- -----------------------------------------------------------------------------------------------------
Wanger International Long-term growth of capital
- -----------------------------------------------------------------------------------------------------
Wanger Select Long-term growth of capital
- -----------------------------------------------------------------------------------------------------
Wanger USA Long-term growth of capital
- -----------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor
Sentinel SVP Common Stock Fund Sentinel Asset Management, Inc.
- ----------------------------------------------------------------------------------------------------
Sentinel SVP Mid Cap Growth Fund Sentinel Asset Management, Inc.
- ----------------------------------------------------------------------------------------------------
Sentinel SVP Small Company Fund Sentinel Asset Management, Inc.
- ----------------------------------------------------------------------------------------------------
Summit S&P MidCap 400 Index Portfolio Summit Investment Partners, Inc.
Subadvisor: Calvert Asset Management Company, Inc.
- ----------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund Templeton Asset Management Ltd.
- ----------------------------------------------------------------------------------------------------
Templeton Foreign Securities Fund Templeton Investment Counsel, LLC
- ----------------------------------------------------------------------------------------------------
Templeton Growth Securities Fund Templeton Global Advisors Limited
- ----------------------------------------------------------------------------------------------------
Van Kampen UIF Equity and Income Portfolio Morgan Stanley Investment Management Inc.
- ----------------------------------------------------------------------------------------------------
Wanger International Select Columbia Wanger Asset Management, L.P.
- ----------------------------------------------------------------------------------------------------
Wanger International Columbia Wanger Asset Management, L.P.
- ----------------------------------------------------------------------------------------------------
Wanger Select Columbia Wanger Asset Management, L.P.
- ----------------------------------------------------------------------------------------------------
Wanger USA Columbia Wanger Asset Management, L.P.
- ----------------------------------------------------------------------------------------------------
A-3
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 X 1.00/4/ 1.00
NOTE:The above tax deduction rates are as of January 1, 2009. 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 Deductions
and Charges--Tax."
- -----------------
/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 .04% on annuity
considerations, but the department allows this to be paid upon
annuitization.
/4/ The tax rate in Puerto Rico was temporarily increased from 1% to 3%
effective January 1, 2005. The rate increase expired on June 30, 2007 and
the rate going forward is now 1%, effective July 1, 2007.
B-1