As filed with the Securities and Exchange Commission on July 22, 2002
Registration Nos. 333-81458
811-09065
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT
(Exact Name of Registrant)
PHL VARIABLE INSURANCE COMPANY
(Name of Depositor)
------------
One American Row, Hartford, Connecticut 06102-5056
(Address of Depositor's Principal Executive Offices) (Zip Code)
(800) 447-4312
(Depositor's Telephone Number, including Area Code)
------------
Tracy L. Rich, Esq.
PHL Variable Insurance Company
One American Row
Hartford, CT 06102-5056
(Name and Address of Agent for Service)
------------
Copy to:
Richard J. Wirth, Esq.
PHL Variable Insurance Company
One American Row
Hartford, CT 06102-5056
------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
Registrant is relying on the exemptive relief provided by Rule 6e-3(T) under the
Investment Company Act of 1940 and the relief granted to separate accounts
issuing variable contracts by Section 27I of the Investment Company Act of 1940.
Title of Securities being registered: Flexible Premium Variable Universal Life
policies
Approximate date of proposed public offering: as soon as practicable after the
effective date of the Registration Statement.
[ ] Check if it is proposed that this filing will become effective on (date) at
(time) pursuant to Rule 487.
================================================================================
THE PHOENIX EDGE(R) -- VUL
PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT
ISSUED BY: PHL VARIABLE INSURANCE COMPANY
PROSPECTUS JUNE , 2002
The Phoenix Edge(R) -- VUL is a flexible premium variable universal life
insurance policy that can provide lifetime insurance protection on the life of
one person. We will pay a death benefit when the insured person dies. You may
allocate premiums and policy value to the Guaranteed Interest Account and/or one
or more of the subaccounts of the PHLVIC Variable Universal Life Account (the
"Account"). The subaccounts purchase shares of the following funds:
THE PHOENIX EDGE SERIES FUND
- ----------------------------
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Aberdeen New Asia Series
[diamond] Phoenix-AIM Mid-Cap Equity Series
[diamond] Phoenix-Alliance/Bernstein Growth + Value Series
[diamond] Phoenix-Deutsche Dow 30 Series
[diamond] Phoenix-Deutsche Nasdaq-100 Index(R) Series
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
[diamond] Phoenix-Engemann Capital Growth Series
[diamond] Phoenix-Engemann Small & Mid-Cap Growth Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Hollister Value Equity Series
[diamond] Phoenix-J.P. Morgan Research Enhanced Index Series
[diamond] Phoenix-Janus Flexible Income Series
[diamond] Phoenix-Janus Growth Series
[diamond] Phoenix-MFS Investors Growth Stock Series
[diamond] Phoenix-MFS Investors Trust Series
[diamond] Phoenix-MFS Value Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Oakhurst Strategic Allocation Series
[diamond] Phoenix-Sanford Bernstein Global Value Series
[diamond] Phoenix-Sanford Bernstein Mid-Cap Value Series
[diamond] Phoenix-Sanford Bernstein Small-Cap Value Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Seneca Strategic Theme Series
[diamond] Phoenix-Van Kampen Focus Equity Series (formerly,
Phoenix-Morgan Stanley Focus Equity Series)
AIM VARIABLE INSURANCE FUNDS
- ----------------------------
[diamond] AIM V.I. Capital Appreciation Fund
[diamond] AIM V.I. Premier Equity Fund (formerly, AIM V.I. Value Fund)
THE ALGER AMERICAN FUND
- -----------------------
[diamond] Alger American Leveraged AllCap Portfolio
FEDERATED INSURANCE SERIES
- --------------------------
[diamond] Federated Fund for U.S. Government Securities II
[diamond] Federated High Income Bond Fund II
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
- ---------------------------------------
[diamond] VIP Contrafund(R) Portfolio
[diamond] VIP Growth Opportunities Portfolio
[diamond] VIP Growth Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2
- --------------------------------------------------------------
[diamond] Mutual Shares Securities Fund
[diamond] Templeton Foreign Securities Fund (formerly, Templeton
International Securities Fund)
[diamond] Templeton Growth Securities Fund
SCUDDER VIT FUNDS
- -----------------
[diamond] Scudder VIT EAFE(R) Equity Index Fund (formerly,
Deutsche VIT EAFE(R) Equity Index Fund)
[diamond] Scudder VIT Equity 500 Index Fund (formerly, Deutsche
VIT Equity 500 Index Fund)
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
[diamond] Technology Portfolio
WANGER ADVISORS TRUST
- ---------------------
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Smaller Companies (formerly, Wanger U.S.
Small Cap)
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT: [envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS (VPMO)
PO Box 8027
Boston, MA 02266-8027
[telephone] VARIABLE AND UNIVERSAL LIFE ADMINISTRATION (VULA)
800/541-0171
1
It may not be in your best interest to purchase a policy to replace an existing
life insurance policy or annuity contract. You must understand the basic
features of the proposed policy and your existing coverage before you decide to
replace your present coverage. You must also know if the replacement will result
in any income taxes.
The policy is not a deposit nor an obligation of, underwritten or guaranteed by,
any financial institution or credit union. It is not federally insured or
endorsed by the Federal Deposit Insurance Corporation or any other state or
federal agency. Policy investments are subject to risk, including the
fluctuation of policy values and possible loss of principal invested or premiums
paid.
The Securities and Exchange Commission (SEC) has not approved nor disapproved
these securities, nor passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
This prospectus provides important information that a prospective investor ought
to know before investing.
Read and keep this prospectus for future reference.
2
TABLE OF CONTENTS
Heading Page
- -----------------------------------------------------------------
PART I - GENERAL INFORMATION
- ----------------------------
SUMMARY ................................................ 4
CHARGES AND DEDUCTIONS.................................. 5
CHART 1 - POLICY FEES AND CHARGES....................... 8
CHART 2 - FUND ANNUAL EXPENSES.......................... 9
PHL VARIABLE INSURANCE COMPANY.......................... 11
THE ACCOUNT............................................. 11
Performance History.................................. 11
INVESTMENT OPTIONS...................................... 11
Participating Investment Funds ...................... 11
Investment Advisors ................................. 13
Services of the Advisors ............................ 14
Reinvestment and Redemption ......................... 14
Substitution of Investments.......................... 14
The Guaranteed Interest Account ..................... 14
PART II - POLICY INFORMATION
- ----------------------------
THE POLICY ............................................. 16
Eligibility ......................................... 16
Issue Premium ....................................... 16
Temporary Insurance Coverage ...................... 16
Flexible Premiums ................................... 16
Free Look Period .................................... 16
Transfer of Policy Value............................. 17
Systematic Transfers................................. 17
Determination of Subaccount Values ..................... 18
Death Benefit ....................................... 18
Surrenders .......................................... 19
Policy Loans ........................................ 19
Lapse ............................................... 20
Additional Rider Benefits .............................. 20
GENERAL PROVISIONS ..................................... 21
Postponement of Payments ............................ 21
Payment by Check .................................... 21
The Contract ........................................ 21
Suicide ............................................. 21
Incontestability .................................... 21
Change of Owner or Beneficiary ...................... 21
Assignment .......................................... 22
Misstatement of Age or Sex .......................... 22
Surplus.............................................. 22
PAYMENT OF POLICY PROCEEDS ............................. 22
Surrender and Death Benefit Proceeds ................ 22
Payment Amount ...................................... 22
Payment Options ..................................... 22
PART III - OTHER IMPORTANT INFORMATION
- --------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS ...................... 24
Introduction ........................................ 24
PHL Variable's Income Tax Status .................... 24
Policy Benefits ..................................... 24
Business-Owned Policies.............................. 25
Modified Endowment Contracts ........................ 25
Limitations on Unreasonable Mortality
and Expense Charges ............................... 26
Qualified Plans ..................................... 26
Diversification Standards ........................... 26
Change of Ownership or Insured or Assignment ........ 26
Other Taxes ......................................... 27
VOTING RIGHTS .......................................... 27
THE DIRECTORS AND EXECUTIVE OFFICERS
OF PHL VARIABLE INSURANCE COMPANY.................... 27
SAFEKEEPING OF THE ACCOUNT'S ASSETS .................... 28
SALES OF POLICIES ...................................... 28
STATE REGULATION ....................................... 28
REPORTS ................................................ 28
LEGAL PROCEEDINGS ...................................... 28
LEGAL MATTERS .......................................... 28
REGISTRATION STATEMENT ................................. 29
FINANCIAL STATEMENTS ................................... 29
PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS, DECEMBER 31, 2001.............. SA-1
PHL VARIABLE INSURANCE COMPANY
FINANCIAL STATEMENTS, DECEMBER 31, 2001.............. F-1
PHL VARIABLE INSURANCE COMPANY
UNAUDITED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2002....................................... F-22
APPENDIX A--PERFORMANCE HISTORY ........................ A-1
APPENDIX B--GLOSSARY OF SPECIAL TERMS................... B-1
WE ARE OFFERING THIS PRODUCT ONLY WHERE WE MAY LAWFULLY DO SO. YOU SHOULD RELY
ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THOSE TO WHICH WE REFER
YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT.
3
PART I--GENERAL INFORMATION
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
This summary does not contain all of the detailed information that may be
important to you. Please read the entire prospectus carefully before you decide
to purchase a policy.
INTRODUCTION
The Phoenix Edge(R) -- VUL is a flexible premium variable universal life
insurance policy. It has a death benefit, cash surrender value and loan
privilege, similar to a traditional fixed benefit whole life policy. The policy
differs, however, in that you may allocate your net premium to one or more of
several variable investment options (subaccounts) and/or to the Guaranteed
Interest Account. Each subaccount of the Account invests exclusively in a
portfolio of a fund.
The policy is subject to laws and regulations in every state where it is sold.
Therefore, the terms of the policy may vary from state to state.
We refer to PHL Variable Insurance Company as PHL Variable, the Company, we, us,
and our and to the policy owner as you and your throughout this prospectus.
This prospectus provides an accurate description of The Phoenix Edge(R) -- VUL
policy to the best of our knowledge. Should there be any discrepancy between
descriptions in this prospectus and the terms of the policy, the policy will be
taken as correct.
The following are defined in Appendix B - Glossary of Special Terms:
1933 ACT POLICY DATE
1940 ACT POLICY MONTH
ACCOUNT POLICY VALUE
ATTAINED AGE POLICY YEAR
BASE FACE AMOUNT POLICY OWNER
BENEFICIARY PRO RATA
CASH SURRENDER VALUE SERIES
CODE SUBACCOUNTS
COMPANY TAP
DEBT TOTAL POLICY FACE AMOUNT
GENERAL ACCOUNT UNIT
ISSUE PREMIUM VALUATION DATE
MONTHLY CALCULATION DAY VALUATION PERIOD
PAYMENT DATE VPMO
PHOENIX VULA
POLICY ANNIVERSARY WRITTEN REQUEST
YOUR RIGHT TO CANCEL (FREE LOOK PERIOD)
You have the right to review the policy and cancel it if you are not satisfied.
Simply return the policy to us within 10 days after you receive it, or within 45
days of signing the application. Your state may require a longer free look
period.
INSURANCE PROTECTION FEATURES
DEATH BENEFITS
You have a choice of death benefits:
DEATH BENEFIT OPTION 1 - A fixed benefit equal to the
policy's face amount
DEATH BENEFIT OPTION 2 - A variable benefit equal to the
face amount plus the policy value
You will be permitted to change your selection at any time. The death benefit is
payable upon the insured person's death.
ADDITIONAL BENEFITS
The following additional benefits are available by rider:
[diamond] Individual Term
[diamond] Guaranteed Death Benefit
[diamond] LifePlan Options
[diamond] Disability Benefit
[diamond] Universal Life Conversion
[diamond] Child Term
[diamond] Family Term
[diamond] Cash Value Accumulation Test Amendment
[diamond] Purchase Protector Plan
[diamond] Living Benefits
Availability of these riders depends upon state approval and may involve an
extra cost.
RISK OF LAPSE
The policy remains in force while you maintain sufficient value to pay the
monthly policy charges. When the value is no longer enough to pay these charges,
the policy lapses, or ends. We will alert you to an impending lapse situation
and will give you the opportunity to pay the amount required to keep the policy
in force. See "Lapse."
INVESTMENT FEATURES
FLEXIBLE PREMIUMS
The required premiums are the issue premium and any payments needed to prevent
lapse.
ALLOCATION OF PREMIUMS AND POLICY VALUE
We will allocate your net premiums to one or more of the subaccounts and/or the
Guaranteed Interest Account according to your instructions.
You may make transfers between subaccounts and into the Guaranteed Interest
Account at any time. Transfers from the Guaranteed Interest Account are
restricted. Investments in the Guaranteed Interest Account will be credited with
interest at an annual rate of not less than 3%.
4
The policy value invested in the subaccounts varies with the investment
performance of the underlying funds and is not guaranteed.
LOANS AND SURRENDERS
[diamond] Generally, you may take loans against 90% of the policy's cash
surrender value.
[diamond] You may partially surrender the policy. A partial withdrawal fee and
a surrender charge may apply.
[diamond] You may fully surrender this policy anytime for its cash surrender
value. A surrender charge may apply.
POLICY OPTIONS
You choose one of three policy options when you apply for a policy. Your choice
will determine the fees and charges deducted from your policy and may not be
changed:
[diamond] POLICY OPTION A
Has the highest initial surrender charge, but lower mortality and
expense risk charges than the other options beginning in policy year
11.
[diamond] POLICY OPTION B
Reduces initial surrender charges, but has higher mortality and
expense risk charges, beginning in policy year 11, than Policy Option
A.
[diamond] POLICY OPTION C
Further reduces initial surrender charges over Policy Option B, but
also has higher mortality and expense risk charges, beginning in
policy year 11, than Policy Options A and B.
You can use Chart 1 on page 8 to compare the effect your choice has on fees and
charges.
INCOME TAX EFFECTS
Generally, death benefits are not subject to income tax. Earnings on the
premiums invested in the Account or the Guaranteed Interest Account are
generally not subject to income tax unless you take a distribution from the
policy. Loans, partial surrenders or policy termination may result in
recognition of income for tax purposes. Please see Part III of this prospectus
for more information.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
Charges affect your policy value and the amount you may receive from your
policy.
We make deductions to compensate us for our various expenses in selling,
maintaining, underwriting and issuing the policy and guaranteeing the insurance
benefits.
A summary of fees and charges follows in Chart 1 on page 8.
CHARGE DEDUCTED FROM PREMIUMS
PREMIUM EXPENSE CHARGE
We deduct a 6% charge from every premium you pay. This charge helps reimburse
the Company for expenses we incur in selling the policy (e.g., commissions,
advertising and printing).
MONTHLY CHARGES
We make deductions once each month from your policy value as described below.
You initially choose an allocation schedule for how these deductions are to be
taken from your investment options in your application. You may change it later
by writing to us at VPMO. Should any of the investment options on your schedule
become depleted, we will proportionally increase the amount we withdraw from the
remaining investment options.
[diamond] ISSUE EXPENSE CHARGE. This charge helps us pay the underwriting and
start-up expenses we incur when we issue a policy. We charge $1.50
per $1,000 of initial face amount to a maximum of $600.
You will incur a new issue expense charge if you increase your
policy's face amount. We will assess the new charge only on the
amount of the increase.
We deduct this charge in twelve equal installments for the year
following policy issue or a face amount increase.
[diamond] COST OF INSURANCE. We determine this charge by multiplying the
appropriate cost of insurance rate by the amount at risk. The amount
at risk is the difference between your policy's death benefit and
your policy value. We generally base our rates on the insured
person's gender, attained age, and risk class. We also consider the
duration, or how long the policy has been in force. We are not
permitted to consider gender as a factor in some states and under
certain qualified plans. We base the actual monthly cost of insurance
charge on what we expect our future mortality experiences will be.
Charges will not exceed the guaranteed cost of insurance rates set
forth in your policy. The guaranteed maximum rates are equal to 100%
of the 1980 Commissioners' Standard Ordinary Mortality Table,
adjusted for risk classifications. We will apply any change in our
cost of insurance rates uniformly to all persons of the same gender,
insurance age and risk class whose policies have been in force for
the same length of time. We currently insure each life as either a
standard risk class or a risk class involving a higher mortality
risk. We determine your risk class based on your health and the
medical information you provide. A life in the standard risk classes
will have a lower cost of insurance for an otherwise identical
policy, than a life in a higher mortality risk class. A nonsmoker
will generally incur a lower cost of insurance than a similarly
situated smoker.
[diamond] COST OF ANY RIDERS TO YOUR POLICY. Some of the available rider
benefits you may choose incur an additional monthly charge.
5
[diamond] MORTALITY AND EXPENSE RISK CHARGE. We assume a mortality risk that,
as a whole, the people we insure may die sooner than expected. We
would then pay greater total death benefits than we had expected.
We assume an expense risk that expenses we incur in issuing and
maintaining the policies may exceed the administrative charges
expected for the policies.
We also assume other risks associated with issuing the policies, such
as incurring greater than expected costs due to policy loans.
If our expenses do not exceed the charges, or if our mortality
projections prove to be accurate, we may profit from this charge. We
may use profits from this charge for any proper purpose, including
the payment of sales expenses or any other expenses that may exceed
income in a given year.
We will deduct this charge only from your investments in the Separate
Account. We do not make any deduction for this charge from policy
value allocated to the Guaranteed Interest Account.
For the first 10 policy years we charge the maximum mortality and
expense charge of .075% of your policy value in the subaccounts each
month for all policy options.
Your policy will pay reduced mortality and expense risk charges
beginning in policy year 11. Your policy may qualify for a further
reduction in these charges if the non-loaned portion of your policy
value is at least 40% of your policy's total face amount. There is a
further reduction in charges if your non-loaned policy value is at
least 60% of your policy's total face amount. The mortality and
expense risk charges that will apply to your policy are illustrated
in the following table:
- ---------------------------------------------------------------
MONTHLY MORTALITY AND EXPENSE DEDUCTION
ASSESSED AS A PERCENTAGE OF SUBACCOUNT VALUES
- ---------------------------------------------------------------
POLICY POLICY POLICY
OPTION A OPTION B OPTION C
- ----------------------- ------------ ------------ -------------
Policy Years 1-10 .075% .075% .075%
- ----------------------- ------------ ------------ -------------
Policy Year 11+:
- -----------------------
non-loaned
policy value less .075% .075% .075%
than 40% of total
face amount
- ----------------------- ------------ ------------ -------------
non-loaned
policy value at least
40% but less than 60% .050% .055% .060%
of total face amount
- ----------------------- ------------ ------------ -------------
non-loaned
policy value greater
than 60% of face .025% .050% .055%
total amount
- ----------------------- ------------ ------------ -------------
CONDITIONAL CHARGES
We impose some charges only if certain events occur:
[diamond] SURRENDER CHARGE. The surrender charge will apply only if you
surrender the policy for its cash surrender value or allow the policy
to lapse. Your choice of Policy Option will determine your surrender
charge schedule. The maximum surrender charges that your policy might
pay in a given policy year are illustrated in the following Surrender
Charge Table. The amount you would actually pay will depend on the
policy month and may be less than shown. The actual surrender charge
will never exceed policy value, therefore, we will never require you
to submit an additional payment in order to surrender your policy. We
will provide a complete month-by-month surrender charge table in your
policy's schedule pages.
- --------------------------------------------------------
MAXIMUM SURRENDER CHARGE TABLE
- --------------------------------------------------------
DURING SURRENDER CHARGE AS A PERCENTAGE OF
POLICY TAP*
YEAR
POLICY POLICY POLICY
OPTION A OPTION B OPTION C
1 200% 150% 75%
2 200% 150% 75%
3 200% 150% 75%
4 200% 150% 72%
5 200% 150% 34%
6 200% 147% 0%
7 200% 111% 0%
8 196% 75% 0%
9 166% 39% 0%
10 142% 16% 0%
11 118% 0% 0%
12 94% 0% 0%
13 70% 0% 0%
14 46% 0% 0%
15 22% 0% 0%
16 on 0% 0% 0%
*We will establish the Target Annual Premium, or TAP, when we issue the policy.
The TAP will be the same for all Policy Options, and will be based on the
insured person's age, and risk classification.
[diamond] A PRO RATA PORTION OF THE SURRENDER CHARGE will be deducted from
policy value in direct proportion to any partial surrender or
decrease in face amount. Face amount reductions could result if you
request a decrease in face amount, request a death benefit option
change or make a partial withdrawal.
[diamond] PARTIAL WITHDRAWAL FEE. When you withdraw a portion of your policy
value, we will deduct a $25 fee from your policy value. A portion of
the surrender charge may also apply.
6
[diamond] SAMPLE SURRENDER CHARGES FOR POLICY OPTION A.
We provide the first year surrender charge calculations in order to
illustrate how the Target Annual Premium (TAP) and the surrender
charge can vary in relation to the insured person's age and gender.
The examples given are for non-smokers.
o The policy's initial face amount is $1 million.
- --------------------- ------------------ ----------------------
PERSON INSURED TARGET FIRST YEAR
- --------------- ANNUAL SURRENDER
AGE GENDER PREMIUM CHARGE*
(TAP)
- ---------------------------------------------------------------
35 Male $8,705 $17,409
- ---------------------------------------------------------------
35 Female $7,157 $14,314
- ---------------------------------------------------------------
45 Male $14,330 $28,659
- ---------------------------------------------------------------
45 Female $12,116 $24,232
- ---------------------------------------------------------------
55 Male $23,951 $47,901
- ---------------------------------------------------------------
55 Female $19,477 $38,954
- ---------------------------------------------------------------
* The first year surrender charge is equal to 2 times TAP, subject to maximums
permitted under state insurance law.
The actual surrender charge you will pay can never be more than your policy
value. We will never require you to make an additional payment in order to
surrender your policy.
CHARGE REDUCTIONS
We may reduce or eliminate charges we normally assess where we expect that the
size or nature of a policy will lower our costs associated with the policy.
We determine eligibility for reductions based on a number of factors including:
[diamond] the number of lives insured by a particular group,
[diamond] total premiums expected,
[diamond] the policy owner's total assets under management,
[diamond] the nature of the relationship among the insured individuals in a
group,
[diamond] the purpose for which the policies are being purchased,
[diamond] special relationships with us (e.g., our employees),
[diamond] transfers from one of PHL Variable's, or an affiliate's, policy or
contract,
[diamond] any circumstances which in our opinion are rationally related to the
expected reduction in expenses.
We will determine variations in the charge structure in a uniform manner,
reflecting differences in costs of services. We will not unfairly discriminate
against any person.
INVESTMENT MANAGEMENT CHARGES
The funds deduct charges for management services and for investment advisory
fees. These fees are payable monthly and are based on an annual percentage of
the average aggregate daily net asset value of each series. These fees affect
the value of investments in the subaccounts.
Chart 2 shows these fund charges and other expenses. They are described more
fully in the funds' prospectuses.
OTHER TAXES
We reserve the right to charge for federal income taxes or any other taxes that
may be attributable to the Account. We do not impose any such charge at this
time.
7
CHART 1 - POLICY FEES AND CHARGES
----------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS FROM PREMIUMS
----------------------------------------------------------------------------------------------------------------------------------
POLICY OPTION A POLICY OPTION B POLICY OPTION C GUARANTEED MAXIMUM
--------------------------- ------------------------- ------------------------- ------------------------ -------------------------
Premium Expense
Charge 6% of premiums The maximum for
each option is shown
--------------------------- ---------------------------------------------------------------------------- -------------------------
MONTHLY POLICY DEDUCTIONS
----------------------------------------------------------------------------------------------------------------------------------
POLICY OPTION A POLICY OPTION B POLICY OPTION C GUARANTEED MAXIMUM
--------------------------- ------------------------- ------------------------- ------------------------ -------------------------
Issue Expense Charge $1.50 per $1,000 of face amount deducted over 12 months at policy $50 per month
issue and on any increase in face amount for 12 months for each
event
--------------------------- ---------------------------------------------------------------------------- -------------------------
Cost of Insurance Charge varies according with insured person's issue age, gender, See your policy's
Charge underwriting class and policy duration and is based on the amount at risk schedule pages.
(death benefit - policy value).
--------------------------- ------------------------------------------------------------------------------------------------------
Additional Riders Charges vary by rider and may depend on insurance classification. Charges will be fully described.
----------------------------------------------------------------------------------------------------------------------------------
MONTHLY MORTALITY AND EXPENSE RISK DEDUCTION FROM SEPARATE ACCOUNT INVESTMENTS
----------------------------------------------------------------------------------------------------------------------------------
POLICY OPTION A POLICY OPTION B POLICY OPTION C GUARANTEED MAXIMUM
-------------------------- -------------------------- ------------------------- ------------------------ -------------------------
Policy Years 1-10 .075% .075% .075%
-------------------------- -------------------------- ------------------------- ------------------------
Policy Year 11+:
--------------------------
non-loaned policy .075%
value less than 40% of .050% .055% .0575%
total face amount
-------------------------- -------------------------- ------------------------- ------------------------ -------------------------
non-loaned policy
value at least 40% but .050% .055% .060% .075%
less than 60% of total
face amount
-------------------------- -------------------------- ------------------------- ------------------------ -------------------------
non-loaned policy
value greater than 60% .025% .050% .055% .075%
of face total amount
----------------------------------------------------------------------------------------------------------------------------------
OTHER CHARGES
----------------------------------------------------------------------------------------------------------------------------------
POLICY OPTION A POLICY OPTION B POLICY OPTION C GUARANTEED MAXIMUM
--------------------------- ------------------------- ------------------------- ----------------------- --------------------------
Surrender Charge Policy Charge Policy Charge Policy Charge
Year Year Year
Maximum during each ------------ ------------ ------------ ------------ ------------ ----------
policy year. Charge is a 1-7 200% 1-5 150% 1 75%
percentage of TAP. 8 196% 6 147% 2 75% The maximum for each
9 166% 7 111% 3 75% policy year
The charge you pay 10 142% 8 75% 4 72% is shown under
may be less depending 11 118% 9 39% 5 34% each option.
on policy month. 12 94% 10 16% 6 or more 0%
13 70% 11 or more 0%
If you increase your 14 46%
policy's face amount, a 15 22%
new schedule will a 16 or more 0%
apply to the increase.
--------------------------- ------------ ------------ ------------ ------------ ------------ ---------- --------------------------
Partial Withdrawal $25 plus a pro rata portion of any surrender charge that would apply to full surrender
Fee
--------------------------- ------------------------- ------------------------- ----------------------- --------------------------
Subaccount Transfers none none none $10 each
--------------------------- ------------------------- ------------------------- ----------------------- --------------------------
Fund level charges See fund charge table (Chart 2) and the fund prospectuses
--------------------------- ------------------------------------------------------------------------------------------------------
Interest on Policy Years 1-10 4% New Jersey & Texas Only 5% The maximums for each
policy loans Policy Years 11-15 3% New Jersey & Texas Only 4% each policy year are
Policy Years 16 and after 2% New Jersey & Texas Only 3% shown
--------------------------- --------------------------------------------------------------------------- --------------------------
8
CHART 2
ANNUAL FUND EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS FOR THE YEAR ENDED 12/31/01)
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER TOTAL TOTAL
OPERATING ANNUAL FUND OTHER ANNUAL FUND
INVESTMENT RULE EXPENSES EXPENSES OPERATING EXPENSES
MANAGEMENT 12B-1 BEFORE BEFORE EXPENSES AFTER AFTER
SERIES FEE FEES REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
- ----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International (4) 0.75% N/A 0.27% 1.02% 0.27% 1.02%
Phoenix-Aberdeen New Asia (3) 1.00% N/A 1.41% 2.41% 0.25% 1.25%
Phoenix-AIM Mid-Cap Equity (2,6) 0.85% N/A 6.28% 7.13% 0.20% 1.05%
Phoenix-Alliance/Bernstein Growth + Value (2,6) 0.85% N/A 7.08% 7.93% 0.20% 1.05%
Phoenix-Deutsche Dow 30 (2,5) 0.35% N/A 0.77% 1.12% 0.15% 0.50%
Phoenix-Deutsche Nasdaq-100 Index(R)(2,5) 0.35% N/A 2.00% 2.35% 0.15% 0.50%
Phoenix-Duff & Phelps Real Estate Securities (3,5) 0.75% N/A 0.41% 1.16% 0.25% 1.00%
Phoenix-Engemann Capital Growth (2,5) 0.63% N/A 0.09% 0.72% 0.09% 0.72%
Phoenix-Engemann Small & Mid-Cap Growth (3,5) 0.90% N/A 1.23% 2.13% 0.25% 1.15%
Phoenix-Goodwin Money Market (2,5) 0.40% N/A 0.20% 0.60% 0.15% 0.55%
Phoenix-Goodwin Multi-Sector Fixed Income (2,5) 0.50% N/A 0.21% 0.71% 0.15% 0.65%
Phoenix-Hollister Value Equity (2,5) 0.70% N/A 0.30% 1.00% 0.15% 0.85%
Phoenix-J.P. Morgan Research Enhanced Index (1,5) 0.45% N/A 0.25% 0.70% 0.10% 0.55%
Phoenix-Janus Flexible Income (2,5) 0.80% N/A 0.71% 1.51% 0.15% 0.95%
Phoenix-Janus Growth (2,5) 0.85% N/A 0.34% 1.19% 0.15% 1.00%
Phoenix-MFS Investors Growth Stock (2,5,6) 0.75% N/A 6.13% 6.88% 0.20% 0.95%
Phoenix-MFS Investors Trust (2,5,6) 0.75% N/A 6.59% 7.34% 0.20% 0.95%
Phoenix-MFS Value (2,5,6) 0.75% N/A 5.68% 6.43% 0.20% 0.95%
Phoenix-Oakhurst Growth & Income (2,5) 0.70% N/A 0.23% 0.93% 0.15% 0.85%
Phoenix-Oakhurst Strategic Allocation (2,5) 0.58% N/A 0.13% 0.71% 0.13% 0.71%
Phoenix-Sanford Bernstein Global Value (2) 0.90% N/A 1.90% 2.80% 0.15% 1.05%
Phoenix-Sanford Bernstein Mid-Cap Value (2,5) 1.05% N/A 0.49% 1.54% 0.15% 1.20%
Phoenix-Sanford Bernstein Small-Cap Value (2,5) 1.05% N/A 1.28% 2.33% 0.15% 1.20%
Phoenix-Seneca Mid-Cap Growth (3,5) 0.80% N/A 0.30% 1.10% 0.25% 1.05%
Phoenix-Seneca Strategic Theme (3,5) 0.75% N/A 0.21% 0.96% 0.21% 0.96%
Phoenix-Van Kampen Focus Equity (2,5) 0.85% N/A 2.33% 3.18% 0.15% 1.00%
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(1) The advisor has voluntarily agreed to reimburse the series' expenses other
than the management fees to the extent such expenses exceed .20% of the
series' average net assets.
(2) The advisor has voluntarily agreed to reimburse the series' expenses other
than the management fees to the extent such expenses exceed .25% of the
series' average net assets.
(3) The advisor has voluntarily agreed to reimburse the series' expenses other
than the management fees to the extent such expenses exceed .35% of the
series' average net assets.
(4) The advisor has voluntarily agreed to reimburse the series' expenses other
than the management fees to the extent such expenses exceed .40% of the
series' average net assets.
(5) For the year ended December 31, 2001, the percentage of fund average net
assets excludes expense offsets for custodian fees. If the expense offsets
were included, the percentage of fund average net assets would not change
significantly.
(6) This series has been in existence for less than 1 year; therefore, the
expense number has been annualized and may include start-up expenses.
Note: each or all of the expense caps noted above may be altered or eliminated
at any time without notice.
9
ANNUAL FUND EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS FOR THE YEAR ENDED 12/31/01)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OTHER
OPERATING TOTAL ANNUAL OPERATING TOTAL ANNUAL
INVESTMENT RULE EXPENSES FUND EXPENSES EXPENSES FUND EXPENSES
MANAGEMENT 12B-1 BEFORE BEFORE AFTER AFTER
SERIES FEE FEES(5) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS - SERIES I SHARES
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AIM V.I. Capital Appreciation Fund 0.61% N/A 0.24% 0.85% 0.24% 0.85%
AIM V.I. Premier Equity Fund 0.60% N/A 0.25% 0.85% 0.25% 0.85%
THE ALGER AMERICAN FUND
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Alger American Leveraged AllCap Portfolio 0.85% N/A 0.07% 0.92% 0.07% 0.92%
FEDERATED INSURANCE SERIES
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Federated Fund for U.S. Government Securities II 0.60% N/A 0.14% 0.74% 0.14% 0.74%
Federated High Income Bond Fund II 0.60% N/A 0.16% 0.76% 0.16% 0.76%
FIDELITY(R) VARIABLE INSURANCE PRODUCTS - SERVICE CLASS
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VIP Contrafund(R) Portfolio (6) 0.58% 0.10% 0.10% 0.78% 0.10% 0.78%
VIP Growth Opportunities Portfolio (6) 0.58% 0.10% 0.11% 0.79% 0.11% 0.79%
VIP Growth Portfolio (6) 0.58% 0.10% 0.10% 0.78% 0.10% 0.78%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2
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Mutual Shares Securities Fund 0.60% 0.25% 0.19% 1.04% 0.19% 1.04%
Templeton Foreign Securities Fund (8) 0.69% 0.25% 0.22% 1.16% 0.22% 1.15%
Templeton Growth Securities Fund (10) 0.80% 0.25% 0.05% 1.10% 0.05% 1.10%
SCUDDER VIT FUNDS
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Scudder VIT EAFE(R) Equity Index Fund (9) 0.45% N/A 0.36% 0.81% 0.20% 0.65%
Scudder VIT Equity 500 Index Fund (9) 0.20% N/A 0.11% 0.31% 0.10% 0.30%
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
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Technology Portfolio (7) 0.80% N/A 0.51% 1.31% 0.35% 1.15%
WANGER ADVISORS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty (2) 1.00% N/A 0.45% 1.45% 0.45% 1.45%
Wanger International Small Cap (3) 1.20% N/A 0.23% 1.43% 0.23% 1.43%
Wanger Twenty (1) 0.95% N/A 0.38% 1.33% 0.38% 1.33%
Wanger U.S. Smaller Companies (4) 0.95% N/A 0.04% 0.99% 0.04% 0.99%
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(1) This fund pays a portion or all of its expenses other than the management
fee up to 0.40%.
(2) This fund pays a portion or all of its expenses other than the management
fee up to 0.45%.
(3) This fund pays a portion or all of its expenses other than the management
fee up to 0.60%.
(4) This fund pays a portion or all of its expenses other than the management
fee up to 1.00%.
(5) The fund's Rule 12b-1 Plan, if applicable, is described in the fund's
prospectus.
(6) Actual annual fund expenses were lower because a portion of the brokerage
commissions that the fund paid was used to reduce the fund's expenses. In
addition, through arrangements with the fund's custodian, credits realized
as a result of uninvested cash balances are used to reduce a portion of the
fund's custodian expenses. These offsets may be discontinued at any time.
(7) The advisor has voluntarily agreed to reduce the investment management fee
if the total operating expenses should exceed 1.15%.
(8) The advisor had agreed to make an estimated reduction of 0.01% of its fee
to reflect reduced services resulting from the fund's investment in a
Franklin Templeton money fund. This reduction is required by the fund's
Board of Trustees and an order of the SEC. For the year ended December 31,
2001, the investment management fee was reduced to 0.68%.
(9) The advisor has voluntarily agreed to waive a portion of its management
fee and reimburse certain expenses. These waivers and reimbursements may be
discontinued at any time.
(10) The fund administration fee is paid indirectly through the management fee.
10
PHL VARIABLE INSURANCE COMPANY
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PHL Variable Insurance Company is a Connecticut stock life insurance company. We
sell life insurance policies and annuity contracts through our affiliated
distribution companies and through brokers. Our executive office is at One
American Row in Hartford, Connecticut. Our main administrative office is at 100
Bright Meadow Boulevard in Enfield, Connecticut.
We are an indirect, wholly owned subsidiary of Phoenix Life Insurance Company
("Phoenix"). On June 25, 2001, Phoenix Home Life Mutual Insurance Company (a New
York mutual life insurance company, originally chartered in Connecticut in 1851
and redomiciled to New York in 1992) converted to a stock life insurance company
by "demutualizing" pursuant to a plan of reorganization approved by the New York
Superintendent of Insurance and changed its name to Phoenix Life Insurance
Company. As part of the demutualization, Phoenix became a wholly owned
subsidiary of The Phoenix Companies, Inc., a newly-formed, publicly-traded
Delaware corporation.
THE ACCOUNT
- --------------------------------------------------------------------------------
PHL Variable established the Account as a separate account under Connecticut
insurance law on September 10, 1998. The Account is registered with the SEC as a
unit investment trust under the Investment Company Act of 1940 (the "1940 Act")
under which it meets the definition of a "separate account." Registration under
the 1940 Act does not involve supervision of the management, investment
practices or policies of the Account or PHL Variable.
Connecticut law requires all income, gains or losses of the Account be credited
to or charged against amounts placed in the Account without regard to the other
income, gains and losses of PHL Variable. The assets of the Account may not be
charged with liabilities arising out of any other business we may conduct.
Obligations under the Policies are obligations of PHL Variable.
The Account is divided into subaccounts, each of which is available for
allocation of policy value. We will determine whether marketing needs and
investment conditions warrant the establishment of additional subaccounts, and
the extent to which they would be made available to existing policy owners. Each
subaccount will invest solely in a single investment portfolio of a fund. Each
portfolio has its own specified investment objective.
PHL Variable does not guarantee the investment performance of the Account or any
of its subaccounts. The policy value allocated to the Account depends on the
investment performance of the underlying funds. The policy owner bears the full
investment risk for all monies invested in the Account.
PERFORMANCE HISTORY
We may choose to include performance history of the subaccounts or the
underlying portfolios in advertisements, sales literature or reports.
Performance information about each subaccount is based on past performance and
is not an indication of future performance. See "Appendix A--Performance
History" for more information.
INVESTMENTS OF THE ACCOUNT
- --------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
The following subaccounts invest in corresponding series of The Phoenix Edge
Series Fund:
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
series is to seek a high total return consistent with reasonable risk.
PHOENIX-ABERDEEN NEW ASIA SERIES: The series seeks long-term capital
appreciation.
PHOENIX-AIM MID-CAP EQUITY SERIES: The investment objective of the series is
to seek long-term growth of capital.
PHOENIX-ALLIANCE/BERNSTEIN GROWTH + VALUE SERIES: The investment objective
of the series is long-term capital growth.
PHOENIX-DEUTSCHE DOW 30 SERIES: The series seeks to track the total return
of the Dow Jones Industrial Average(SM) before fund expenses.
PHOENIX-DEUTSCHE NASDAQ-100 INDEX(R) SERIES: This non-diversified series
seeks to track the total return of the Nasdaq-100 Index(R) before fund expenses.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the series is to seek capital appreciation and income with
approximately equal emphasis.
PHOENIX-ENGEMANN CAPITAL GROWTH SERIES: The investment objective of the
series is to achieve intermediate and long-term growth of capital, with income
as a secondary consideration.
PHOENIX-ENGEMANN SMALL & MID-CAP GROWTH SERIES: The series seeks to achieve
its objective of long-term growth of capital.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series
is to provide maximum current income consistent with capital preservation and
liquidity.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The series seeks long-term
total return.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the series is long-term capital appreciation and a secondary investment
objective of current income.
11
PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES: The investment objective
of the series is to seek high total return.
PHOENIX-JANUS FLEXIBLE INCOME SERIES: The investment objective of the series
is to seek to obtain maximum total return, consistent with preservation of
capital.
PHOENIX-JANUS GROWTH SERIES: The investment objective of the series is to
seek long-term growth of capital, in a manner consistent with the preservation
of capital.
PHOENIX-MFS INVESTORS GROWTH STOCK SERIES: The series seeks long-term growth
of capital and future income rather than current income.
PHOENIX-MFS INVESTORS TRUST SERIES: The series seeks long-term growth of
capital and secondarily to provide reasonable current income.
PHOENIX-MFS VALUE SERIES: The series seeks capital appreciation and
reasonable income.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
series is to seek dividend growth, current income and capital appreciation.
PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES: The investment objective of
the series is to realize as high a level of total return over an extended period
of time as is considered consistent with prudent investment risk.
PHOENIX-SANFORD BERNSTEIN GLOBAL VALUE SERIES: The series seeks long-term
capital appreciation.
PHOENIX-SANFORD BERNSTEIN MID-CAP VALUE SERIES: The primary investment
objective of the series is to seek long-term capital appreciation, with current
income as the secondary investment objective.
PHOENIX-SANFORD BERNSTEIN SMALL-CAP VALUE SERIES: The series seeks long-term
capital appreciation.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the series
is to seek capital appreciation.
PHOENIX-SENECA STRATEGIC THEME SERIES: The investment objective of the
series is to seek long-term appreciation of capital.
PHOENIX-VAN KAMPEN FOCUS EQUITY SERIES: The investment objective of the
series is to seek capital appreciation.
AIM VARIABLE INSURANCE FUNDS
The following subaccounts invest in a corresponding fund of the AIM Variable
Insurance Funds:
AIM V.I. CAPITAL APPRECIATION FUND: The investment objective of the fund is
growth of capital.
AIM V.I. PREMIER EQUITY FUND: The investment objective is to achieve
long-term growth of capital with income as a secondary investment objective.
THE ALGER AMERICAN FUND
The following subaccount invests in the corresponding portfolio of The Alger
American Fund:
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: The investment objective of the
portfolio is long-term capital appreciation.
FEDERATED INSURANCE SERIES
The following subaccounts invest in a corresponding fund of the Federated
Insurance Series:
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective
of the fund is to seek current income.
FEDERATED HIGH INCOME BOND FUND II: The investment objective of the fund is
to seek high current income.
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
The following subaccounts invest in corresponding portfolios of the
Fidelity(R) Variable Insurance Products:
VIP CONTRAFUND(R) PORTFOLIO: The investment objective of the portfolio is to
seek long-term capital appreciation.
VIP GROWTH OPPORTUNITIES PORTFOLIO: The investment objective of the
portfolio is to seek to provide capital growth.
VIP GROWTH PORTFOLIO: The investment objective of the portfolio is to seek
to achieve long-term capital appreciation.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
The following subaccounts invest in Class 2 shares of the corresponding
funds of the Franklin Templeton Variable Insurance Products Trust:
MUTUAL SHARES SECURITIES FUND: The primary investment objective of the fund
is capital appreciation with income as a secondary objective.
TEMPLETON FOREIGN SECURITIES FUND: The investment objective of the fund is
long-term capital growth.
TEMPLETON GROWTH SECURITIES FUND: The investment objective of the fund is
long-term capital growth.
SCUDDER VIT FUNDS
The following subaccounts invest in a corresponding fund of Scudder VIT
Funds:
SCUDDER VIT EAFE(R) EQUITY INDEX FUND: The fund seeks to match the
performance of the Morgan Stanley Capital International EAFE(R) Index.
SCUDDER VIT EQUITY 500 INDEX FUND: The fund seeks to replicate as closely as
possible, the performance of the Standard & Poor's 500 Composite Stock Price
Index.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
The following subaccount invests in a corresponding portfolio of The
Universal Institutional Funds, Inc.:
TECHNOLOGY PORTFOLIO: The investment objective of the portfolio is to seek
long-term capital appreciation.
12
WANGER ADVISORS TRUST
The following subaccounts invest in corresponding series of the Wanger
Advisors Trust:
WANGER FOREIGN FORTY: The investment objective of the series is to seek
long-term capital growth.
WANGER INTERNATIONAL SMALL CAP: The investment objective of the series is to
seek long-term capital growth.
WANGER TWENTY: The investment objective of the series is to seek long-term
capital growth.
WANGER U.S. SMALLER COMPANIES: The investment objective of the series is to
seek long-term capital growth.
Each series will be subject to market fluctuations and the risks that come with
the ownership of any security, and there can be no assurance that any series
will achieve its stated investment objective.
Each fund's prospectus contains important additional information, which you
should read carefully before investing. Contact VULA at the address and
telephone number on page 1 to obtain copies of the funds' prospectuses.
In addition to being sold to the Account, shares of the funds also may be sold
to other separate accounts of Phoenix or its affiliates or to the separate
accounts of other insurance companies.
It is possible that in the future it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the fund(s) simultaneously. Although neither we nor the fund(s) trustees
currently foresee any such disadvantages either to variable life insurance
policyowners or to variable annuity contract owners, the funds' trustees intend
to monitor events in order to identify any material conflicts between variable
life insurance policyowners and variable annuity contract owners and to
determine what action, if any, should be taken in response to such conflicts.
Material conflicts could, for example, result from (1) changes in state
insurance laws, (2) changes in federal income tax laws, (3) an administrative or
judicial decision, (4) changes in the investment management of any portfolio of
the fund(s), (5) differences in voting instructions between those given by
variable life insurance policyowners and those given by variable annuity
contract owners or (6) a Phoenix decision to disregard policy holders' or
contract owners' voting instructions. We will, at our own expense, remedy such
material conflicts, including, if necessary, segregating the assets underlying
the variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISORS
The following are the investment advisors and subadvisors for the variable
investment options:
- ------------------------------------------------------------------
PHOENIX INVESTMENT COUNSEL, INC. ("PIC")
- ------------------------------------------------------------------
Phoenix-Aberdeen International Series
Phoenix-Engemann Capital Growth Series
Phoenix-Engemann Small & Mid-Cap Growth Series
Phoenix-Goodwin Money Market Series
Phoenix-Goodwin Multi-Sector Fixed Income Series
Phoenix-Hollister Value Equity Series
Phoenix-Oakhurst Growth and Income Series
Phoenix-Oakhurst Strategic Allocation Series
Phoenix-Seneca Mid-Cap Growth Series
Phoenix-Seneca Strategic Theme Series
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PIC SUBADVISORS
- ------------------------------------------------------------------
Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Capital Growth Series
o Phoenix-Engemann Small & Mid-Cap Growth Series
Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap Growth Series
o Phoenix-Seneca Strategic Theme Series
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PHOENIX VARIABLE ADVISORS, INC. ("PVA")
- ------------------------------------------------------------------
Phoenix-AIM Mid-Cap Equity Series
Phoenix-Alliance/Bernstein Growth + Value Series
Phoenix-Deutsche Dow 30 Series
Phoenix-Deutsche Nasdaq-100 Index(R) Series
Phoenix-J.P. Morgan Research Enhanced Index Series
Phoenix-Janus Flexible Income Series
Phoenix-Janus Growth Series
Phoenix-MFS Investors Growth Stock Series
Phoenix-MFS Investors Trust Series
Phoenix-MFS Value Series
Phoenix-Sanford Bernstein Global Value Series
Phoenix-Sanford Bernstein Mid-Cap Value Series
Phoenix-Sanford Bernstein Small-Cap Value Series
Phoenix-Van Kampen Focus Equity Series
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PVA SUBADVISORS
- ------------------------------------------------------------------
AIM Capital Management, Inc.
o Phoenix-AIM Mid-Cap Equity Series
Alliance Capital Management, L.P.
o Phoenix-Alliance/Bernstein Growth + Value Series
o Phoenix-Sanford Bernstein Global Value Series
o Phoenix-Sanford Bernstein Mid-Cap Value Series
o Phoenix-Sanford Bernstein Small-Cap Value Series
Deutsche Asset Management
o Phoenix-Deutsche Dow 30 Series
o Phoenix-Deutsche Nasdaq-100 Index(R) Series
J.P. Morgan Investment Management, Inc.
o Phoenix-J.P. Morgan Research Enhanced Index Series
Janus Capital Corporation
o Phoenix-Janus Flexible Income Series
o Phoenix-Janus Growth Series
- ------------------------------------------------------------------
13
- ------------------------------------------------------------------
PVA SUBADVISORS
- ------------------------------------------------------------------
MFS Investment Management
o Phoenix-MFS Investors Growth Stock Series
o Phoenix-MFS Investors Trust Series
o Phoenix-MFS Value Series
Morgan Stanley Asset Management
o Phoenix-Van Kampen Focus Equity Series
- ------------------------------------------------------------------
- ------------------------------------------------------------------
DUFF & PHELPS INVESTMENT MANAGEMENT CO. ("DPIM")
- ------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC ("PAIA")
- ------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series
- ------------------------------------------------------------------
- -----------------------------------------------------------------
PAIA SUBADVISORS
- -----------------------------------------------------------------
PIC
Aberdeen Fund Managers, Inc.
o Phoenix-Aberdeen New Asia Series
- -----------------------------------------------------------------
Based on subadvisory agreements with the fund, PIC and PVA as investment
advisors delegate certain investment decisions and research functions to
subadvisors.
PIC, DPIM and Engemann are indirect, wholly-owned subsidiaries of Phoenix
Investment Partners, Ltd. ("PXP"). Seneca is a partially-owned subsidiary of
PXP. PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc.,
and is an affiliate of Phoenix and PHL Variable. PAIA is jointly owned and
managed by PM Holdings, Inc., a wholly-owned subsidiary of Phoenix, and by
Aberdeen Fund Managers, Inc.
PVA is a wholly-owned subsidiary of PM Holdings, Inc.
- ------------------------------------------------------------------
OTHER ADVISORS
- ------------------------------------------------------------------
AIM Advisors, Inc.
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Premier Equity Fund
Fred Alger Management, Inc.
o Alger American Leveraged AllCap Portfolio
Deutsche Asset Management
o Scudder VIT EAFE(R) Equity Index Fund
o Scudder VIT Equity 500 Index Fund
Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
Fidelity Management and Research Company
o VIP Contrafund(R) Portfolio
o VIP Growth Opportunities Portfolio
o VIP Growth Portfolio
Franklin Mutual Advisers, LLC
o Mutual Shares Securities Fund
Morgan Stanley Asset Management
o Technology Portfolio
Templeton Global Advisors Limited
o Templeton Growth Securities Fund
Templeton Investment Counsel, Inc.
o Templeton Foreign Securities Fund
Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Smaller Companies
- ------------------------------------------------------------------
Based on subadvisory agreements with the fund, PIC and PVA as investment
advisors delegate certain investment decisions and research functions to
subadvisors.
PIC, DPIM and Engemann are indirect, wholly-owned subsidiaries of Phoenix
Investment Partners, Ltd. ("PXP"). Seneca is a partially-owned subsidiary of
PXP. PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc.,
and is an affiliate of Phoenix and PHL Variable. PAIA is jointly owned and
managed by PM Holdings, Inc., a wholly-owned subsidiary of Phoenix, and by
Aberdeen Fund Managers, Inc.
PVA is a wholly-owned subsidiary of PM Holdings, Inc.
- ------------------------------------------------------------------
OTHER ADVISORS
- ------------------------------------------------------------------
AIM Advisors, Inc.
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Premier Equity Fund
Fred Alger Management, Inc.
o Alger American Leveraged AllCap Portfolio
Deutsche Asset Management
o Scudder VIT EAFE(R) Equity Index Fund
o Scudder VIT Equity 500 Index Fund
Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
Fidelity Management and Research Company
o VIP Contrafund(R) Portfolio
o VIP Growth Opportunities Portfolio
o VIP Growth Portfolio
Franklin Mutual Advisers, LLC
o Mutual Shares Securities Fund
Morgan Stanley Asset Management
o Technology Portfolio
Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund
Templeton Global Advisors Limited
o Templeton Growth Securities Fund
Templeton Investment Counsel, Inc.
o Templeton Foreign Securities Fund
o Templeton Global Asset Allocation Fund
Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Smaller Companies
- ------------------------------------------------------------------
SERVICES OF THE ADVISORS
The advisors continually furnish an investment program for each series and
manage the investment and reinvestment of the assets of each series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisors and subadvisors, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the fund are automatically reinvested in shares of
the fund at their net asset value on the date of distribution; all capital gains
distributions of the fund, if any, are likewise reinvested at the net asset
value on the record date. Phoenix redeems fund shares at their net asset value
to the extent necessary to make payments under the policy.
SUBSTITUTION OF INVESTMENTS
We reserve the right to make additions to, deletions from, or substitutions for
the investments held by the Account, subject to compliance with the law as
currently applicable or as subsequently changed.
If the shares of any of the portfolios of a fund should no longer be available
for investment, or if in our judgment, further investment in shares of any of
the portfolios becomes inappropriate in view of the objectives of the policy,
then we may substitute shares of another fund for shares already purchased, or
to be purchased in the future. No substitution of fund shares held by the
Account may take place without prior approval of the SEC and prior notice to
you. In the event of a substitution, you will be given the option of
transferring the policy value from the affected subaccount to another subaccount
without penalty.
THE GUARANTEED INTEREST ACCOUNT
In addition to the Account, you may allocate premiums or transfer values to the
Guaranteed Interest Account. Amounts you allocate to the Guaranteed Interest
Account are deposited in our general account. You do not share in the investment
experience of our general account. Rather, we guarantee a minimum rate of return
on the allocated amounts. Although we are not obligated to credit interest at
14
a higher rate than the minimum, we will credit any excess interest as determined
by us based on expected investment yield information.
We reserve the right to limit total deposits and transfers to the Guaranteed
Interest Account to no more than $250,000 during any one-week period per policy.
You may make transfers into the Guaranteed Interest Account at any time. In
general, you may make only one transfer per year from the Guaranteed Interest
Account. The amount that can be transferred out is limited to the greatest of
$1,000 or 25% of the policy value in the Guaranteed Interest Account as of the
date of the transfer. You may transfer the total value out of the Guaranteed
Interest Account to one or more of the subaccounts over a consecutive 4-year
period according to the following schedule:
[diamond] First Year: 25% of the total value
[diamond] Second Year: 33% of remaining value
[diamond] Third Year: 50% of remaining value
[diamond] Fourth Year: 100% of remaining value
Transfers from the Guaranteed Interest Account may also be subject to other
rules as described in this prospectus.
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 Investment
Company Act of 1940, as amended. Therefore, neither the general account nor any
of its interests are subject to these Acts, and the Securities and Exchange
Commission 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.
15
PART II POLICY INFORMATION
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THE POLICY
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ELIGIBILITY
You may purchase a policy to insure the life of any person up to the age of 85
for whom you provide suitable evidence of insurability. You must have the
consent of the insured person and a legally recognized insurable interest.
ISSUE PREMIUM
A number of factors concerning the person you insure and the policy features you
desire will affect our required issue premium. The person's age, gender and risk
class can affect the issue premium, as can policy features such as face amount
and added benefits.
The minimum issue premium is due on the policy date. The insured person must be
living when the issue premium is paid. You should deliver the issue premium
payment to your registered representative, who will forward it to our
underwriting department.
We will generally allocate the issue premium, less applicable charges, according
to your instructions when we receive your completed application. We may issue
some policies with a Temporary Money Market Allocation Amendment. Under this
amendment we allocate the net issue premium and the net of other premiums paid
during your Free Look Period to the Phoenix-Goodwin Money Market subaccount.
When your Free Look Period expires we allocate the policy value among the
subaccounts and/or the Guaranteed Interest Account according to your
instructions. We may use the Temporary Money Market Allocation Amendment
depending on the state of issue and under certain other circumstances.
TEMPORARY INSURANCE COVERAGE
When you submit the complete, signed application with the issue premium, we will
issue you a Temporary Insurance Receipt. This will provide you with immediate
insurance protection under the terms set forth in the policy and in the Receipt.
FLEXIBLE PREMIUMS
After you pay the issue premium the subsequent premiums are flexible. Please
mail additional payments to VPMO at the address given on page 1.
We reduce premium payments by the premium expense charge before we apply them to
your policy. We will apply this net premium among your chosen investment
options. We will buy any subaccount units at the subaccount unit values next
calculated after we receive the premium. We establish maximum premium limits and
may change them from time to time.
You may make additional premium payments at any time. The minimum premium
payment during a grace period is the amount needed to prevent policy lapse. At
all other times the minimum acceptable payment is $25.
Your policy's total premium limit will be shown on its schedule pages. This
limit is applied to the sum of all premiums paid under the policy. If you exceed
the total premium limit we will refund the excess, plus interest at an annual
rate at of least 4%, no later than 60 days after the end of that policy year. We
will adjust the policy value to reflect the refund. We take amounts to pay such
a refund from the investment options in the same manner as for monthly
deductions, but you may send us different written instructions. We may allow you
to exceed the total premium limit if the excess premium is needed to prevent
lapse or if we determine federal laws or regulations would permit the excess
premium.
You may authorize your bank to draw premiums of $25 or more each month from your
personal checking account
FREE LOOK PERIOD
You have the right to review the policy and cancel it if you are not satisfied.
You may cancel the policy until the later of:
[diamond] 10 days after you receive the policy; or
[diamond] 10 days after we notify you in writing about your right to cancel; or
[diamond] 45 days after you complete the application.
We will return to you the current policy value less any unpaid loans and loan
interest. We will also return any monthly deductions, partial surrender fees and
other deductions we made under the policy. Your state may require us to return
all premiums you paid.
If we issued your policy with the Temporary Money Market Amendment we will
return the total of all premiums paid reduced by any outstanding loans and loan
interest you may have and further reduced by any partial surrenders you have
taken.
OUR RIGHTS OF REFUSAL
We retain the right to refuse to process your application within the seven days
after we receive it. Should we decline to process your application, we will
return the premium you paid. We retain the right to decline to issue your policy
even if we have approved your application for processing. Should we decline to
issue your policy, we will refund to you the same amount we would refund had the
policy been issued and returned during the Free Look Period.
16
TRANSFER OF POLICY VALUE
TRANSFERS
You may transfer your policy value among the available investment options and
make changes to your premium payment allocations by either writing to VPMO or
calling VULA between the hours of 8:30 AM. and 4:00 PM. Eastern Time. (The
appropriate address and telephone number are on page 1.) We will execute a
written request the day receive it at VPMO. We will execute telephone transfers
on the day you make the request except as noted.
We do not charge for transfers at this time. However, we reserve the right to
charge a fee of $10 for each transfer after the first two transfers in a policy
year. Should we begin imposing this charge, we would not count transfers made
under a Systematic Transfer Program toward the transfer limit.
TRANSFER RESTRICTIONS
We do not permit transfers of less than $500 unless either
o the entire balance in the subaccount or the Guaranteed Interest Account is
being transferred; or
o the transfer is part of a Systematic Transfer Program.
We reserve the right to prohibit a transfer to any subaccount if the value of
your investment in that subaccount immediately after the transfer would be less
than $500. We further reserve the right to require that the entire balance of a
subaccount or the Guaranteed Interest Account be transferred if the value of
your investment in that subaccount would, immediately after the transfer, be
less than $500.
You may make only one transfer per policy year from the non-loaned portion of
the Guaranteed Interest Account unless the transfers are made as part of a
Systematic Transfer Program or unless we agree to make an exception to this
rule. The amount you may transfer is limited to the greatest of $1,000 or 25% of
the value of the non-loaned portion of the Guaranteed Interest Account. You may
transfer policy value into the Guaranteed Interest Account at anytime.
We reserve the right to limit the number of subaccounts you may invest in to a
total of 18 at any one time or over the life of the policy. We may limit you to
fewer than 18 if federal or state law requires us to do so.
Excessive transfers between subaccounts could adversely affect fund performance.
We therefore reserve the right to terminate your transfer privileges at any
time. We also reserve the right to reject any specific exchange order that we
feel to be part of a market-timing pattern. We may reject requests for more than
one exchange out of a subaccount within a 30-day period. We will not accept
batched transfer instructions from registered representatives acting under
powers of attorney for multiple policy owners, unless the registered
representative's broker-dealer firm and PHL Variable have entered into a
third-party transfer service agreement.
You may not make any transfers during the Free Look Period if we issue your
policy with a Temporary Money Market Allocation Amendment.
TELEPHONE TRANSFERS
We will accept telephone instructions on your behalf from your registered
representative. You must send us a written request if you do not want your
registered representative to have this ability.
PHL Variable and PEPCO, our national distributor, will employ reasonable
procedures to confirm that telephone instructions are genuine. We require
verification of account information and will record telephone instructions on
tape. You will receive written confirmation of all telephone transfers. PHL
Variable and PEPCO may be liable for following unauthorized telephone
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 telephone transfer and allocation privileges at
any time. 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.
SYSTEMATIC TRANSFERS
You may elect a systematic transfer program to make automatic regular transfers
of policy value. You may have only one program in effect at a time. You may call
VULA (see page 1) to begin a new Program. These programs are subject to
availability.
DOLLAR COST AVERAGING: Dollar Cost Averaging periodically transfers policy value
from one of the subaccounts or from the Guaranteed Interest Account (a "source
account") to one or several of the available subaccounts ("target subaccounts").
You may not make transfers into the Guaranteed Interest Account. You choose to
make these transfers monthly, quarterly, semiannually or annually. The minimums
you may transfer from the "source account" are:
[diamond] $25 monthly [diamond] $150 semiannually
[diamond] $75 quarterly [diamond] $300 annually
You must have at least $1,000 in the source account to begin a Dollar Cost
Averaging Program. Should the value in the source account fall below the
transfer amount, we will transfer the remaining balance and end the Program.
Transfers must be made in approximately equal amounts over a minimum of 18
months. The Dollar Cost Averaging Program is not available if you invest through
a bank draft program.
17
Dollar Cost Averaging does not ensure a profit nor guarantee against a loss in a
declining market. We do not charge for this program.
ASSET REBALANCING PROGRAM: Under this program, we transfer policy value among
the subaccounts to match your chosen allocation percentages. You can choose to
have us make these transfers monthly, quarterly, semi-annually or annually. We
do not permit transfers to or from the Guaranteed Interest Account.
Asset Rebalancing does not ensure a profit nor guarantee against a loss in a
declining market. We do not charge for this program.
We make transfers under a Systematic Transfer Program based on the subaccount
values on the first day of the appropriate month beginning in the month
following our receipt of your transfer request. Should the first day of the
month falls on a holiday or weekend, then the transfer will be processed on the
next business day.
DETERMINATION OF SUBACCOUNT VALUES
We establish the unit value of each subaccount on the first valuation date of
that subaccount. The unit value of a subaccount on any other valuation date is
determined by multiplying the unit value of that subaccount on the prior
valuation date by the net investment factor for that subaccount for the then
current valuation period. The unit value of each subaccount on a day other than
a valuation date is the unit value on the next valuation date. We carry unit
values to 6 decimal places. The unit value of each subaccount on a valuation
date is determined at the end of that day.
The net investment factor for each subaccount is determined by the investment
performance of the assets held by the subaccount during the valuation period.
Each valuation will follow applicable law and accepted procedures. The net
investment factor is determined by the formula:
(A) + (B)
--------- - (D) where:
(C)
(A) = the value of the assets in the subaccount on the current valuation
date, including accrued net investment income and realized and unrealized
capital gains and losses, but excluding the net value of any transactions
during the current valuation period
(B) = the amount of any dividend (or, if applicable, any capital gain
distribution) received by the subaccount if the "ex-dividend" date for
shares of the fund occurs during the current valuation period
(C) = the value of the assets in the subaccount as of the just prior valuation
date, including accrued net investment income and realized and unrealized
capital gains and losses, and including the net value amount of any
deposits and withdrawals made during the valuation period ending on that
date
(D) = Any charges for taxes on income and capital gains plus charges for changes
in tax reserves for the current valuation period.
DEATH BENEFIT
GENERAL
You choose your Death Benefit Option when you apply for your policy, and will be
permitted to change it. If you do not elect either option, we will use Death
Benefit Option 1.
Death Benefit Option 1 will pay the policy's face amount as of the date of the
insured person's death, but not less than the minimum death benefit.
Death Benefit Option 2 will pay the policy's face amount plus the policy value
as of the date of the insured person's death, but not less than the minimum
death benefit.
We will determine the minimum death benefit by increasing the policy value on
the date of death using the applicable percentage given shown by a table in your
policy. The applicable percentage will be based on the insured person's attained
age at the beginning of the policy year in which the death occurs.
INCREASES IN FACE AMOUNT
You may request that we increase the face amount of your policy after the first
policy anniversary. You must make your request in writing and provide evidence
of insurability.
We generally require a minimum increase of $25,000. The increase takes effect on
the next policy anniversary. We will not permit a face amount increase after the
insured person reaches age 85. We charge $1.50 per $1,000 of added face amount
up to a maximum of $600. We will deduct 1/12th of this charge each month for the
year following a face amount increase.
We will increase the monthly cost of insurance deductions as a result of a face
amount increase. Therefore, your cash surrender value must be sufficient to pay
the monthly deduction or we will require an additional premium.
A new surrender charge schedule will apply to a fraction of the total policy
value. That fraction will be the same as the face amount increase divided by the
new face amount.
For a discussion of possible implications of a material change in the policy
resulting from the increase, see "Modified Endowment Contracts--Material Change
Rules."
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT
ON DEATH BENEFIT
A partial surrender or a decrease in face amount will decrease the death
benefit. Upon a decrease in face amount or partial surrender, a partial
surrender charge
18
may be deducted from your policy value based on the amount of the decrease or
partial surrender. A decrease in face amount reduces the death benefit on the
next monthly calculation day. A partial surrender reduces the death benefit
immediately. A decrease in the death benefit may have certain income tax
consequences.
REQUESTS FOR DECREASE IN FACE AMOUNT
You may request a decrease in face amount at any time after the first policy
year. Unless we agree otherwise, the decrease must be at least $10,000 and the
face amount remaining must be at least $25,000. All face amount decrease
requests must be in writing and will be effective on the first monthly
calculation day after we approve the request. A partial surrender charge may be
deducted from your policy value based on the amount of the decrease. The charge
will equal the applicable surrender charge that would apply to a full surrender
multiplied by a fraction equal to amount of the decrease divided by the face
amount of the policy before the decrease.
SURRENDERS
GENERAL
You may surrender all or part of your policy as long as the insured person is
alive and the policy is in force. The amount available for surrender will be the
cash surrender value at the end of the valuation period during which we receive
your surrender request.
We generally pay a surrendered amount within 7 days after we receive your
written request in good order. You may choose to receive a surrendered amount in
a lump sum or you may apply it to any of our available payment options. We may
postpone surrender payments under certain circumstances
FULL SURRENDERS
You may fully surrender your policy by sending the policy to us along with the
written release and surrender of all claims to us at VPMO.
PARTIAL SURRENDERS
You may receive a part of the policy's cash surrender value by requesting a
partial surrender of the policy. You must submit a written request to VPMO. We
may require you to return your policy before we make payment. A partial
surrender will be effective on the date we receive your written request and the
returned policy, if required.
We do not normally permit partial surrenders of less than $500. We may require
you to surrender the entire value allocated to an investment option if the
partial surrender would result in a value below $500 in that investment option.
You may choose in what proportions we deduct the following amounts from among
your investment options. If you do not choose we will make the deductions in the
same manner as for monthly deductions. We will deduct the partial surrender
amount, any applicable pro rata surrender charge and a partial withdrawal fee
from your policy value.
We will reduce your policy's cash value by the partial surrender amount paid
plus the partial surrender fee. If your policy has Death Benefit Option 1, we
will reduce your policy's face amount by the same amounts described above for
the reduction of policy value.
POLICY LOANS
You may generally borrow up to 90% of your policy's cash surrender value. We
will count any outstanding loans and loan interest toward that 90% limit. We do
not generally allow loans of less than $500.
When you take a loan, we will take an amount equal to the loan from your
investment options as collateral and deposit it to the "loaned portion" of the
Guaranteed Interest Account. You may instruct us how to withdraw policy value
from your investment options for deposit to the loaned portion of the Guaranteed
Interest Account. If you do not instruct us, we will make the withdrawal in the
same manner as for monthly deductions.
We charge interest on the loan at annual rates given below, compounded daily and
payable in arrears:
- --------------------- ------------------ ------------------
POLICY YEARS MOST STATES NEW JERSEY & TEXAS
- --------------------- ------------------ ------------------
1-10: 4% 5%
11-15: 3% 4%
16 and after: 2% 3%
- --------------------- ------------------ ------------------
At the end of each policy year, we will treat all interest due as a new loan and
will transfer that amount from the subaccounts and the non-loaned portion of the
Guaranteed Interest Account to the loaned portion of the Guaranteed Interest
Account.
We credit the loaned portion of the Guaranteed Interest Account with interest at
an effective annual rate of 2% (3% in New Jersey and Texas), compounded daily
and payable in arrears. At the end of each policy year, or when you repay a
loan, the interest credited to the loaned portion of the Guaranteed Interest
Account will be transferred to the non-loaned portion of the Guaranteed Interest
Account.
You may repay a loan at any time as long as the policy is in force and the
insured person is living. We apply loan repayments first to pay any outstanding
loan interest. We then apply any remaining amount to reduce the loaned portion
of the Guaranteed Interest Account and correspondingly increase the non-loaned
portion of the Guaranteed Interest Account. If you make a loan repayment that
exceeds the remaining loan interest and loan balance, we will apply the excess
among the investment options according to your most recent premium allocation
schedule on file.
We will use any loan repayment we receive during a grace period first to pay any
overdue monthly deductions. We
19
will then apply any remaining balance to reduce the loan interest and the loan.
We will apply any payment we receive while you have an outstanding loan directly
to reduce loan interest and loans, unless you designate it as a premium payment.
Failure to repay a policy loan or to pay loan interest will not terminate the
policy unless your policy's cash surrender value becomes insufficient to
maintain the policy in force.
The proceeds of policy loans may be subject to federal income tax under some
circumstances.
A policy loan will have a permanent effect on the policy value because the
investment results of the loaned portion of the Guaranteed Interest Account will
differ from that of investment options. The longer a loan is outstanding, the
greater the effect is likely to be. The effect could be favorable or
unfavorable. A policy loan can also have an effect on the policy's death benefit
under Death Benefit Option 2 due to any resulting differences in policy value.
LAPSE
Payment of the issue premium, no matter how large or the payment of additional
premiums will not guarantee the policy will remain in force.
If, during the first seven policy years, the policy value is less than the
monthly deduction, we will allow a grace period of 61 days during which you must
pay an amount equal to 3 times the required monthly deduction to prevent policy
lapse.
If, at any time after the first seven policy years, the cash surrender value is
less than the required monthly deduction, we will allow a grace period of 61
days during which you must pay an amount equal to 3 times the required monthly
deduction to prevent policy lapse or, if greater, enough to give your policy a
positive cash surrender value.
If you fail to make the required payment before the 61-day grace period ends,
the policy will lapse and expire without value. We will mail you notice at least
30 days before any lapse will occur.
The policy will remain in force during the grace period however, we will not
permit any subaccount transfers, loans, and full or partial surrenders. We apply
any premium payment we receive during the grace period, less the premium expense
charge, to first pay any monthly deductions due during the grace period. We will
apply any excess premium according to your current premium allocation schedule.
The policy face amount during the grace period is equal to the policy face
amount immediately before the grace period begins.
ADDITIONAL RIDER BENEFITS
You may elect additional benefits by selecting available riders under a policy.
You may cancel these riders at any time. We may deduct a charge for each
additional rider you choose. If you choose any of these riders, we will provide
more details in the form of a rider attached to the policy. The following riders
are currently available if approved by your state. We may make additional riders
available in future.
[diamond] Individual Term. This rider provides additional term insurance
coverage until the insured person reaches age 100. The face amount of
the term insurance may be level or increasing. The initial rider
death benefit is limited to 4 times the policy's initial face amount.
We assess a monthly charge for this rider.
[diamond] Guaranteed Death Benefit. This rider guarantees the face amount of
coverage even if you have insufficient policy value to cover the
monthly deduction.
We will set a monthly guarantee premium based on the insured person's
age, gender and risk class, the policy's face amount and the rider's
coverage period. In general, the total premiums you have paid,
reduced by any partial withdrawals, must be greater than or equal to
the sum total of all monthly guarantee premiums since issue. Please
refer to the rider contract form for details.
We assess a monthly charge while the rider remains in effect.
[diamond] LifePlan Options Rider. At specified 5th, 10th and 15th year policy
anniversaries, subject to various limitations as set forth in the
rider, the following favorable policy options may be exercised or
elected:
1. An option to increase the total face amount of the policy by up
to $1,000,000 without a medical exam requirement, while other
traditional underwriting rules will still apply.
2. An option to reduce the base policy face amount up to 50% without
incurring a partial surrender charge.
3. An option to exchange the policy for an annuity without incurring
a surrender charge. This option is not available until the 10th
policy anniversary.
We do not charge for this rider.
[diamond] Accidental Death Benefit. This rider will provide an additional death
benefit if the insured person dies as the result of accidental
injuries. This rider expires on the policy anniversary nearest the
insured person's 75th birthday. The rider contract form contains
terms and conditions.
We assess a monthly charge for this rider.
20
[diamond] Disability Benefit. This rider will provide a specified monthly
credit to your policy if the insured person becomes totally disabled.
We will credit the policy each month while the disability persists
for one year or until the insured person reaches age 65, whichever is
latest.
In addition, should the insured person become totally disabled before
reaching age 60 and remain totally disabled for the entire period to
age 65, we will continue to credit the policy beyond age 65.
We assess a monthly charge for this rider.
[diamond] Universal Life Conversion Option. This rider permits you to
permanently transfer your policy value to a special account paying a
guaranteed minimum interest rate. It is available beginning in the
16th policy year. We do not charge for this rider.
[diamond] Child Term. This rider provides annually renewable term coverage on
the insured person's children who are between 14 days old and age 18.
The term insurance is renewable to age 25. Each child will be insured
under a separate rider and the amount of insurance must be the same.
You may convert coverage to a new permanent life insurance policy
prior to your policy anniversary nearest the insured child's 25th
birthday. The new policy will be subject to our minimum issue
requirements.
We assess a monthly charge for this rider.
[diamond] Family Term. This rider provides annually renewable term insurance
coverage to age 70 on the insured person or members of the insured
person's immediate family who are at least 18 years of age. The rider
is fully convertible through age 65 for each covered person to a new
permanent life insurance policy. The new policy will be subject to
our minimum issue requirements.
We assess a monthly charge for this rider.
[diamond] Cash Value Accumulation. This rider generally permits you to pay more
in premium than otherwise would be permitted. This rider must be
elected before the policy is issued and will continue in effect for
the life of the policy. We do not charge for this rider.
[diamond] Purchase Protector Plan. Under this rider you may, at predetermined
future dates, purchase additional insurance protection without
evidence of insurability. We assess a monthly charge for this rider.
[diamond] Living Benefits. Under certain conditions, in the event of the
terminal illness of the insured, an accelerated payment of up to 75%
of the policy's death benefit (up to a maximum of $250,000) is
available. The minimum face amount of the policy after any such
accelerated benefit payment is $10,000. We do not charge for this
rider.
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
We may postpone payment of surrenders, partial withdrawals, policy loan or death
benefits under certain circumstances:
[diamond] We may postpone for up to six months, payment for any transaction
that depends on the value of the Guaranteed Interest Account.
[diamond] We may postpone payment whenever the NYSE is closed other than for
customary weekend and holiday closings or trading on the NYSE is
restricted; or
[diamond] When the SEC decides an emergency exists and the sale of securities
or the determination of the value of securities in the Account is not
reasonably practicable.
We may also postpone subaccount transfers under any of the above circumstances.
PAYMENT BY CHECK
We may delay payments under the policy derived from premiums paid by check until
such time as the check has cleared your bank.
THE CONTRACT
The policy and attached copy of the application are the entire contract. Only
statements in the application can be used to void the policy. The statements are
considered representations and not warranties. Only an executive officer of PHL
Variable can agree to change or waive any provisions of the policy.
SUICIDE
We will stop and void the policy if the insured person commits suicide within 2
years of the policy's issue date. We will then return the policy value reduced
by any outstanding debt and refund any monthly deductions and other fees and
charges.
INCONTESTABILITY
We may not contest this policy or any attached rider after it has been in force
for 2 years during which the insured person is alive.
CHANGE OF OWNER OR BENEFICIARY
The beneficiary you name in the policy application or subsequently change will
receive the policy benefits at the insured person's death. If your named
beneficiary dies before then, the named contingent beneficiary, if any, becomes
the beneficiary. If there is no surviving or named beneficiary we will pay the
death benefit to your estate.
You may change the policy owner and the beneficiary as long as the policy is
remains in force. Changes must be made by written request, in a form
satisfactory to us. A beneficiary change will take effect as of the date you
sign the written notice, regardless of whether the insured person is still
living when we receive the notice. However,
21
we will not be liable for any payment made or action taken before we receive
your written notice.
ASSIGNMENT
You may assign the policy. We will not be bound by the assignment until we
receive a written copy of the assignment nor will we be liable for any payment
made prior before then. We assume no responsibility for determining whether an
assignment is valid.
MISSTATEMENT OF AGE OR SEX
If you incorrectly state the age or gender of the insured person, we will adjust
the death benefit to reflect the correct cost of insurance rate. The adjusted
death benefit will equal the coverage our most recent cost of insurance
deduction would provide based on the insured person's correct personal
information.
SURPLUS
This nonparticipating policy does not pay dividends. You will not share in PHL
Variable's surplus earnings.
PAYMENT OF POLICY PROCEEDS
- --------------------------------------------------------------------------------
SURRENDER AND DEATH BENEFIT PROCEEDS
We will process death benefits and full or partial surrender proceeds at unit
values next computed after we receive the request for surrender or due proof of
death, provided such request is complete and in good order. We will normally pay
surrender or death proceeds in one lump sum within 7 days, unless another
payment option is elected. Payment of the death proceeds, however, may be
delayed if the claim for payment of the death proceeds needs to be investigated,
e.g., to ensure payment of the proper amount to the proper payee. Any such delay
will not be beyond that reasonably necessary to investigate such claims
consistent with insurance practices customary in the life insurance industry.
You may elect a payment option for payment of the death proceeds to the
beneficiary at any time while the insured person is alive. You may revoke or
change a prior election, unless you have waived such right. Your beneficiary may
make or change an election before payment of the death proceeds, unless you have
made an irrevocable election. We require a written request in a form
satisfactory to us to elect, change or revoke a payment option. The minimum
amount of surrender or death benefit proceeds that may be applied under any
payment option is $1,000.
If you assign the policy as collateral security, we will pay any amount due the
assignee in one lump sum. Any remaining proceeds will remain under the option
elected.
PAYMENT AMOUNT
We will make the death benefit payment based on the death benefit option in
effect at the time.
DEATH BENEFIT OPTION 1 - We apply policy face amount to payment option.
DEATH BENEFIT OPTION 2 - We apply policy face amount plus policy value to
payment option.
We will pay the minimum death benefit if it is greater under your chosen option.
The cash surrender value is the maximum payable for surrender.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a policy may be applied under
one or more of the following payment options. We may offer other payment options
or alternative versions of these options in future.
PAYMENT OPTION 1--LUMP SUM
We pay all proceeds as one sum.
PAYMENT OPTION 2--LEFT TO EARN INTEREST
We pay interest on the principal left with us for the payee's lifetime. We
guarantee an annual interest rate of at least 3%. The payee may request all or
part of the remaining principal at any time.
PAYMENT OPTION 3--PAYMENT FOR A SPECIFIC PERIOD
We pay equal installments for a specified period whether the payee lives or
dies. We make the first payment on the date of settlement. We guarantee an
annual assumed interest rate on the unpaid balance of at least 3%.
PAYMENT OPTION 4--LIFE ANNUITY WITH SPECIFIED
PERIOD CERTAIN
We pay equal installments for the specified period certain, and continue to make
payments as long as the payee lives. There is a choice of three period certains:
[diamond] 10 years; or
[diamond] 20 years; or
[diamond] until the installments paid refund the amount applied under this
option.
If the payee is not living when the final payment falls due, that payment will
be limited to the amount which needs to be added to the payments already made to
equal the amount applied under this option.
If, for the age of the payee, a period certain is chosen that is shorter than
another period certain paying the same installment amount, we will consider the
longer period certain as having been elected.
We use an annual interest rate of at least 3% to compute the payments.
PAYMENT OPTION 5--LIFE ANNUITY
We pay equal installments to the payee for life. When the payee dies we make no
more payments of any kind. We will use a guaranteed annual interest rate of no
less than 3%.
22
PAYMENT OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT
We pay equal installments out of the principal and interest on that principal
until the principal remaining is less than the amount of the installment. We
then make a final payment of the remaining principal and interest. We pay the
first installment on the date of settlement. Payments will include interest on
the remaining principal at a guaranteed annual rate of at least 3%. We will
credit interest at the end of each year. Should the interest credited at the end
of the year exceed the income payments made in the preceding 12 months, we will
pay the excess in one sum.
PAYMENT OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN
We pay equal installments beginning on the settlement date for a minimum of ten
years continuing thereafter as long as either payee is alive. Should both payees
die before the 10-year period certain ends, we will make the remaining payments
to their beneficiaries.
The younger payee must be at least 40 years old. We will use a guaranteed annual
interest rate of at least 3% to compute payments under this option.
See your policy for additional information concerning payment options.
23
PART III OTHER IMPORTANT INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
This discussion is general in nature and is not intended as income tax advice.
We make no attempt to consider any estate and inheritance taxes, or any state,
local or other tax laws. Because this discussion is based upon our understanding
of federal income tax laws as they are currently interpreted, we cannot
guarantee the income tax status of any policy. The Internal Revenue Service
("IRS") makes no representation regarding the likelihood of continuation of
current federal income tax laws, U.S. Treasury regulations or of the current
interpretations. We reserve the right to make changes to the policy to assure
that it will continue to qualify as a life insurance contract for federal income
tax purposes.
The ultimate effect of federal income taxes on values under the Account and on
the economic benefit to you or your beneficiary depends on our income tax status
and upon the income tax status of the individual concerned. For complete
information on federal and state income tax considerations, an income tax
advisor should be consulted.
PHL VARIABLE'S INCOME TAX STATUS
We are taxed as a life insurance company under the Internal Revenue Code of
1986, as amended ("Code"). For federal income tax purposes, neither the Account
nor the Guaranteed Interest Account is a separate entity from PHL Variable and
their operations form a part of PHL Variable.
Investment income and realized capital gains on the assets of the Account are
reinvested and taken into account in determining the value of the Account.
Investment income of the Account, including realized net capital gains, is not
taxed to us. Due to our income tax status under current provisions of the Code,
no charge currently will be made to the Account for our federal income taxes
which may be attributable to the Account. We reserve the right to make a
deduction for taxes if our federal income tax treatment is determined to be
other than what we currently believe it to be, if changes are made affecting the
income tax treatment to our variable life insurance contracts, or if changes
occur in our income tax status. If imposed, such charge would be equal to the
federal income taxes attributable to the investment results of the Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS
The policy, whether or not it is a modified endowment contract (see "Modified
Endowment Contracts"), should be treated as meeting the definition of a life
insurance contract for federal income tax purposes under Section 7702 of the
Code. As such, the death benefit proceeds thereunder should be excludable from
the gross income of the beneficiary under Code Section 101(a)(1). Also, a policy
owner should not be considered to be in constructive receipt of the cash value,
including investment income. However, see the sections below on possible
taxation of amounts received under the policy, via full surrender, partial
surrender or loan. In addition, a benefit paid under a Living Benefits Rider may
be taxable as income in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums received
under a policy. We monitor the premiums to assure compliance with such
conditions. However, if the premium limitation is exceeded during the year, we
may return the excess premium, with interest, to the policy owner within 60 days
after the end of the policy year, and maintain the qualification of the policy
as life insurance for federal income tax purposes.
FULL SURRENDER
Upon full surrender of a policy for its cash value, the excess, if any, of the
cash value (unreduced by any outstanding indebtedness) over the premiums paid
will be treated as ordinary income for federal income tax purposes. The full
surrender of a policy that is a modified endowment contract may result in the
imposition of an additional 10% tax on any income received.
PARTIAL SURRENDER
If the policy is a modified endowment contract, partial surrenders and other
distributions are fully taxable to the extent of income in the policy and are
possibly subject to an additional 10% tax. See the discussion on modified
endowment contracts below. If the policy is not a modified endowment contract,
partial surrenders still may be taxable, as follows. Code Section 7702(f)(7)
provides that where a reduction in death benefits occurs during the first 15
years after a policy is issued and there is a cash distribution associated with
that reduction, the policy owner may be taxed on all or a part of the amount
distributed. A reduction in death benefits may result from a partial surrender.
After 15 years, the proceeds will not be subject to tax, except to the extent
such proceeds exceed the total amount of premiums paid but not previously
recovered. We suggest you consult with your tax advisor in advance of a proposed
decrease in death benefits or a partial surrender as to the portion, if any,
which would be subject to tax, and in addition as to the impact such partial
surrender might have under the new rules affecting modified endowment contracts.
The benefit payment under the Living Benefits Rider is not considered a partial
surrender.
LOANS
We believe that any loan received under a policy will be treated as your
indebtedness. If the policy is a modified endowment contract, loans are fully
taxable to the extent
24
of income in the policy and are possibly subject to an additional 10% tax. See
the discussion on modified endowment contracts. If the policy is not a modified
endowment contract, we believe that no part of any loan under a policy will
constitute income to you.
The deductibility by a policy owner of loan interest under a policy may be
limited under Code Section 264, depending on the circumstances. A policy owner
intending to fund premium payments through borrowing should consult an income
tax advisor with respect to the tax consequences. Under the "personal" interest
limitation provisions of the Code, interest on policy loans used for personal
purposes is not tax deductible. Other rules may apply to allow all or part of
the interest expense as a deduction if the loan proceeds are used for "trade or
business" or "investment" purposes. See your tax advisor for further guidance.
BUSINESS-OWNED POLICIES
If a business or a corporation owns the policy, the Code may impose additional
restrictions. The Code limits the interest deduction on business-owned policy
loans and may impose tax upon the inside build-up of corporate-owned life
insurance policies through the corporate alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
GENERAL
Pursuant to Code Section 72(e), loans and other amounts received under modified
endowment contracts will, in general, be taxed to the extent of accumulated
income (generally, the excess of cash value over premiums paid). Life insurance
policies can be modified endowment contracts if they fail to meet what is known
as "the 7-pay test."
This test compares your policy to a hypothetical life insurance policy of equal
face amount which requires 7 equal annual premiums to be "fully paid-up,"
continuing to provide a level death benefit with no further premiums. A policy
becomes a modified endowment contract if, at any time during the first 7 years,
the cumulative premium paid on the policy exceeds the cumulative premium that
would have been paid under the hypothetical policy. Premiums paid during a
policy year but which are returned by us with interest within 60 days after the
end of the policy year will be excluded from the 7-pay test. A life insurance
policy received in exchange for a modified endowment contract will be treated as
a modified endowment contract.
REDUCTION IN BENEFITS DURING THE FIRST 7 YEARS
If there is a reduction in death benefits or reduction or elimination of any
Additional Rider Benefits previously elected, during the first 7 policy years,
the premiums are redetermined for purposes of the 7-pay test as if the policy
originally had been issued at the reduced death benefit level and the new
limitation is applied to the cumulative amount paid for each of the first 7
policy years.
DISTRIBUTIONS AFFECTED
If a policy fails to meet the 7-pay test, it is considered a modified endowment
contract only as to distributions in the year in which the test is failed and
all subsequent policy years. However, distributions made in anticipation of such
failure (there is a presumption that distributions made within 2 years prior to
such failure were "made in anticipation") also are considered distributions
under a modified endowment contract. If the policy satisfies the 7-pay test for
7 years, distributions and loans generally will not be subject to the modified
endowment contract rules.
PENALTY TAX
Any amounts taxable under the modified endowment contract rule will be subject
to an additional 10% excise tax, with certain exceptions. This additional tax
will not apply in the case of distributions that are:
[diamond] made on or after the taxpayer attains age 59 1/2;
[diamond] attributable to the taxpayer's disability (within the meaning of Code
Section 72(m)(7)); or
[diamond] part of a series of substantially equal periodic payments (not less
often than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or life expectancies) of the taxpayer and
his beneficiary.
MATERIAL CHANGE RULES
Any determination of whether the policy meets the 7-pay test will begin again
any time the policy undergoes a "material change," which includes any increase
in death benefits or any increase in or addition of a qualified additional
benefit, or any increase in or addition of any rider benefit available as an
Additional Rider Benefit (described above), with the following 2 exceptions.
[diamond] First, if an increase is attributable to premiums paid "necessary to
fund" the lowest death benefit and qualified additional benefits
payable in the first seven policy years or to the crediting of
interest or dividends with respect to these premiums, the "increase"
does not constitute a material change.
[diamond] Second, to the extent provided in regulations, if the death benefit or
qualified additional benefit increases as a result of a cost-of-living
adjustment based on an established broad-based index specified in the
policy, this does not constitute a material change if:
o the cost-of-living determination period does not exceed the
remaining premium payment period under the policy; and
o the cost-of-living increase is funded ratably over the remaining
premium payment period of the policy.
A reduction in death benefits is not considered a material change unless
accompanied by a reduction in premium payments.
25
A material change may occur at any time during the life of the policy (within
the first 7 years or thereafter), and future taxation of distributions or loans
would depend upon whether the policy satisfied the applicable 7-pay test from
the time of the material change. An exchange of policies is considered to be a
material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS
All modified endowment contracts issued by the same insurer (or affiliated
companies of the insurer) to the same policy owner within the same calendar year
will be treated as 1 modified endowment contract in determining the taxable
portion of any loans or distributions made to the policy owner. The U.S.
Treasury has been given specific legislative authority to issue regulations to
prevent the avoidance of the new distribution rules for modified endowment
contracts. A tax advisor should be consulted about the tax consequences of the
purchase of more than 1 modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges for
purposes of ensuring that a policy qualifies as a life insurance contract for
federal income tax purposes. The mortality charges taken into account to compute
permissible premium levels may not exceed those charges required to be used in
determining the federal income tax reserve for the policy, unless U.S. Treasury
regulations prescribe a higher level of charge. In addition, the expense charges
taken into account under the guideline premium test are required to be
reasonable, as defined by the U.S. Treasury regulations. We will comply with the
limitations for calculating the premium we are permitted to receive from you.
QUALIFIED PLANS
A policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, you should not use the policy in
conjunction with a qualified plan until you have consulted a pension consultant
or income tax advisor.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each series is required to diversify its
investments. The Diversification Regulations generally require that on the last
day of each calendar quarter the series' assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 investments
A "look-through" rule applies to treat a pro rata portion of each asset of a
series as an asset of the Account; therefore, each series will be tested for
compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets of
the Account are direct obligations of the U.S. Treasury. In this case, there is
no limit on the investment that may be made in U.S. Treasury securities, and for
purposes of determining whether assets other than U.S. Treasury securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of the Account's investment in U.S. Treasury
securities. Notwithstanding this modification of the general diversification
requirements, the portfolios of the funds will be structured to comply with the
general diversification standards because they serve as an investment vehicle
for certain variable annuity contracts that must comply with these standards.
In connection with the issuance of the Diversification Regulations, the U.S.
Treasury announced that such regulations do not provide guidance concerning the
extent to which you may direct your investments to particular divisions of a
separate account. It is possible that a revenue ruling or other form of
administrative pronouncement in this regard may be issued in the near future. It
is not clear, at this time, what such a revenue ruling or other pronouncement
will provide. It is possible that the policy may need to be modified to comply
with such future U.S. Treasury announcements. For these reasons, we reserve the
right to modify the policy, as necessary, to prevent you from being considered
the owner of the assets of the Account.
We intend to comply with the Diversification Regulations to assure that the
policies continue to qualify as a life insurance contract, for federal income
tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the policy owner or the insured or an exchange or assignment of the
policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance contract can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered policy is subject to a policy loan, this
may be treated as the receipt of money on the exchange. We recommend that any
person contemplating such actions seek the advice of an income tax advisor.
26
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of policy proceeds depend on the
circumstances of each policy owner or beneficiary. We do not make any
representations or guarantees regarding the tax consequences of any policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
We will vote the series' shares held by the subaccounts at any regular and
special meetings of shareholders of the funds. To the extent required by law,
such voting will be pursuant to instructions received from you. However, if the
1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result, we decide that we are
permitted to vote the series' shares at our own discretion, we may elect to do
so.
The number of votes that you have the right to cast will be determined by
applying your percentage interest in a subaccount to the total number of votes
attributable to the subaccount. In determining the number of votes, fractional
shares will be recognized.
We will vote series shares held in a subaccount for which no timely instructions
are received, and series shares which are not otherwise attributable to policy
owners, in proportion to the voting instructions that are received with respect
to all policies participating in that subaccount. Instructions to abstain on any
item to be voted upon will be applied to reduce the votes eligible to be cast by
PHL Variable.
You will receive proxy materials, reports and other materials related to the
funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the subclassification or investment objective of one or
more of the portfolios of the funds or to approve or disapprove an investment
advisory contract for the funds. In addition, PHL Variable itself may disregard
voting instructions in favor of changes initiated by a policy owner in the
investment policies or the investment advisor of the funds if PHL Variable
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or we decide that the change would have an adverse effect on the
General Account because the proposed investment policy for a series may result
in overly speculative or unsound investments. In the event PHL Variable does
disregard voting instructions, a summary of that action and the reasons for such
action will be included in the next periodic report to policy owners.
THE DIRECTORS AND EXECUTIVE OFFICERS
OF PHL VARIABLE INSURANCE COMPANY
- --------------------------------------------------------------------------------
We are managed by our Board of Directors. The following are our Directors and
Executive Officers and their positions held over the last five years:
DIRECTORS PRINCIPAL OCCUPATION FOR THE PAST
- --------- 5 YEARS
---------------------------------
Robert W. Fiondella Chairman and Chief Executive
Officer
The Phoenix Companies, Inc.,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Michael J. Gilotti Senior Vice President,
Phoenix Life Insurance Company,
Hartford, Connecticut
Formerly held various positions
with Aetna Retirement Services,
Hartford, Connecticut
Robert E. Primmer Senior Vice President,
Phoenix Life Insurance Company,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Simon Y. Tan Executive Vice President
Phoenix Life Insurance Company,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Dona D. Young President
The Phoenix Companies, Inc.,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
27
EXECUTIVE OFFICERS, PRINCIPAL OCCUPATION FOR THE PAST
TITLE 5 YEARS
- ------------------ ---------------------------------
Simon Y. Tan, President Executive Vice President
Phoenix Life Insurance Company
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Michael J. Gilotti, Senior Vice President,
Senior Vice President Phoenix Life Insurance Company,
Hartford, Connecticut
Formerly held various positions
with Aetna Retirement Services,
Hartford, Connecticut
Louis J. Lombardi, Senior Senior Vice President,
Vice President Phoenix Life Insurance Company,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Robert E. Primmer, Senior Senior Vice President,
Vice President Phoenix Life Insurance Company,
Hartford, Connecticut
Various positions with Phoenix
Life Insurance Company and its
subsidiaries
Christopher M. Wilkos, Senior Vice President,
Senior Vice President The Phoenix Companies,
Inc.,
Formerly held various positions
with Phoenix Life Insurance
Company and its subsidiaries;
Formerly Vice President,
Portfolio Strategy, Connecticut
Mutual Life Insurance Company
SAFEKEEPING OF THE ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
We hold the assets of the Account from our General Account. We maintain records
of all purchases and redemptions of fund shares.
SALES OF POLICIES
- --------------------------------------------------------------------------------
Policies may be purchased from registered representatives of WS Griffith
Securities, Inc. (formerly known as W.S. Griffith & Co., Inc.) ("WSG"), a New
York corporation incorporated on August 7, 1970, licensed to sell PHL Variable
insurance policies as well as policies, annuity contracts and funds of companies
affiliated with Phoenix. WSG is an indirect, wholly owned subsidiary of The
Phoenix Companies, Inc., and is an affiliate of Phoenix. WSG is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 ("1934
Act") and is a member of the National Association of Securities Dealers, Inc.
Phoenix Equity Planning Corporation ("PEPCO") serves as national distributor of
the policies. PEPCO is located at 56 Prospect Street, Hartford, Connecticut.
PEPCO is also an indirect, wholly owned subsidiary of The Phoenix Companies and
is an affiliate of Phoenix.
Policies may also be purchased through other broker-dealers or entities
registered under or exempt under the Securities Exchange Act of 1934, whose
representatives are authorized by applicable law to sell contracts under terms
of agreement provided by PEPCO.
We pay sales commissions to registered representatives on purchase payments we
receive under these policies.
STATE REGULATION
- --------------------------------------------------------------------------------
PHL Variable is subject to the provisions of the Connecticut insurance law
applicable to life insurance companies and to regulation and supervision by the
Connecticut Insurance Commissioner. PHL Variable also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of PHL Variable includes certain limitations on the investments
we may make, including investments for the Account and the Guaranteed Interest
Account. This regulation does not include, however, any supervision over the
investment policies of the Account.
REPORTS
- --------------------------------------------------------------------------------
All policy owners will be furnished with those reports required by the 1940 Act
and related regulations or by any other applicable law or regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Account is not engaged in any litigation. PHL Variable is not involved in
any litigation that would have a material adverse effect on our ability to meet
our obligations under the policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Richard J. Wirth, and Brian A. Giantonio, Counsel, have passed upon the
organization of PHL Variable, its authority to issue variable life insurance
policies and the validity of the policy, and upon legal matters relating to the
federal securities and income tax laws for PHL Variable.
28
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A registration statement has been filed with the SEC, under the Securities Act
of 1933 ("1933 Act") with respect to the securities offered. This prospectus is
a summary of the contents of the policy and other legal documents and does not
contain all the information set forth in the registration statement and its
exhibits. We refer you to the registration statement and its exhibits for
further information concerning the Account, PHL Variable Insurance Company and
the policy.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of PHL Variable Insurance Company as of December 31,
2001 and 2000 and for each of the three years in the period ended December 31,
2001 appear in the pages that follow. 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 Account or on the Guaranteed Interest Account that we
credit during a guarantee period. In addition, the Unaudited Interim Financial
Statements of PHL Variable Insurance Company as of March 31, 2002 and the
results of its operations and cash flows for the periods indicated also appear
in the pages that follow.
29
PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 2001
As of December 31, 2001, there were no sales of the products described in this
prospectus and, therefore, no deposits were made to the PHLVIC Variable
Universal Life Account. Accordingly, there are no financial statements for the
year ended December 31, 2001.
SA-1
PHL VARIABLE
INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
F-1
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Report of Independent Accountants............................................F-3
Balance Sheets...............................................................F-4
Statements of Income, Comprehensive Income and Equity........................F-5
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements.........................................F-7 - F-21
F-2
PRICEWATERHOUSECOOPERS [logo]
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
PHL Variable Insurance Company
In our opinion, the accompanying balance sheets and the related statements of
income, comprehensive income and equity and cash flows present fairly, in all
material respects, the financial position of PHL Variable Insurance Company at
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 5, 2002
F-3
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
BALANCE SHEETS
- --------------------------------------------------------------------------------
AS OF DECEMBER 31,
------------------------------------
2001 2000
---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS:
Investments:
Held-to-maturity debt securities, at amortized cost $ - $ 13,697
Available-for-sale debt securities, at fair value 786,266 144,217
Policy loans, at unpaid principal 896 710
Short-term investments, at amortized cost 3,114 -
Other invested assets 2,397 1,618
---------------- ----------------
Total investments 792,673 160,242
Cash and cash equivalents 171,444 80,779
Accrued investment income 5,787 1,381
Deferred policy acquisition costs 164,987 84,842
Deferred and uncollected premiums 7,605 6,790
Other assets 22,491 1,942
Goodwill, net 247 349
Separate account assets 1,539,476 1,321,582
---------------- ----------------
Total assets $ 2,704,710 $ 1,657,907
================ =================
LIABILITIES:
Policyholder deposit funds $ 865,970 $ 195,393
Policy liabilities and accruals 47,131 24,062
Deferred income taxes 27,426 3,784
Other liabilities 25,712 18,898
Separate account liabilities 1,534,345 1,321,582
---------------- ----------------
Total liabilities 2,500,584 1,563,719
---------------- ----------------
Commitments and contingencies (Note 13)
EQUITY:
Common stock, $5,000 par value (1,000
shares authorized, 500 shares issued and outstanding) 2,500 2,500
Additional paid-in capital 184,864 79,864
Retained earnings 14,803 11,553
Accumulated other comprehensive income 1,959 271
---------------- ----------------
Total equity 204,126 94,188
---------------- ----------------
Total liabilities and equity $ 2,704,710 $ 1,657,907
================ ================
The accompanying notes are an integral part of these statements.
F-4
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
(IN THOUSANDS)
REVENUES:
Premiums $ 5,129 $ 6,168 $ 9,838
Insurance and investment product fees 32,379 30,098 20,618
Net investment income 30,976 9,197 3,871
Net realized investment (losses) gains (1,196) 116 27
--------------- --------------- ---------------
Total revenues 67,288 45,579 34,354
--------------- --------------- ---------------
BENEFITS AND EXPENSES:
Policy benefits and increase in policy liabilities 39,717 17,056 9,248
Amortization of deferred policy acquisition costs 8,477 15,765 4,747
Other operating expenses 15,305 14,006 11,130
--------------- --------------- ---------------
Total benefits and expenses 63,499 46,827 25,125
--------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES 3,789 (1,248) 9,229
Income tax expense (benefit) 539 (1,263) 3,230
--------------- --------------- ---------------
NET INCOME 3,250 15 5,999
--------------- --------------- ---------------
Other comprehensive income (loss), net of income taxes
Unrealized gain on security transfer from
held-to-maturity to available-for-sale 359 - -
Unrealized gains (losses) on securities 2,155 1,002 (915)
Unrealized losses on derivatives (334) - -
Reclassification adjustment for net realized
gains included in net income (492) (18) (5)
--------------- --------------- ---------------
Total other comprehensive income (loss) 1,688 984 (920)
--------------- --------------- ---------------
Comprehensive income 4,938 999 5,079
Capital contributions 105,000 15,000 29,000
--------------- --------------- ---------------
Net increase in equity 109,938 15,999 34,079
Equity, beginning of year 94,188 78,189 44,110
--------------- --------------- ---------------
Equity, end of year $ 204,126 $ 94,188 $ 78,189
=============== =============== ================
The accompanying notes are an integral part of these statements.
F-5
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
2001 2000 1999
--------------- ---------------- ---------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,250 $ 15 $ 5,999
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH USED FOR OPERATING ACTIVITIES:
Net realized investment losses (gains) 1,196 (116) (27)
Amortization of goodwill 102 102 102
Deferred income taxes 22,733 3,045 2,883
Increase in accrued investment income (4,406) (595) (275)
Increase in deferred policy acquisition costs (81,588) (23,845) (23,807)
Change in other assets/liabilities (540) 19,447 8,856
--------------- ---------------- ---------------
Net cash used for operating activities (59,253) (1,947) (6,269)
--------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales:
Available-for-sale debt securities 34,165 1,513 5,974
Proceeds from maturities:
Available-for-sale debt securities 7,400 500 5,550
Held-to-maturity debt securities - 1,200 -
Proceeds from repayments:
Available-for-sale debt securities 95,307 23,123 140
Held-to-maturity debt securities 3,963 3,175 623
Purchase of available-for-sale debt securities (740,143) (110,700) (33,397)
Purchase of held-to-maturity debt securities (22,272) (7,683) (7,000)
Increase in policy loans (186) (188) (273)
Change in short-term investments, net (3,114) - -
Change in other invested assets (779) (517) -
Other, net - - (68)
--------------- ---------------- ---------------
Net cash used for investing activities (625,659) (89,577) (28,451)
--------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from parent 105,000 15,000 29,000
Increase in policyholder deposit funds, net of
interest credited 670,577 131,163 24,540
--------------- ---------------- ---------------
Net cash provided by financing activities 775,577 146,163 53,540
--------------- ---------------- ---------------
Net change in cash and cash equivalents 90,665 54,639 18,820
Cash and cash equivalents, beginning of year 80,779 26,140 7,320
--------------- ---------------- ---------------
Cash and cash equivalents, end of year $ 171,444 $ 80,779 $ 26,140
============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (received) paid, net $ (5,357) $ (2,660) $ 3,338
The accompanying notes are an integral part of these statements.
F-6
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
PHL Variable Insurance Company ("PHL Variable") offers variable, fixed
annuity and non-participating life insurance products in the United States
of America. PHL Variable is a wholly-owned subsidiary of PM Holdings, Inc.
("PM Holdings"). PM Holdings is a wholly-owned subsidiary of Phoenix Life
Insurance Company ("PLIC") (formerly, Phoenix Home Life Mutual Insurance
Company).
PLIC is a wholly-owned subsidiary of The Phoenix Companies, Inc., a
publicly traded company ("Phoenix"). On June 25, 2001 Phoenix Home Life
Mutual Insurance Company converted from a mutual life insurance company to
a stock life insurance company and changed its name to PLIC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates used in determining insurance and contractholder
liabilities, related reinsurance recoverables, income taxes and valuation
allowances for investment assets are discussed throughout the Notes to
Financial Statements. Certain reclassifications have been made to the 1999
and 2000 amounts to conform with the 2001 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, mortgage-backed and
asset-backed securities. PHL Variable classified its debt securities as
either held-to-maturity or available-for-sale investments. Prior to 2001,
debt securities held-to-maturity consisted of private placement bonds
reported at amortized cost, net of impairments, that management intended
and had the ability to hold until maturity. Debt securities
available-for-sale are reported at fair value with unrealized gains or
losses included in equity and consist of public bonds that management may
not hold until maturity. Debt securities are considered impaired when a
decline in value is considered to be other than temporary.
In 2001, management decided, as part of Phoenix's conversion to a public
company, that held-to-maturity securities should be reclassified to
available-for-sale debt securities. See Note 3 - "Investments."
For the mortgage-backed and asset-backed bond portion of the debt security
portfolio, PHL Variable recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual
payments to date and anticipated future payments, and any resulting
adjustment is included in net investment income.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related contracts.
Short-term investments are carried at amortized cost which approximates
fair value. Short-term investments consist of interest bearing securities
that mature between 91 days and twelve months from date of purchase.
Other invested assets consist of PHL Variable's interest in the separate
accounts and derivatives. Separate account assets are valued at fair
value. Derivatives are valued in accordance with Financial Accounting
Standards No. 133. See "recent accounting pronouncements" within Note 2.
Realized investment gains and losses, other than those related to separate
accounts for which PHL Variable does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation
F-7
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
reserve is determined. Valuation reserves are netted against the asset
categories to which they apply and changes in the valuation reserves are
included in realized investment gains and losses. Unrealized investment
gains and losses on debt securities classified as available-for-sale are
included as a component of equity, net of deferred income taxes and the
assumed impact of net unrealized investment gains and losses on the
amortization of deferred policy acquisition costs related to investment
contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid
investments with a maturity of 90 days or less when purchased. Certain
short-term investments relating to 1999 and 2000 have been reclassified to
conform with the 2001 presentation.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions,
underwriting, distribution and policy issue expenses, all of which vary
with and are primarily related to the production of new business, are
deferred. Deferred policy acquisition costs ("DAC") are subject to
recoverability testing at the time of policy issue and loss recognition at
the end of each accounting period.
For universal life insurance policies and investment type contracts, DAC
is amortized in proportion to historical and estimates of expected gross
profits. Gross profits arise primarily from investment, mortality and
expense margins, and surrender charges based on historical and anticipated
experience. These estimates of expected gross profits are evaluated
regularly, and the total amortization recorded to date is adjusted by a
charge or credit to income if actual experience or other evidence suggest
that earlier estimates should be revised. In addition, analyses are
performed periodically to assess whether there are sufficient estimated
future gross profits to support the recoverability of the remaining DAC
balances.
GOODWILL
Goodwill represents the excess of the cost of business acquired over the
fair value of net assets. These costs are amortized on a straight-line
basis over a period of 10 years, corresponding with the benefits expected
to be derived from the acquisition. The propriety of the carrying value of
goodwill is periodically reevaluated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of,"
by comparing estimates of future undiscounted cash flows to the carrying
value of the assets. Assets are considered impaired if the carrying value
exceeds the expected future undiscounted cash flows. Analyses are
performed at least annually or more frequently if warranted by events and
circumstances affecting PHL Variable's business. See SFAS No. 142 under
"recent accounting pronouncements" for change in accounting policy
effective January 1, 2002.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts
to meet specific investment objectives of contractholders who can either
choose to bear the full investment risk or can choose guaranteed
investment earnings subject to certain conditions. For contractholders who
bear the investment risk, investment income and investment gains and
losses accrue directly to such contractholders. The assets of each account
are legally segregated and are not subject to claims that arise out of any
other business of PHL Variable. The assets and liabilities are carried at
fair value. Deposits, net investment income and realized investment gains
and losses for these accounts are excluded from revenues, and the related
liability increases are excluded from benefits and expenses. Amounts
assessed to the contractholders for management services are included in
revenues.
For Market Value Adjusted separate accounts, contractholders are credited
interest at a guaranteed rate if the account is held until the end of the
guarantee period. If funds are withdrawn from the account prior to the end
of the guarantee period, a market value adjustment is applied, which means
that the funds received may be higher or lower than the account value,
depending on whether current interest rates are
F-8
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
higher, lower or equal to the guaranteed interest rate. In these
separate accounts, realized appreciation or depreciation of assets,
undistributed net investment income and investment or other sundry
expenses are reflected as net income. Unrealized investment gains and
losses in these separate accounts are included as a component of equity,
net of deferred income taxes.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life products. Such liabilities
are established in amounts adequate to meet the estimated future
obligations of policies in force. Liabilities for universal life policies
include deposits received from customers and investment earnings on their
fund balances, which range from 5.5% to 6.5%, less administrative and
mortality charges in 2001.
Liabilities for outstanding claims, losses and loss adjustment expenses
are amounts estimated to cover incurred losses. These liabilities are
based on individual case estimates for reported losses and estimates of
unreported losses based on past experience.
POLICYHOLDER DEPOSIT FUNDS
Policyholder deposit funds consist of annuity deposits received from
customers and investment earnings on their fund balances, which range from
3.0% to 12.0%, less administrative charges in 2001.
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Term life insurance premiums are recorded as premium revenue pro-rata over
the related contract periods. Benefits, losses and related expenses are
matched with premiums over the related contract periods. Revenues for
investment-related products, included in insurance and investment product
fees, consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist
of net investment income and mortality, administration and surrender
charges assessed against the fund values during the period. Related
benefit expenses include universal life benefit claims in excess of fund
values and net investment income credited to universal life fund values.
REINSURANCE
PHL Variable utilizes reinsurance agreements to provide for greater
diversification of business, allow management to control exposure to
potential losses arising from large risks and provide additional capacity
for growth.
Assets and liabilities related to reinsurance ceded contracts are reported
on a gross basis. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
INCOME TAXES
For the tax year ended December 31, 2001, PHL Variable is included in the
life/non-life consolidated federal income tax return filed by Phoenix. PHL
Variable had filed separate company returns for the tax years ended
December 31, 1996 through December 31, 2000 as required under Internal
Revenue Code Section 1504(c). In accordance with an income tax sharing
agreement with Phoenix, the provision for federal income taxes is computed
as if PHL Variable were filing a separate federal income tax return,
except that benefits arising from income tax credits and net operating and
capital losses are allocated to those subsidiaries producing such
attributes to the extent they are utilized in Phoenix's consolidated
federal income tax return. Deferred income taxes result from temporary
differences between the tax basis of assets and liabilities and their
recorded amounts for financial reporting purposes. These differences
result primarily from policy liabilities and accruals, policy acquisition
costs and unrealized gains or losses on investments.
F-9
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
Phoenix has a non-contributory, defined benefit pension plan covering
substantially all of its employees. Retirement benefits are a function of
both years of service and level of compensation. Phoenix also sponsors a
non-qualified supplemental defined benefit plan to provide benefits in
excess of amounts allowed pursuant to the Internal Revenue Code. Phoenix's
funding policy is to contribute annually an amount equal to at least the
minimum required contribution in accordance with minimum funding standards
established by the Employee Retirement Income Security Act of 1974
("ERISA"). Contributions are intended to provide not only for benefits
attributable to service to date, but also for service expected to be
earned in the future.
Phoenix sponsors pension and savings plans for its employees and agents,
and those of its subsidiaries. The qualified plans comply with
requirements established by the ERISA and excess benefit plans provide for
that portion of pension obligations which is in excess of amounts
permitted by ERISA. Phoenix also provides certain health care and life
insurance benefits for active and retired employees. PHL Variable incurs
applicable employee benefit expenses through the process of cost
allocation by Phoenix.
In addition to Phoenix's pension plans, Phoenix currently provides certain
health care and life insurance benefits to retired employees, spouses and
other eligible dependents through various plans sponsored by Phoenix. A
substantial portion of Phoenix's employees may become eligible for these
benefits upon retirement. The health care plans have varying co-payments
and deductibles, depending on the plan. These plans are unfunded.
Applicable information regarding the actuarial present value of vested and
non-vested accumulated plan benefits, and the net assets of the plans
available for benefits is omitted, as the information is not separately
calculated for PHL Variable's participation in the plans. The amount of
such allocated benefits is not significant to the financial statements.
With respect to the pension plan, the total assets of the plan exceeded
the actuarial present value of vested benefits at January 1, 2001, the
date of the most recent actuarial valuation. The other postretirement
benefit plans were unfunded as of December 31, 2001, and in accordance
with the SFAS No. 106, "Employers' Accounting for Postretirement
Benefits," Phoenix, the plan sponsor, established an accrued liability and
amounts attributable to PHL Variable have been allocated.
RECENT ACCOUNTING PRONOUNCEMENTS
Securitized Financial Instruments. Effective April 1, 2001, Phoenix
adopted Emerging Issues Task Force Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial
Interests in Securitized Financial Assets ("EITF 99-20"). This
pronouncement requires investors in certain asset-backed securities to
record changes in their estimated yield on a prospective basis and to
apply specific valuation methods to these securities to determine of there
has been an other-than-temporary decline in value. PHL Variable had no
change in net income as a result of this accounting change.
Derivative Financial Instruments. Effective January 1, 2001, Phoenix
adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
as amended by SFAS No. 138, Accounting for Certain Derivative Instruments
and Certain Hedging Activities ("SFAS 138"). As amended, SFAS 133 requires
all derivatives to be recognized on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
earnings.
PHL Variable maintains an overall interest rate risk-management strategy
that incorporates the use of derivative financial instruments to manage
exposure to fluctuations in interest rates. PHL Variable's exposure to
interest rate changes primarily results from its commitments to fund
interest-sensitive insurance liabilities, as well as from significant
holdings of fixed rate investments. PHL Variable uses interest rate swap
agreements as part of its interest rate risk-management strategy. To
reduce
F-10
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
counterparty credit risks and diversify counterparty exposure, PHL
Variable enters into derivative contracts only with a number of highly
rated financial institutions.
PHL Variable enters into interest rate swap agreements to reduce market
risks from changes in interest rates. PHL Variable does not enter into
interest rate swap agreements for trading purposes. Under interest rate
swap agreements, PHL Variable exchanges cash flows with another party, at
specified intervals, for a set length of time based on a specified
notional principal amount. Typically, one of the cash flow streams is
based on a fixed interest rate set at the inception of the contract, and
the other is a variable rate that periodically resets. Generally, no
premium is paid to enter into the contract and neither party makes a
payment of principal. The amounts to be received or paid on these swap
agreements are accrued and recognized in net investment income.
PHL Variable also recognized an after-tax loss of $0.3 million for the
year ended December 31, 2001 (reported as other comprehensive income in
Statements of Income, Comprehensive Income and Equity), which represented
the change in fair value of interest rate forward swaps which have been
designated as cash flow hedges of the forecasted purchase of assets. For
changes in the fair value of derivatives that are designated as cash flow
hedges of a forecasted transaction, PHL Variable recognizes the change in
fair value of the derivative in other comprehensive income. Amounts
related to cash flow hedges that are accumulated in other comprehensive
income are reclassified as earnings in the same period or periods during
which the hedged forecasted transaction (the acquired asset) affects
earnings. For the year ended December 31, 2001, PHL Variable also
recognized an after-tax gain of $0.3 million (reported as net realized
investment gains in the Statements of Income, Comprehensive Income and
Equity), which resulted from the termination of interest rate swap
contracts designated as hedges of a forecasted transaction. The interest
rate swap contracts were determined to no longer be effective hedges.
In certain instances, derivative contracts are terminated prior to
maturity. These contracts include, but are not limited to, interest rate
and foreign currency swaps, cap and floor contracts, and payor and
receiver swaptions. To the extent that derivative contracts determined to
be effective hedges are terminated, realized gains and losses are deferred
and amortized. Derivatives associated with hedged items that either no
longer exist or are no longer expected to occur are accounted for as of
the relevant change in status of the hedged items, with gains or losses on
such contracts recognized immediately in net income. Similarly, for
derivatives otherwise determined to no longer be effective hedges, gains
or losses as of termination are recognized immediately in net income.
Business Combinations/Goodwill and Other Intangible Assets. In June 2001,
SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"), were issued. SFAS 141
and SFAS 142 are effective for July 1, 2001 and January 1, 2002,
respectively. SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001 and
separate recognition of intangible assets apart from goodwill if such
intangible assets meet certain criteria. SFAS 141 also requires that upon
adoption of SFAS 142 a company reclassify the carrying amounts of certain
intangible assets into or out of goodwill, based on certain criteria. SFAS
142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. Under SFAS 142, amortization of
goodwill, including goodwill and other intangible assets with indefinite
lives recorded in past business combinations, will discontinue upon
adoption of this standard, and reporting units must be identified for the
purpose of assessing potential future impairments of goodwill. PHL
Variable recognized $102 thousand in goodwill amortization during 2001.
The provisions of the SFAS 141 and SFAS 142 also apply to equity-method
investments made both before and after June 30, 2001. SFAS 142 prohibits
amortization of the excess of cost over the underlying equity in the net
assets of an equity-method investee that is recognized as goodwill.
SFAS 142 requires that goodwill be tested at least annually for impairment
using a two-step process. The first step is to identify a potential
impairment and, in the year of adoption, this step must be measured as of
the beginning of the fiscal year. The second step of the goodwill
impairment test measures the amount of the impairment loss (measured as of
the beginning of the year of adoption), if any, and must be
F-11
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
completed by the end of a company's fiscal year in the year of adoption.
Intangible assets deemed to have an indefinite life will be tested for
impairment using a one-step process which compares the fair value to the
carrying amount of the asset as of the beginning of the fiscal year in the
year of adoption. PHL Variable has prepared a preliminary analysis of the
adoption of SFAS 142, and does not expect to have an impairment charge in
2002.
3. INVESTMENTS
Information pertaining to PHL Variable's investments, net investment
income and realized and unrealized investment gains and losses follows:
DEBT SECURITIES
The amortized cost and fair value of investments in debt securities as of
December 31, 2001 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- --------------- -------------- --------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE:
U.S. government and agency bonds $ 6,379 $ 458 $ - $ 6,837
State and political subdivision bonds 37,039 513 (498) 37,054
Corporate securities 181,355 2,669 (1,789) 182,235
Mortgage-backed and
asset-backed securities 558,375 4,316 (2,551) 560,140
-------------- --------------- -------------- --------------
Total $ 783,148 $ 7,956 $ (4,838) $ 786,266
============== =============== ============== ==============
The amortized cost and fair value of investments in debt securities as of
December 31, 2000 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- --------------
(IN THOUSANDS)
HELD-TO-MATURITY:
State and political subdivision bonds $ 1,860 $ 236 $ - $ 2,096
Corporate securities 11,837 621 (43) 12,415
--------------- --------------- --------------- --------------
Total $ 13,697 $ 857 $ (43) $ 14,511
============== =============== ============== ==============
AVAILABLE-FOR-SALE:
U.S. government and agency bonds $ 6,468 $ 366 $ (12) $ 6,822
State and political subdivision bonds 10,339 22 (78) 10,283
Corporate securities 25,616 165 (880) 24,901
Mortgage-backed and
asset-backed securities 100,974 1,267 (30) 102,211
--------------- --------------- --------------- --------------
Total $ 143,397 $ 1,820 $ (1,000) $ 144,217
============== =============== ============== ==============
F-12
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of debt securities, by contractual
sinking fund payment and maturity, as of December 31, 2001 are shown
below. Actual maturity may differ from contractual maturity because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties, or PHL Variable may have the right to put or
sell the obligations back to the issuers.
AVAILABLE-FOR-SALE
AMORTIZED FAIR
COST VALUE
---------------- ---------------
(IN THOUSANDS)
Due in one year or less $ 14,845 $ 15,048
Due after one year through five years 167,536 167,922
Due after five years through ten years 33,843 34,832
Due after ten years 8,549 8,324
Mortgage-backed and asset-backed securities 558,375 560,140
---------------- ---------------
Total $ 783,148 $ 786,266
================ ===============
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
2001 2000 1999
---------------- ---------------- ---------------
(IN THOUSANDS)
Debt securities $ 28,410 $ 7,254 $ 3,362
Policy loans 15 12 7
Cash, cash equivalents and short-term investments 2,871 2,049 561
--------------- --------------- --------------
Sub-total 31,296 9,315 3,930
Less: investment expenses 320 118 59
--------------- --------------- --------------
Total net investment income $ 30,976 $ 9,197 $ 3,871
=============== =============== ==============
INVESTMENT GAINS AND LOSSES
Net unrealized gains (losses) on securities available-for-sale and carried
at fair value for the year ended December 31, were as follows:
2001 2000 1999
---------------- ----------------- ---------------
(IN THOUSANDS)
Debt securities $ 2,297 $ 2,652 $ (2,399)
DAC (1,443) (1,139) 983
Deferred income tax expense (benefit) 299 529 (496)
---------------- ----------------- ---------------
Net unrealized investment gains (losses)
on securities available-for-sale $ 555 $ 984 $ (920)
================ ================= ===============
The amortized cost of debt securities transferred from held-to-maturity to
available-for-sale in 2001 was $32.0 million, which resulted in an
unrealized gain of $0.4 million after-tax.
F-13
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net realized (losses) gains for the year ended December 31, were as
follows:
2001 2000 1999
---------------- ----------------- --------------
(IN THOUSANDS)
Debt securities $ 215 $ 67 $ 7
Cash, cash equivalents and short-term investments (3) - -
Other invested assets (1,408) 49 20
---------------- ----------------- --------------
Net realized investment (losses) gains
on securities available-for-sale $ (1,196) $ 116 $ 27
================ ================= ==============
The proceeds from sales of available-for-sale debt securities for the
years ended December 31, were as follows:
2001 2000 1999
--------------- ----------------- ---------------
(IN THOUSANDS)
Proceeds from disposals $ 34,165 $ 1,513 $ 5,974
Gross realized gains on sales $ 215 $ 21 $ 7
4. GOODWILL
PHL Variable was acquired by way of a stock purchase agreement on May 31,
1994 and was accounted for under the purchase method of accounting. The
assets and liabilities were recorded at fair value as of the date of
acquisition and the goodwill of $1.0 million was pushed down to PHL
Variable from PM Holdings.
Goodwill was as follows:
DECEMBER 31,
------------------------------------
2001 2000
---------------- ----------------
(IN THOUSANDS)
Goodwill $ 1,020 $ 1,020
Accumulated amortization (773) (671)
---------------- ----------------
Total goodwill, net $ 247 $ 349
================ ================
5. DERIVATIVE INSTRUMENTS
Derivative instruments as of December 31, are summarized below:
2001
----------------
(DOLLARS IN THOUSANDS)
ASSET HEDGES
Interest rate swap:
Notional amounts $ 50,000
Weighted average received rate 5.72%
Weighted average paid rate 1.86%
Fair value $ (514)
F-14
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. INCOME TAXES
A summary of income tax expense (benefit) applicable to income before
income taxes for the year ended December 31, was as follows:
2001 2000 1999
-------------- -------------- --------------
(IN THOUSANDS)
Income taxes
Current $ (22,194) $ (4,308) $ 347
Deferred 22,733 3,045 2,883
-------------- -------------- --------------
Total $ 539 $ (1,263) $ 3,230
============== ============== ==============
The income taxes attributable to the results of operations are different
than the amounts determined by multiplying income before taxes by the
statutory income tax rate. The sources of the difference and the income
tax effects of each for the year ended December 31, were as follows:
2001 2000 1999
----------------------- ------------------------ ----------------------
(DOLLARS IN THOUSANDS)
Income tax expense (benefit) at
statutory rate $ 1,326 35% $ (437) 35% $ 3,230 35%
Dividend received deduction and
tax-exempt interest (812) (21)% (853) 68% (1) -%
Other, net 25 1% 27 (2)% 1 -%
------------ --------- ------------ --------- ------------ --------
Income tax expense (benefit) $ 539 15% $ (1,263) 101% $ 3,230 35%
============ ========= ============ ========= ============ ========
The net deferred income tax liability represents the income tax effects of
temporary differences. The components as of December 31, were as follows:
2001 2000
--------------- ---------------
(IN THOUSANDS)
DAC $ 47,150 $ 25,084
Surrender charges (20,034) (14,715)
Unearned premium/deferred revenue (806) (296)
Investments (1,229) 93
Future policyholder benefits 684 2,033
Net operating loss carryforward - (8,373)
Other 607 (187)
--------------- ---------------
26,372 3,639
Net unrealized investment gains 1,054 145
--------------- ---------------
Deferred income tax liability, net $ 27,426 $ 3,784
=============== ===============
Gross deferred income tax assets totaled $22.1 million and $23.6 million
at December 31, 2001 and 2000, respectively. Gross deferred income tax
liabilities totaled $49.5 million and $27.4 million at December 31, 2001
and 2000, respectively. It is management's assessment, based on PHL
Variable's earnings and projected future taxable income, that it is more
likely than not that the deferred income tax assets at December 31, 2001
and 2000, will be realized.
PHL Variable's income tax return is not currently being examined; however,
income tax years 1998 through 2000 remain open for examination. Management
does not believe that there will be a material adverse effect on the
financial statements as a result of pending income tax examinations.
F-15
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. COMPREHENSIVE INCOME
The components of, and related income tax effects for, other comprehensive
income (loss) for the year ended December 31, were as follows:
2001 2000 1999
--------------- --------------- ---------------
(IN THOUSANDS)
Unrealized gains (losses) on securities
available-for-sale:
Before-tax amount $ 3,316 $ 1,540 $ (1,409)
Income tax expense (benefit) 1,161 538 (494)
--------------- --------------- ---------------
Total 2,155 1,002 (915)
--------------- --------------- ---------------
Reclassification adjustment for net gains
realized in net income:
Before-tax amount (757) (27) (7)
Income tax benefit (265) (9) (2)
--------------- --------------- ---------------
Total (492) (18) (5)
--------------- --------------- ---------------
Net unrealized gains (losses) on securities
available-for-sale:
Before-tax amount 2,559 1,513 (1,416)
Income tax expense (benefit) 896 529 (496)
--------------- --------------- ---------------
Total $ 1,663 $ 984 $ (920)
=============== =============== ===============
Unrealized gains on security transfer
from held-to-maturity to available-for-sale:
Before-tax amount $ 552 $ - $ -
Income tax expense 193 - -
--------------- --------------- ---------------
Total $ 359 $ - $ -
=============== =============== ===============
Unrealized losses on derivatives:
Before-tax amount $ (514) $ - $ -
Income tax benefit (180) - -
--------------- --------------- ---------------
Total $ (334) $ - $ -
=============== =============== ===============
The following table summarizes accumulated other comprehensive income
(loss) balances:
DECEMBER 31,
------------------------------------
2001 2000
---------------- ---------------
(IN THOUSANDS)
Accumulated other comprehensive income (loss)
on securities available-for-sale:
Balance, beginning of year $ 271 $ (713)
Change during period 1,688 984
---------------- ---------------
Balance, end of year $ 1,959 $ 271
================ ===============
F-16
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. REINSURANCE
PHL Variable cedes reinsurance as a means of diversifying underwriting
risk. To the extent that reinsuring companies may not be able to meet
their obligations under reinsurance agreements in effect, PHL Variable
remains liable. PHL Variable entered into a reinsurance treaty on January
1, 1996 to cover death benefits in excess of account balances on variable
contracts. The treaty stopped accepting new business on December 31, 1999.
Another reinsurance treaty became effective January 1, 1999 which covered
products introduced in 1999. Premiums paid by PHL Variable on the
reinsurance contracts were $1,555 thousand, $1,185 thousand and $1,114
thousand, less claims of $1,971 thousand, $188 thousand and $22 thousand
for the year ended December 31, 2001, 2000 and 1999, respectively.
In connection with PHL Variable's life insurance products, automatic
treaties have been established with a number of reinsurers and their
subsidiaries, covering either 80% or 90% of the net amount at risk,
depending on the individual treaty, on a first dollar basis. PHL Variable
had approximately $1.2 billion of net insurance in force, including $10.2
billion of direct in force less $9.0 billion of reinsurance ceded as of
December 31, 2001. PHL Variable had approximately $1.0 billion of net
insurance in force, including $9.7 billion of direct in force less $8.7
billion of reinsurance ceded as of December 31, 2000. Reinsurance
recoverables as of December 31, 2001 and 2000 were $1.8 million and $1.3
million, respectively. Approximately $4.3 million and $5.6 million of
claims were recovered in 2001 and 2000.
For PHL Variable's life insurance products, a stop loss treaty between
Phoenix and PHL Variable was introduced in 1998. There were no reinsurance
recoverables as of December 31, 2001 and 2000. There were no claims
recovered as of December 31, 2001 and 2000.
9. RELATED PARTY TRANSACTIONS
Phoenix provides services and facilities to PHL Variable and is reimbursed
through a cost allocation process. The expenses allocated to PHL Variable
were $47.0 million, $34.3 million and $22.0 million for the year ended
December 31, 2001, 2000 and 1999, respectively. Amounts payable to Phoenix
were $4.9 million and $15.8 million as of December 31, 2001 and 2000,
respectively.
Phoenix Investment Partners Ltd., an indirect wholly-owned subsidiary of
Phoenix, through its affiliated registered investment advisors, provides
investment services to PHL Variable for a fee. Investment advisory fees
incurred by PHL Variable were $2.3 million, $2.1 million and $2.2 million
for the year ended December 31, 2001, 2000 and 1999, respectively. Amounts
payable to the affiliated investment advisors were $39 thousand and $19
thousand, as of December 31, 2001 and 2000, respectively.
Phoenix Equity Planning Corporation ("PEPCO"), a wholly-owned subsidiary
of Phoenix Investment Partners, is the principal underwriter of PHL
Variable's annuity contracts. Contracts may be purchased through
registered representatives of a Phoenix affiliate, W.S. Griffith & Co.,
Inc., as well as other outside broker dealers who are licensed to sell PHL
Variable annuity contracts. PHL Variable incurred commissions for
contracts underwritten by PEPCO of $32.4 million, $20.0 million and $9.8
million for the year ended December 31, 2001, 2000 and 1999, respectively.
Amounts payable to PEPCO were $1.2 million and $2.4 million, as of
December 31, 2001 and 2000, respectively.
Phoenix pays commissions to producers who sell non-registered life and
annuity products offered by Phoenix Life and Annuity. Commissions paid by
Phoenix on behalf of Phoenix Life and Annuity were $9.2 million, $8.5
million and $6.0 million for the years ended December 31, 2001, 2000 and
1999, respectively. Amounts payable to Phoenix were $1.3 million and $0.3
million as of December 31, 2001 and 2000, respectively.
WS Griffith Associates, Inc., an indirect wholly-owned subsidiary of
Phoenix, sells and services various PHL Variable non-participating life
insurance products through its insurance agents. Concessions paid to PHL
Associates were $0.7 million, $2.6 million and $2.6 million for the year
ended December 31, 2001, 2000 and 1999, respectively. Amounts payable to
PHL Associates were $162 thousand and $41 thousand, as of December 31,
2001 and 2000, respectively.
F-17
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the year ended December 31:
2001 2000
--------------- ---------------
(IN THOUSANDS)
Balance at beginning of year $ 84,842 $ 62,136
Acquisition cost deferred 90,065 39,610
Amortized to expense during the year (8,477) (15,765)
Adjustment to net unrealized investment
losses included in other comprehensive income (1,443) (1,139)
--------------- ---------------
Balance at end of year $ 164,987 $ 84,842
=============== ===============
11. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, financial instruments
that are subject to fair value disclosure requirements (insurance
contracts are excluded) are carried in the financial statements at amounts
that approximate fair value. The fair values presented for certain
financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of
fair value are based on discounted cash flow analyses which utilize
current interest rates for similar financial instruments which have
comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value.
SHORT-TERM INVESTMENTS
The carrying value of short-term investments approximates fair value.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that reflect
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
DERIVATIVE INSTRUMENTS
PHL Variable's derivative instruments include interest rate swaps. Fair
values for these contracts are based on current settlement values. These
values are based on brokerage quotes that utilize pricing models or
formulas based upon current assumptions for the respective agreements.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and
it was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten
year Treasury rate, except for policy loans with a
F-18
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
variable policy loan rate. Variable policy loans have an interest rate
that is periodically reset based upon market rates and therefore, book
value is a reasonable approximation of fair value.
INVESTMENT CONTRACTS
The fair value of deferred accumulation annuities without life
contingencies with a guarantee of one year or less than one year is valued
at the amount of the policy reserve. In determining the fair value of the
contracts with interest guarantees greater than one year, a discount rate
equal to the appropriate Treasury rate plus 150 basis points was used to
determine the present value of the projected account value of the policy
at the end of the guarantee period.
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31
were as follows:
2001 2000
---------------------------------- ----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------------- ---------------- ---------------- ---------------
(IN THOUSANDS)
FINANCIAL ASSETS:
Cash and cash equivalents $ 171,444 $ 171,444 $ 80,779 $ 80,779
Short-term investments 3,114 3,114 - -
Debt securities 786,266 786,266 157,914 158,728
Derivative instruments (514) (514) - -
Policy loans 896 896 710 710
--------------- ---------------- ---------------- ---------------
Total financial assets $ 961,206 $ 961,206 $ 239,403 $ 240,217
=============== ================ ================ ===============
FINANCIAL LIABILITIES:
Investment contracts $ 865,970 $ 866,465 $ 195,393 $ 195,393
--------------- ---------------- ---------------- ---------------
Total financial liabilities $ 865,970 $ 866,465 $ 195,393 $ 195,393
=============== ================ ================ ===============
12. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries of Phoenix are required to file annual
statements with state regulatory authorities prepared on an accounting
basis prescribed or permitted by such authorities. There were no material
practices not prescribed by the State of Connecticut Insurance Department
as of December 31, 2001, 2000 and 1999. Statutory surplus differs from
equity reported in accordance with GAAP for life insurance companies
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, postretirement
benefit costs are based on different assumptions and reflect a different
method of adoption, life insurance reserves are based on different
assumptions and income taxes are recorded in accordance with the Statement
of Statutory Accounting Principles No. 10, "Income Taxes", which limits
taxes based on admissibility tests.
F-19
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory net income of PHL Variable as
reported to regulatory authorities to the net income as reported in these
financial statements for the year ended December 31:
2001 2000 1999
--------------- --------------- ---------------
(IN THOUSANDS)
Statutory net income $ (45,648) $ (40,129) $ (1,655)
DAC, net 81,589 23,845 24,466
Future policy benefits (20,013) 19,615 (13,826)
Deferred income taxes (22,136) (3,641) (2,883)
Net investment income 7,085 - -
Realized gains 2,149 - -
Other, net 224 325 (103)
--------------- --------------- ---------------
Net income, as reported $ 3,250 $ 15 $ 5,999
=============== =============== ===============
The following reconciles the statutory surplus and asset valuation reserve
("AVR") of PHL Variable as reported to regulatory authorities to equity as
reported in these financial statements as of December 31:
2001 2000
---------------- ---------------
(IN THOUSANDS)
Statutory surplus and AVR $ 102,016 $ 41,847
DAC, net 166,836 85,247
Future policy benefits (42,885) (29,336)
Investment valuation allowances 1,597 459
Deferred income taxes (28,756) (4,379)
Other, net 5,318 350
---------------- ---------------
Equity, as reported $ 204,126 $ 94,188
================ ===============
The Connecticut Insurance Holding Act limits the maximum amount of annual
dividends or other distributions available to stockholders of Connecticut
domiciled insurance companies without prior approval of the Insurance
Commissioner. Under current law, the maximum dividend distribution that
may be made by PHL Variable during 2001 without prior approval is subject
to restrictions relating to statutory surplus.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted the Codification of Statutory Accounting Principles guidance,
which replaces the current Accounting and Practices and Procedures manual
as the NAIC's primary guidance on statutory accounting as of January 1,
2001. The Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in
some areas, e.g., deferred income taxes are recorded.
The State of Connecticut Insurance Department has adopted the Codification
guidance, effective January 1, 2001. The effect of adoption increased PHL
Variable's statutory surplus by $587.8 thousand, primarily as a result of
recording deferred income taxes.
F-20
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES
In the normal course of its business operations, PHL Variable is involved
with litigation from time to time with claimants, beneficiaries and
others, and a number of litigation matters were pending as of December 31,
2001. It is the opinion of management, after consultation with counsel,
that the ultimate liability with respect to these claims, if any, will not
materially affect the financial position or results of operations of PHL
Variable.
F-21
PHL VARIABLE
INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2002
F-22
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
TABLE OF CONTENTS
PAGE
Unaudited Financial Statements: ----
Balance Sheet as of March 31, 2002 and December 31, 2001.................................................F-24
Statement of Income, Comprehensive Income and Stockholder's Equity for the three months ended
March 31, 2002 and 2001..................................................................................F-25
Statement of Cash Flows for the three months ended March 31, 2002 and 2001...............................F-26
Notes to Unaudited Financial Statements .................................................................F-27
F-23
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
BALANCE SHEET
(Amounts in thousands, except share data)
MARCH 31, 2002 AND DECEMBER 31, 2001
2002 2001
--------------- -----------------
ASSETS:
Available-for-sale debt securities, at fair value $ 1,139,278 $ 789,380
Policy loans, at unpaid principal 895 896
Other investments 3,591 2,397
--------------- -----------------
Total investments 1,143,764 792,673
Cash and cash equivalents 180,051 171,444
Accrued investment income 8,797 5,787
Deferred policy acquisition costs 187,370 164,987
Other assets 32,939 30,343
Separate account assets 1,591,230 1,539,476
--------------- -----------------
Total assets $ 3,144,151 $ 2,704,710
=============== =================
LIABILITIES:
Policy liabilities and accruals $ 1,232,874 $ 913,101
Deferred income taxes 29,312 27,426
Other general account liabilities 64,874 25,712
Separate account liabilities 1,587,988 1,534,345
--------------- -----------------
Total liabilities 2,915,048 2,500,584
--------------- -----------------
STOCKHOLDER'S EQUITY:
Common stock, $5,000 par value: 1,000 shares
authorized; 500 shares issued 2,500 2,500
Additional paid-in capital 209,864 184,864
Retained earnings 17,142 14,803
Accumulated other comprehensive (loss) income (403) 1,959
--------------- -----------------
Total stockholder's equity 229,103 204,126
--------------- -----------------
Total liabilities and stockholder's equity $ 3,144,151 $ 2,704,710
=============== =================
The accompanying notes are an integral part of these financial statements.
F-24
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENT OF INCOME, COMPREHENSIVE INCOME AND STOCKHOLDER'S EQUITY
(Amounts in thousands)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
------------- --------------
REVENUES:
Premiums $ - $ 2,423
Insurance and investment product fees 9,438 7,637
Net investment income 15,477 4,491
Net realized investment gains 1,004 45
------------- --------------
Total revenues 25,919 14,596
------------- --------------
BENEFITS AND EXPENSES:
Policy benefits 15,845 5,389
Deferred acquisition cost amortization 1,581 4,755
Other operating expenses 4,962 3,196
------------- --------------
Total benefits and expenses 22,388 13,340
------------- --------------
Income before income taxes 3,531 1,256
Applicable income tax expense 1,192 383
------------- --------------
NET INCOME $ 2,339 $ 873
============= ==============
COMPREHENSIVE INCOME:
NET INCOME $ 2,339 $ 873
Other comprehensive (loss) income (2,362) 568
------------- --------------
COMPREHENSIVE (LOSS) INCOME (23) 1,441
============= ==============
STOCKHOLDER'S EQUITY:
STOCKHOLDER'S EQUITY BEGINNING OF PERIOD 204,126 94,188
Capital contributions 25,000 20,000
Comprehensive (loss) income (23) 1,441
------------- --------------
STOCKHOLDER'S EQUITY END OF PERIOD $ 229,103 $ 115,629
============= ==============
The accompanying notes are an integral part of these financial statements.
F-25
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENT OF CASH FLOWS
(Amounts in thousands)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
--------------- -------------
OPERATING ACTIVITIES:
Net income $ 2,339 $ 873
Net realized investment gains (1,004) (45)
Deferred income taxes 3,155 142
Increase in accrued investment income (3,010) (1,303)
Increase in deferred acquisition costs (18,949) (16,506)
Change in other assets/liabilities 2,928 3,444
--------------- -------------
CASH FOR OPERATIONS (14,541) (13,395)
--------------- -------------
INVESTING ACTIVITIES:
Debt security sales 59,853 81,062
Debt security purchases (366,658) (185,715)
Change in other invested assets (1,194) -
Other, net (342) (44)
--------------- -------------
CASH FOR INVESTING ACTIVITIES (308,341) (104,697)
--------------- -------------
FINANCING ACTIVITIES:
Capital contributions from parent 25,000 20,000
Increase in policyholder deposit funds, net of interest credited 306,489 102,386
--------------- -------------
CASH FROM FINANCING ACTIVITIES 331,489 122,386
--------------- -------------
Cash and cash equivalent changes 8,607 4,294
Cash and cash equivalents, beginning of year 171,444 31,545
--------------- -------------
Cash and cash equivalents, end of period $ 180,051 $ 35,839
=============== =============
The accompanying notes are an integral part of these financial statements.
F-26
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
PHL Variable Insurance Company ("PHL Variable") offers variable, fixed
annuity and non-participating life insurance products. PHL Variable is a
wholly-owned subsidiary of PM Holdings, Inc. PM Holdings is a wholly-owned
subsidiary of Phoenix Life Insurance Company (formerly, Phoenix Home Life
Mutual Insurance Company).
Phoenix Life Insurance Company is a wholly-owned subsidiary of The Phoenix
Companies, Inc., a publicly traded company ("Phoenix"). On June 25, 2001,
Phoenix Home Life Mutual Insurance Company converted from a mutual life
insurance company to a stock life insurance company and changed its name to
Phoenix Life Insurance Company.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair statement have been
included. Operating results for the three months ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002. Certain reclassifications have been made to the
2001 amounts to conform with the 2002 presentation.
3. COMMITMENTS AND CONTINGENCIES
In the normal course of its business operations, PHL Variable is involved
with litigation from time to time with claimants, beneficiaries and others,
and a number of litigation matters were pending as of March 31, 2002. It is
the opinion of management, after consultation with counsel, that the
ultimate liability with respect to these claims, if any, will not
materially affect the financial position or results of operations of PHL
Variable.
4. SUBSEQUENT EVENTS
On June 21, 2002, PHL Variable entered into a binding agreement to acquire
the variable life and variable annuity business of Valley Forge Life
Insurance Company through a coinsurance arrangement. The business to be
acquired comprises a total account value of approximately $624 million as
of March 31, 2002. Phoenix agreed to pay a ceding commission in the amount
of $31 million as part of this transaction.
On June 27, 2002 PM Holdings made a capital contribution of $35 million to
support the growing needs of PHL Variable's operations.
F-27
APPENDIX A
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
THE RATES OF RETURN SHOWN ARE NOT AN ESTIMATE NOR A GUARANTEE OF FUTURE
PERFORMANCE. THE PERFORMANCE HISTORY SHOWN IS SOLELY FOR THE UNDERLYING
INVESTMENT PORTFOLIOS. THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT
THE BENEFITS under your policy because they do not account for any of the
charges and deductions that apply to your policy value. (see "Charges and
Deductions").
Yield of the Phoenix-Goodwin Money Market Series. We calculate the yield of the
Phoenix-Goodwin Money Market Series for a 7-day "base period" by determining the
"net change in value" of a hypothetical pre-existing account. We assume the
hypothetical account had an initial balance of one share of the series at the
beginning of the base period. We then determine what the value of the
hypothetical account would have been at the end of the 7-day base period. We
assume no policy charges were deducted from the hypothetical account. The end
value minus the initial value gives us the net change in value for the
hypothetical account. The net change in value can then be divided by the initial
value giving us the base period return (one week's return). To find the
equivalent annual return we multiply the base period return by 365/7. The
equivalent effective annual yield differs from the annual return because we
assume all returns are reinvested in the subaccount. We carry results to the
nearest hundredth of one percent.
Example Calculation:
The following example of a return/yield calculation for the
Phoenix-Goodwin Money Market Series is based on the 7-day period ending
December 31, 2001
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:...................... $1.000000
Value of the same account (excluding capital changes)
at the end of the 7-day period:.......................... 1.000337
Calculation:
Ending account value ..................................... 1.000337
Less beginning account value ............................. 1.000000
Net change in account value .............................. 0.000337
Base period return:
(adjusted change/beginning account value) ................ 0.000337
Current annual yield = return x (365/7) = .................. 1.76%
Effective annual yield = [(1 + return)(365/7)] - 1 = ....... 1.77%
The current yield and effective yield information will fluctuate. Yield and
return information may not provide a suitable basis for comparison with bank
deposits or other investments which are insured and/or pay a fixed yield for a
stated period of time, or other investment companies, due to charges which will
be deducted on the Account level.
We will usually advertise the average annual total return for a subaccount
calculated for one year, three years, five years, ten years and since the
inception date of the underlying portfolio. We assume the reinvestment of all
distributions at net asset value but do not account for the deduction of any of
the daily or monthly charges made under the policy.
A-1
Performance is the compounded return for the time period indicated, net of all
fund level fees. Returns for the periods greater than one year are annualized.
Performance does not include the effects of product charges, including any or
all of the following: issue, sales and tax charges; mortality and expense risk
fees; cost of insurance charges; administrative and transfer fees; and surrender
charges. IF THESE CHARGES WERE REFLECTED IN THESE RETURNS, PERFORMANCE WOULD BE
SIGNIFICANTLY LOWER THAN SHOWN. Please obtain a personalized illustration by
contacting your registered representative. The illustration will show all
applicable product charges deducted, including the cost of insurance.
Since subaccount performance fluctuates, the policy value, when redeemed, may be
worth more or less than the original cost. Withdrawals will affect the policy
value and death benefit.
You may obtain a copy of the most up-to-date performance numbers for the
previous month from your registered representative.
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
SERIES INCEPTION DATE 1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series 05/01/90 -24.04% -6.09% 3.49% 6.43% 6.35%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series 09/17/96 1.02% 8.63% -3.71% N/A -3.48%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-AIM Mid-Cap Equity Series 10/29/01 N/A N/A N/A N/A 6.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Alliance/Bernstein Growth + Value Series 10/29/01 N/A N/A N/A N/A 7.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Deutsche Dow 30 Series 12/15/99 -5.98% N/A N/A N/A -4.49%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Deutsche Nasdaq-100 Index(R) Series 08/15/00 -33.06% N/A N/A N/A -46.43%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities
Series 05/01/95 6.62% 13.48% 7.04% N/A 12.57%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series 12/31/82 -34.57% -11.31% 1.89% 8.05% 13.79%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Small & Mid-Cap Growth Series 08/15/00 -26.73% N/A N/A N/A -29.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series 10/08/82 3.82% 4.89% 4.99% 4.60% 6.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income Series 12/31/82 6.09% 6.01% 4.87% 7.83% 9.37%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series 03/02/98 -17.96% 10.48% N/A N/A 11.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-J.P. Morgan Research Enhanced Index Series 07/14/97 -11.90% -2.50% N/A N/A 5.89%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income Series 12/15/99 7.24% N/A N/A N/A 6.69%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Growth Series 12/15/99 -23.83% N/A N/A N/A -14.99%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-MFS Investors Growth Stock Series 10/29/01 N/A N/A N/A N/A 6.89%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-MFS Investors Trust Series 10/29/01 N/A N/A N/A N/A 4.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-MFS Value Series 10/29/01 N/A N/A N/A N/A 5.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth & Income Series 03/02/98 -8.17% 0.12% N/A N/A 5.07%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series 09/17/84 1.87% 4.47% 10.71% 10.01% 12.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Global Value Series 11/20/00 -6.84% N/A N/A N/A -2.51%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value Series 03/02/98 22.98% 8.85% N/A N/A 3.55%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value Series 11/20/00 15.76% N/A N/A N/A 20.65%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series 03/02/98 -25.28% 7.37% N/A N/A 11.29%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series 01/29/96 -27.36% -0.10% 11.07% N/A 11.09%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Van Kampen Focus Equity Series 12/15/99 -15.09% N/A N/A N/A -11.22%
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 05/05/93 -23.28% -0.39% 6.01% N/A 11.74%
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Premier Equity Fund 05/05/93 -12.56% -1.03% 9.69% N/A 13.40%
- ---------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio 01/25/95 -15.93% 4.01% 16.27% N/A 22.77%
- ---------------------------------------------------------------------------------------------------------------------------------
Federated Fund For U.S. Government Securities II 03/28/94 7.03% 5.70% 6.66% N/A 6.28%
- ---------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 03/01/94 1.38% -1.91% 1.98% N/A 4.97%
- ---------------------------------------------------------------------------------------------------------------------------------
VIP Contrafund(R) Portfolio 11/03/97 -12.37% 0.49% N/A N/A 6.80%
- ---------------------------------------------------------------------------------------------------------------------------------
VIP Growth Opportunities Portfolio 11/03/97 -14.44% -9.62% N/A N/A -1.04%
- ---------------------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 11/03/97 -17.72% 0.15% N/A N/A 8.54%
- ---------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund -- Class 2 11/08/96 7.04% 11.25% 10.05% N/A 10.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Foreign Securities Fund -- Class 2 05/11/92 -15.99% 0.36% 4.61% N/A 9.52%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Growth Securities Fund -- Class 2 03/15/94 -1.30% 6.57% 8.30% N/A 9.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Scudder VIT EAFE(R) Equity Index Fund 08/22/97 -24.69% -7.12% N/A N/A -2.14%
- ---------------------------------------------------------------------------------------------------------------------------------
Scudder VIT Equity 500 Index Fund 10/01/97 -13.00% -1.67% N/A N/A 5.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio 11/30/99 -48.83% N/A N/A N/A -29.36%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 02/01/99 -26.61% N/A N/A N/A 10.24%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap 05/01/95 -21.27% 8.76% 8.08% N/A 15.53%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty 02/01/99 9.09% N/A N/A N/A 17.60%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Smaller Companies 05/01/95 11.39% 8.56% 12.47% N/A 18.34%
- ---------------------------------------------------------------------------------------------------------------------------------
A-2
We may include information about series' or advisor's investment strategies and
management style in advertisements, sales literature and other communications.
An advisor may alter investment strategies and style in response to changing
market and economic conditions. A fund may advertise all or part of a series'
portfolio holdings, including holdings in specific industries. A fund may also
separately illustrate the income and capital gains portions of a series' total
return. A fund may also advertise performance by dividing returns into equity
and debt components. A series may compare its equity or bond returns to any of a
number of well-known benchmarks of market performance; including, but not
limited to:
The Dow Jones Industrial Average(SM) Salomon Brothers Corporate Index The Standard & Poor's 500 Index (S&P 500)
First Boston High Yield Index Salomon Brothers Government Bond
Index
Each subaccount may include its yield and total return in advertisements or
communications with current or prospective contract owners. Each subaccount may
also include in such advertisements, its ranking or comparison to similar mutual
funds by such organizations as:
Lipper Analytical Services Morningstar, Inc. Thomson Financial
A fund may also compare a series' performance to other investment or savings
vehicles (such as certificates of deposit) and may refer to results published in
such publications as:
Barrons Consumer Reports The New York Times
Business Week Investor's Business Daily Personal Investor
Changing Times Financial Planning Registered Representative
Forbes Financial Services Weekly U.S. News and World Report
Fortune Money The Wall Street Journal
The total return and yield may be used to compare the performance of the
subaccounts with certain commonly used standards for stock and bond market
performance. Such indexes include, but are not limited to:
The Dow Jones Industrial Average(SM) Salomon Brothers Corporate Index The S&P 500
First Boston High Yield Index Salomon Brothers Government Bond
Index
The Dow Jones Industrial Average(SM) (DJIA(SM)) is an unweighted index of 30
industrial "blue chip" U.S. stocks. It is the oldest continuing U.S. market
index. The 30 stocks now in the DJIA(SM) are both widely-held and a major
influence in their respective industries. The average is computed in such a way
as to preserve its historical continuity and account for such factors as stock
splits and periodic changes in the components of the index. The editors of The
Wall Street Journal select the component stocks of the DJIA(SM).
The S&P 500 is a market-value weighted index composed of 500 stocks chosen for
market size, liquidity, and industry group representation. It is one of the most
widely used indicators of U.S. Stock Market performance. The composition of the
S&P 500 changes from time to time. Standard & Poor's Index Committee makes all
decisions about the S&P 500.
Weighted and unweighted indexes: A market-value, or capitalization, weighted
index uses relative market value (share price multiplied by the number of shares
outstanding) to "weight" the influence of a stock's price on the index. Simply
put, larger companies' stock prices influence the index more than smaller
companies' stock prices. An unweighted index (such as the Dow Jones Industrial
Average(SM) uses stock price alone to determine the index value. A company's
relative size has no bearing on its impact on the index.
The funds' annual reports, available upon request and without charge, contain a
discussion of the performance of the funds and a comparison of that performance
to a securities market index. You may obtain an Annual Report by contacting VULA
at the address and telephone number on the first page of this prospectus.
A-3
APPENDIX B
GLOSSARY OF SPECIAL TERMS
- --------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
prospectus.
1933 ACT: The Securities Act of 1933, as amended.
1940 ACT: The Investment Company Act of 1940.
ACCOUNT: PHL Variable Universal Life Account, a separate account of the Company.
ATTAINED AGE: The age of the insured on the birthday nearest the most recent
policy anniversary.
BASE FACE AMOUNT: The initial amount of insurance coverage excluding any
coverage provided by rider.
BENEFICIARY: The person or persons specified by the policy owner as entitled to
receive the death benefits under a policy.
CASH SURRENDER VALUE: The policy value less any surrender charge that would
apply on the date of surrender and less any debt.
COMPANY (PHL VARIABLE, OUR, US, WE): PHL Variable Insurance Company.
DEBT: Outstanding loans against a policy, plus accrued interest.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT: An investment option under which premium payment
amounts are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, at the sole discretion of the Company.
IN FORCE: Conditions under which the coverage under a policy is in effect and
the insured's life remains insured.
INSURED: The person upon whose life the policy is issued.
ISSUE PREMIUM: The premium payment made in connection with issuing the policy.
MONTHLY CALCULATION DAY: The first monthly calculation day is the same day as
the policy date. Subsequent monthly calculation days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the monthly calculation day.
PAYMENT DATE: The valuation date on which we receive a premium payment or loan
repayment, unless it is received after the close of the New York Stock Exchange
("NYSE"), in which case it will be the next valuation date.
POLICY ANNIVERSARY: Each anniversary of the policy date.
POLICY DATE: The policy date as shown on the schedule page of the policy. It is
the date from which we measure policy years and policy anniversaries.
POLICY MONTH: The period from one monthly calculation day up to, but not
including, the next monthly calculation day.
POLICY OWNER (OWNER, YOU, YOUR): The person(s) who purchase(s) a policy.
POLICY VALUE: The sum of a policy's share in the values of each subaccount of
the Account plus the policy's share in the values of the Guaranteed Interest
Account.
POLICY YEAR: The first policy year is the 1-year period from the policy date up
to, but not including, the first policy anniversary. Each succeeding policy year
is the 1-year period from the policy anniversary up to, but not including, the
next policy anniversary.
PRO RATA: Amounts allocated to subaccounts on a pro rata basis are allocated by
increasing or decreasing a policy's share in the value of the affected
subaccounts and Guaranteed Interest Account so that such shares maintain the
same ratio to each other before and after the allocation.
SUBACCOUNTS: Accounts within the Account to which nonloaned assets under a
policy are allocated.
TARGET ANNUAL PREMIUM (TAP): We establish the TAP when we issue the policy. It
will be based on the age and risk classification for the life we insure.
TOTAL POLICY FACE AMOUNT: The total of the base face amount plus the face amount
provided under the Individual Term Rider.
B-1
UNIT: A standard of measurement used to set the value of a policy. The value of
a unit for each subaccount will reflect the investment performance of that
subaccount and will vary in dollar amount.
VALUATION DATE: For any subaccount, each date on which we calculate the net
asset value of a fund.
VALUATION PERIOD: For any subaccount, the period in days from the end of one
valuation date through the next.
VPMO: Variable Products Mail Operations division of PHL Variable that receives
and processes incoming mail for VULA.
VULA: Variable and Universal Life Administration
WRITTEN REQUEST (IN WRITING, IN GOOD ORDER): In a written form satisfactory to
us and delivered to VPMO.
B-2
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that Section.
RULE 484 UNDERTAKING
Section 33-779 of the Connecticut General Statutes states that: "a corporation
may provide indemnification of or advance expenses to a director, officer,
employee or agent only as permitted by sections 33-770 to 33-778, inclusive".
Article III, Section 14 of the By-laws of the Company provides that: "Each
Director, officer or employee of the Company, and his heirs, executors or
administrators, shall be indemnified or reimbursed by the Company for all
expenses necessarily incurred by him in connection with the defense or
reasonable settlement of any action, suit or proceeding in which he is made a
party by reason of his being or having been a Director, officer or employee of
the Company, or of any other company which he was serving as a Director or
officer at the request of the Company, except in relation to matters as to which
such Director, officer or employee is finally adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of his
duties as such Director, officer or employee. The foregoing right of
indemnification or reimbursement shall not be exclusive of any other rights to
which he may be entitled under any statute, by-law, agreement, vote of
shareholders or otherwise."
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(e) UNDER THE INVESTMENT COMPANY
ACT OF 1940.
Pursuant to Section 26(e) of the Investment Company Act of 1940, as amended, PHL
Variable Insurance Company represents that the fees and charges deducted under
the Policies, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks to be assumed
thereunder by PHL Variable Insurance Company.
II-1
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Registration Statement is comprised of the following papers and
documents:
The facing sheet.
The prospectus describing PHL Variable Insurance Company Policy Form V613
("Phoenix Edge - VUL").
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e) under the Investment Company Act of
1940.
The signature page.
Written consents of the following:
(a) Richard J. Wirth, Esq.
(b) PricewaterhouseCoopers LLP.
(c) Stuart Kwassman, FSA, MAAA, CLU
(d) Brian A. Giantonio, Esq., CPA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to the
instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Depositor establishing the
Account is incorporated by reference to Edgar filing on Form S-6
(File No. 333-65823) on October 16, 1998. [Accession Number
0000949377-98-000129]
(2) Not Applicable.
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement between
Depositor and Phoenix Equity Planning Corporation, dated
December 31, 1996 is incorporated by reference to Edgar
filing on Form N-4 (File No. 33-37376, Post-Effective
Amendment No. 3) on April 30, 1997. [Accession Number
0000949377-97-000054]
(b) Form of Broker Dealer Supervisory and Service Agreement
between Phoenix Equity Planning Corporation and Independent
Brokers with respect to the sale of Policies is incorporated
by reference to Edgar filing on Form S-6 (File No. 333-12989
Pre-effective Amendment No. 2) for the Phoenix Life and
Annuity Variable Universal Life Account, on November 4, 1997.
[Accession Number 0000949377-97-000129]
(c) Not Applicable.
(4) Not Applicable.
(5) Specimen Policy.
Flexible Premium Variable Universal Life Insurance Policy Form
Number V613 of Depositor is incorporated by reference to
Registrant's Edgar filing on Form S-6 (File No. 333-81458) on June
19, 2002. [Accession Number 0000949377-02-000359]
(6) (a) Amended and Restated Certificate of Incorporation of PHL
Variable Insurance Company as filed with the Connecticut
Secretary of State effective May 31, 1994 is incorporated by
reference to Registrant's Edgar filing on Form S-6 (File No.
333-81458) on January 28, 2002. [Accession Number
0000949377-02-000050]
(b) By-Laws of PHL Variable Insurance Company is incorporated by
reference to Registrant's Edgar filing on Form S-6 (File No.
333-81458) on January 28, 2002. [Accession Number
0000949377-02-000050]
(7) Not Applicable.
(8) (a) Participation Agreement(s) between PHL Variable Insurance
Company and Wanger Advisors Trust is incorporated by
reference to Edgar filing on Form S-6 (File No. 333-65823) on
October 16, 1998. [Accession Number 0000949377-98-000129]
II-2
(b) Participation Agreement between PHL Variable Insurance
Company and Franklin Templeton Distributors, Inc. is
incorporated by reference to Edgar filing on Form S-6
(File No. 333-65823) on October 16, 1998. [Accession Number
0000949377-78-000129]
(c) Participation agreement between PHL Variable Insurance
Company, Deutsche Asset Management VIT Funds and Deutsche
Asset Management, Inc. is incorporated by reference to
Registrant's Edgar filing on Form S-6 (File No. 333-65823)
filed on April 30, 2002. [Accession Number
0000949377-02-000259]
(d) Participation agreement between PHL Variable Insurance
Company, Insurance Series, and Federated Securities Corp. is
incorporated by reference to Registrant's Edgar filing on
Form S-6 (File No. 333-65823) filed on April 30, 2002.
[Accession Number 0000949377-02-000259]
(e) Participation agreement between PHL Variable Insurance
Company, AIM Variable Insurance Funds, Phoenix Equity
Planning Corporation and AIM Distributors, Inc. is
incorporated by reference to Registrant's Edgar filing on
Form S-6 (File No. 333-65823) filed on April 30, 2002.
[Accession Number 0000949377-02-000259]
(f) Participation agreement between PHL Variable Insurance
Company, The Alger American Fund and Fred Alger & Company,
Incorporated is incorporated by reference to Registrant's
Edgar filing on Form S-6 (File No. 333-65823) filed on April
30, 2002. [Accession Number 0000949377-02-000259]
(g) Participation agreement between PHL Variable Insurance
Company, Variable Insurance Products Funds and Fidelity
Distributors Corporation is incorporated by reference to
Registrant's Edgar filing on Form S-6 (File No. 333-65823)
filed on April 30, 2002. [Accession Number
0000949377-02-000259]
(h) Participation agreement between PHL Variable Insurance
Company, Morgan Stanley Dean Witter Universal Funds, Inc.,
Miller Anderson & Sherrerd, LLP and Morgan Stanley Dean
Witter Investment Management, Inc. is incorporated by
reference to Registrant's Edgar filing on Form S-6 (File No.
333-65823) filed on April 30, 2002. [Accession Number
0000949377-02-000259]
(9) Not Applicable.
(10) Form of application for Phoenix Edge - VUL Form Number V613 of the
Depositor is incorporated by reference to Registrant's Edgar
filing on Form S-6 (File No. 333-81458) on June 19, 2002.
[Accession Number 0000949377-02-000359]
(11) Memorandum describing transfer and redemption procedures and
method of computing adjustments in payments and cash values upon
conversion to fixed benefit policies is incorporated by reference
to Edgar filing on Form S-6 (File No. 333-65823) on October 16,
1998. [Accession Number 0000949377-98-000129]
2. Opinion of Counsel of Depositor regarding the legality of the securities
being registered, see Exhibits 7 & 9.
3. Not Applicable. No financial statement will be omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.
4. Not Applicable.
5. Not Applicable.
6. Consent of PricewaterhouseCoopers LLP.
7. Opinion and Consent of Richard J. Wirth, Esq.
8. Opinion and Consent of Stuart Kwassman, FSA, MAAA, CLU
9. Opinion and Consent of Brian A. Giantonio, Esq., CPA
10. Illustrations of Death Benefits, Policy Values ("Account Values") and Cash
Surrender Values is incorporated by reference to Registrant's Edgar filing
on Form S-6 (File No. 333-81458) on June 19, 2002. [Accession Number
0000949377-02-000359]
11. Power of Attorney for Messrs. Fiondella, Gilotti, Primmer, Tan and for Ms.
Young is incorporated by reference to Registrant's Edgar filing on Form S-6
(File No. 333-81458) on June 19, 2002. [Accession Number
0000949377-02-000359]
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
PHLVIC Variable Universal Life Account has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Hartford, State of Connecticut on the 22nd day of
July, 2002.
PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT
--------------------------------------
(Registrant)
By: PHL VARIABLE INSURANCE COMPANY
------------------------------
(Depositor)
By:
----------------------------------------
*Simon Y. Tan, President
ATTEST: /s/ Emily J. Poriss
------------------------------------------
Emily J. Poriss, Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 22nd day of July, 2002.
SIGNATURE TITLE
--------- -----
Director
- ----------------------------------------
*Robert W. Fiondella
Director, Senior Vice President
- ----------------------------------------
*Michael J. Gilotti
Director, Senior Vice President
- ----------------------------------------
*Robert E. Primmer
Director and President
- ----------------------------------------
*Simon Y. Tan
Director
- ----------------------------------------
*Dona D. Young
By: /s/ Richard J. Wirth
----------------------------------------------
* Richard J. Wirth as Attorney-in-Fact pursuant to Powers of Attorney filed
as Exhibit 11 to this Registration Statement.
S-1