485BPOS 1 d485bpos.txt THE PHOENIX EDGE - SVUL As filed with the Securities and Exchange Commission on May 1, 2008 File No. 333-76778 811-09065 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] Pre-Effective Amendment No. Post-Effective Amendment No. 12 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 38 [X] (Check appropriate box or boxes.) ---------- 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) ---------- John H. Beers, Esq. PHL Variable Insurance Company One American Row Hartford, CT 06102-5056 (Name and Address of Agent for Service) ---------- Approximate Date of Proposed Public Offering: as soon as practicable after the effective date of the Registration Statement. It is proposed that this filing will become effective (check appropriate box) [_] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on May 1, 2008 pursuant to paragraph (b) of Rule 485 [_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [_] on pursuant to paragraph (a)(1) of Rule 485 ----------- If appropriate, check the following box: [_] this Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment. ---------- ================================================================================ PART A The Phoenix Edge(R) - SVUL PHLVIC Variable Universal Life Account Issued By: PHL Variable Insurance Company (a wholly owned subsidiary of Phoenix Life Insurance Company) PROSPECTUS May 1, 2008 The Phoenix Edge(R) - SVUL is a survivorship variable universal life insurance policy that can provide lifetime insurance protection on the lives of two people. We will pay the death benefit upon the death of the second person. You may allocate policy value to the Guaranteed Interest Account and/or one or more of the investment options of the PHLVIC Variable Universal Life Account. The investment options purchase shares of the following funds: AIM Variable Insurance Funds - Series . Phoenix Money Market Series I Shares . Phoenix Multi-Sector Fixed Income . AIM V.I. Capital Appreciation Fund Series . AIM V.I. Core Equity Fund /1/ . Phoenix Multi-Sector Short Term . AIM V.I. Mid Cap Core Equity Fund Bond Series /1/ . Phoenix Strategic Allocation Series The Alger American Fund - Class O . Phoenix-Aberdeen International Shares Series . Alger American Capital . Phoenix-Alger Small-Cap Growth Appreciation Portfolio /1/ Series DWS Scudder Investments VIT Funds - . Phoenix-Duff & Phelps Real Estate Class A Securities Series . DWS Equity 500 Index VIP . Phoenix Dynamic Asset Allocation . DWS Small Cap Index VIP Series: Aggressive Growth /2/ Federated Insurance Series . Phoenix Dynamic Asset Allocation . Federated Fund for U.S. Government Series: Growth /2/ Securities II . Phoenix Dynamic Asset Allocation . Federated High Income Bond Fund II Series: Moderate /2/ - Primary Shares . Phoenix Dynamic Asset Allocation Fidelity(R) Variable Insurance Series: Moderate Growth /2/ Products - Service Class . Phoenix-Sanford Bernstein Mid-Cap . Fidelity VIP Contrafund(R) Value Series Portfolio . Phoenix-Sanford Bernstein . Fidelity VIP Growth Opportunities Small-Cap Value Series Portfolio . Phoenix-Van Kampen Comstock Series . Fidelity VIP Growth Portfolio . Phoenix-Van Kampen Equity 500 . Fidelity VIP Investment Grade Bond Index Series Portfolio PIMCO Variable Insurance Trust - Franklin Templeton Variable Insurance Advisor Class Products Trust - Class 2 . PIMCO VIT CommodityRealReturn/TM/ . Franklin Income Securities Fund Strategy Portfolio . Mutual Shares Securities Fund . PIMCO VIT Real Return Portfolio . Templeton Developing Markets . PIMCO VIT Total Return Portfolio Securities Fund The Rydex Variable Trust . Templeton Foreign Securities Fund . Rydex Variable Trust Inverse . Templeton Growth Securities Fund Government Long Bond Lazard Retirement Series - Service Strategy Fund /1/ Shares . Rydex Variable Trust Nova Fund /1/ . Lazard Retirement Small Cap . Rydex Variable Trust Sector Portfolio /1/ Rotation Fund /1/ Lord Abbett Series Fund, Inc. - Class Sentinel Variable Products Trust VC . Sentinel Variable Products . Lord Abbett Bond-Debenture Balanced Fund Portfolio . Sentinel Variable Products Bond . Lord Abbett Growth and Income Fund Portfolio . Sentinel Variable Products Common . Lord Abbett Mid-Cap Value Portfolio Stock Fund Neuberger Berman Advisers Management . Sentinel Variable Products Mid Cap Trust - Class S Growth Fund . Neuberger Berman AMT Small Cap . Sentinel Variable Products Small Growth Portfolio Company Fund . Neuberger Berman AMT Guardian Summit Mutual Funds, Inc. - Summit Portfolio Pinnacle Series Oppenheimer Variable Account Funds - . Summit S&P MidCap 400 Index Service Shares Portfolio . Oppenheimer Capital Appreciation The Universal Institutional Funds, Fund/VA Inc. - Class II Shares . Oppenheimer Global Securities . Van Kampen UIF Equity and Income Fund/VA Portfolio . Oppenheimer Main Street Small Cap Wanger Advisors Trust Fund/VA . Wanger International Select The Phoenix Edge Series Fund . Wanger International Small Cap /3/ . Phoenix Capital Growth Series . Wanger Select . Phoenix Growth and Income Series . Wanger U.S. Smaller Companies /4/ . Phoenix Mid-Cap Growth Series /1/Closed to new investment on May 1, 2006. /2/Closed to new investment on March 24, 2008. /3/Effective June 1, 2008, to be known as Wanger International. / / /4/Effective June 1, 2008, to be known as Wanger USA. See Appendix A for additional information. The policy is neither a deposit nor an obligation of, underwritten or guaranteed by, any financial institution or credit union. It is not federally insured nor 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 or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Read and keep this prospectus for future reference. If you have any questions, please contact us at: [GRAPHIC] Phoenix Variable Products Mail Operations ("VPMO") PO Box 8027, Boston, MA 02266-8027
Variable and Universal [GRAPHIC] Life Administration Phoenix Variable Products Mail Operations ("VPMO") ("VULA") PO Box 8027, (800) 541-0171 Boston, MA 02266-8027
1 TABLE OF CONTENTS
Heading Page -------------------------------------------------------- Benefit/Risk Summary............................... 3 Policy Benefits................................... 3 Policy Risks...................................... 4 Fee Tables......................................... 5 Policy Option A - Transaction Fees................ 5 Policy Option B - Transaction Fees................ 5 Policy Option C - Transaction Fees................ 6 Policy Option A - Periodic Charges................ 6 Policy Option B - Periodic Charges................ 8 Policy Option C - Periodic Charges................ 10 Minimum and Maximum Fund Operating Expenses....... 12 PHL Variable Insurance Company..................... 13 The PHLVIC Variable Universal Life Account (the "Separate Account").............................. 13 Valuation Date.................................... 13 Performance History............................... 13 Voting Rights...................................... 13 The Variable Investment Options.................... 14 Administrative, Marketing and Support Service Fees 14 The Guaranteed Interest Account.................... 14 Charges and Deductions............................. 15 General........................................... 15 Charges Deducted from Premium Payments............ 15 Periodic Charges.................................. 15 Loan Interest Charged............................. 16 Conditional Charges............................... 16 Other Tax Charges................................. 17 Fund Charges...................................... 17 The Policy......................................... 17 Contract Rights................................... 17 Contract Limitations.............................. 17 Purchasing a Policy............................... 17 General............................................ 19 Postponement of Payments.......................... 19 Optional Insurance Benefits....................... 19 Death Benefit..................................... 21
Heading Page Payment of Proceeds................................ 21 Surrender and Death Benefit Proceeds.............. 21 Payment Amount.................................... 21 Payment Options................................... 21 Surrenders........................................ 22 Transfer of Policy Value........................... 22 Internet, Interactive Voice Response and Telephone Transfers....................................... 22 Transfer Restrictions............................. 23 Market Timing and Other Disruptive Trading......... 23 Systematic Transfer Programs....................... 24 Dollar Cost Averaging Program..................... 24 Asset Rebalancing Program......................... 24 Additional Programs................................ 25 Asset Allocation and Strategic Programs........... 25 Selecting a Program and Option.................... 25 Policy Loans....................................... 26 Lapse and Reinstatement............................ 27 Federal Income Tax Considerations.................. 27 Introduction...................................... 27 Income Tax Status................................. 27 Policy Benefits................................... 27 Business and Corporate-Owned Policies............. 28 Modified Endowment Contracts...................... 28 Limitations on Unreasonable Mortality and Expense Charges......................................... 29 Qualified Plans................................... 29 Diversification Standards......................... 29 Owner Control..................................... 30 Change of Ownership or Insured or Assignment...... 30 Other Taxes....................................... 30 Withholding....................................... 30 The Phoenix Companies, Inc. - Legal Proceedings about Company Subsidiaries..... 30 Financial Statements............................... 31 Distribution....................................... 31 APPENDIX A - Investment Options.................... A-1 APPENDIX B - Glossary of Special Terms............. B-1
2 Benefit/Risk Summary -------------------------------------------------------------------------------- Most of the terms used throughout this prospectus are described within the text where they first appear. Certain terms, marked by italics, have been defined and can be found in "Appendix B-Glossary of Special Terms" located at the end of the prospectus. This prospectus contains information about the material rights and features of the variable life policy that you should understand before investing. This summary describes the general provisions of the policy. Policy Benefits Death Benefits The Phoenix Edge(R) - SVUL is a flexible premium variable universal life insurance policy issued on two lives. The policy is first and foremost, a life insurance policy. While the policy remains in force we will pay a death benefit to your named beneficiary when the second person insured under the policy dies. You will choose a death benefit when you apply for a policy: . Death Benefit Option 1 will equal the greater of the policy's face amount, or the minimum death benefit . Death Benefit Option 2 will equal the greater of the face amount plus the policy value, or the minimum death benefit You may change your Death Benefit Option at any time. Death Benefit Option 1 applies if you do not choose an option. The minimum death benefit is equal to the policy value increased by a percentage taken from a table in the policy based on the policy year and the ages of insured people. Also available, is the Guaranteed Death Benefit Rider, an additional insurance option that you may purchase by paying specified premiums. Loans and Partial Surrenders Generally, you may take loans against 90% of your policy's cash surrender value. You may partially surrender any part of the policy anytime. A partial surrender fee will apply and we may also impose a separate surrender charge. You may fully surrender this policy anytime for its cash surrender value. A surrender charge may be imposed. Partial surrenders and loans negatively affect the policy value and can increase the risk that the policy will lapse. Partial surrenders reduce the face amount of the policy. Additionally, each of these transactions has costs associated with them. Investment Choices You may select a wide variety of investment options and a Guaranteed Interest Account. Each investment option invests directly in a professionally managed fund. You may transfer policy value among any of the investment options and the Guaranteed Interest Account while continuing to defer current income taxes. Asset Allocation and Strategic Programs You may also elect an asset allocation or strategic program through which to allocate your premiums and policy value. Participation in a program is optional. Although we may offer other programs in the future, whether those programs will be made available to both current and prospective policy owners will be determined at the sole discretion of the Company. For more information on the programs, refer to the section on "Asset Allocation and Strategic Programs," Temporary Insurance Coverage We will issue you a Temporary Insurance Receipt when you submit a complete signed application and issue premium. This will provide you with immediate insurance protection under the terms set forth in the policy and in the Receipt. Flexible Premiums The only premiums you must pay are the issue premium and any payments that may be required to prevent policy lapse. Optional Insurance Benefits The following benefits may be available to you by rider: . Estate Term Rider . Guaranteed Death Benefit . LifePlan Option . Universal Life Conversion Option . Conditional Exchange Option . Policy Split Option . Four-Year Survivorship Term . Credit of Monthly Specified Amount upon Death of Covered Insured . Disability Benefit . Age 100+ Rider Availability of these riders depends upon state approval and may involve extra cost. Your Right to Cancel the Policy 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 period. 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: . Policy Option A has the highest initial surrender and premium expense charges, but lower account value requirements for a reduced mortality and expense risk charge. . Policy Option B reduces initial surrender charges and premium expense charges, but increases the account value requirements for reduced mortality and expense risk charges. 3 . Policy Option C further reduces initial surrender charges and premium expense charges over Option B, but also further increases the account value requirements for reduced mortality and expense risk charges. You can use the following charts to compare the effect your choice has on fees and charges. For policies issued on and after September 3, 2003, only Policy Option A is available to policies issued as part of a qualified plan. Policy Risks Suitability Risk Variable life insurance is designed for long term financial planning, and the policy is not suitable as a short-term investment. Surrender charges apply during the first 15 years under Policy Option A, during the first 10 years under Policy Option B, and during the first five years under Policy Option C; therefore, it may not be appropriate for you to purchase a policy if you foresee the need to withdraw all or part of your policy value during the first few policy years. Replacements Replacing any existing policy with this policy may not be to your advantage. You should talk with your registered representative before you replace your variable life insurance policy. You should carefully compare the risks, charges, and benefits of your existing policy to the replacement policy to determine if replacing your existing contract benefits you. Additionally, replacing your policy could result in adverse tax consequences so you should also consult with your tax professional. You should know that once you have replaced your variable life insurance policy, you generally cannot reinstate it unless the insurer is required to reinstate the previous policy under state law. This is true even if you choose not to accept your new variable life insurance policy during your "free look" period. Conflicts of Interest Broker-dealers and registered representatives often sell products issued by several different and unaffiliated insurance companies and the amount of compensation payable may vary significantly. Additionally, compensation paid to a broker-dealer or registered representative will also vary between products issued by the same insurance company, including additional compensation payable as part of certain service arrangements. A broker-dealer and its registered representatives may have an incentive to promote or sell one product over another depending on these differences in the compensation, potentially resulting in the sale of a product that may not be the best product to suit your needs. You should talk to your registered representative if you have questions about potential conflicts of interest that may be created by varying compensation plans. You can find more information about the types of compensation arrangements we offer in the "Distribution" section of this prospectus. Tax Effects Generally, under current federal income tax law, death benefits are not subject to income taxes. Earnings on the premiums invested in the Separate Account or the Guaranteed Interest Account are not subject to income taxes until there is a distribution from the policy. Taking a loan or a full or partial surrender from the policy could result in recognition of income for tax purposes. Risk of Lapse Your policy will remain in force as long as the cash surrender value is enough to pay the monthly charges incurred under the policy. If the cash surrender value is no longer enough to pay the monthly charges, the policy will lapse, or end. We will alert you to an impending lapse situation and give you an opportunity to keep the policy in force by paying a specified amount. Withdrawals, loans and associated loan interest can negatively affect policy value, and increase the risk of policy lapse. Investment Risk A comprehensive discussion of the risks of each fund purchased by an investment option of the Separate Account may be found in the funds' prospectuses. Each fund is subject to market fluctuations and the risks inherent with ownership of securities and the policy owner assumes the risk of gain or loss according to the performance of the fund. There is no assurance that any fund will achieve its stated investment objective. Transfer Risk Transfers or deposits to the Guaranteed Interest Account are generally limited to no more than $250,000 during any one week period. Transfers out of the Guaranteed Interest Account are limited to one transfer per year. The amount you may transfer out of the Guaranteed Interest Account is limited based on a schedule described later in this prospectus. We reserve the right to reject or restrict transfers if an underlying mutual fund or we determine the transfers reflect a disruptive trading. Minimum balance and minimum transfer limits apply. Face Amount Increase Risk Face amount increases will increase the potential surrender charges under the policy. 4 The following tables describe the fees, and expenses that you will pay when buying, owning and surrendering the policy. There are two sets of tables describing the charges as they apply to each policy option. The first set of tables describe the fees and expenses that you will pay at the time that you buy the policy surrender the policy or transfer cash value between investment options. Fee Tables -------------------------------------------------------------------------------- Policy Option A - Transaction Fees
Charge When Deducted ------------------------------------------------------------------ Premium Expense Charge/1/ Upon premium payment. ------------------------------------------------------------------ Surrender Charge/2, 3/ Upon full surrender Minimum and Maximum Charge does not apply to a policy Charge: lapse. Example for a male age 45 and female 42 both in the nonsmoker premium class: ------------------------------------------------------------------ Partial Surrender Charge Upon partial surrender or a reduction In the policy face amount. ------------------------------------------------------------------ Partial Surrender Fee Upon partial surrender. ------------------------------------------------------------------ Transfer Charge Upon transfer. ------------------------------------------------------------------
Charge Amount Deducted ------------------------------------------------------------------------------------------------ Premium Expense Charge/1/ We charge up to 50% of the first year target annual premium payment. ------------------------------------------------------------------------------------------------ Surrender Charge/2, 3/ Minimum and Maximum Charge: $3.76 - 90 per thousand of total face amount Example for a male age 45 and female 42 both in the nonsmoker premium class: $14.42 per thousand of total face amount ------------------------------------------------------------------------------------------------ Partial Surrender Charge A pro rata portion of the applicable surrender charge that would apply to a full surrender ------------------------------------------------------------------------------------------------ Partial Surrender Fee $25 ------------------------------------------------------------------------------------------------ Transfer Charge At present, we do not charge for transfers between investment options; however, we reserve the right to charge up to $20 per transfer after the first 12 transfers in any given policy year. ------------------------------------------------------------------------------------------------
/1/ The maximum premium expense charge applies only during the first policy year and only on premium amounts up to the Target Annual Premium ("TAP"). We charge a premium expense charge of 6% of premiums in excess of TAP during the first policy year, and on all other premiums. We will determine the TAP before we issue the policy, and it will be based on the policy face amount, the policy option you select, and the ages of the people insured by the policy. We provide a table of the premium expense charges for each policy option in the "Charges and Deductions" section. /2/ The maximum surrender charge applies during the 15 years after we issue the policy. The surrender charges decrease each year, eventually becoming 0% in the 16th policy year. We provide a month-by-month table of maximum surrender charges in the "Charges and Deductions" section. /3/ We charge up to two times the Target Annual Premium, or "TAP." The TAP is established at issue by an arithmetic formula based on personal information (age, gender, risk class) and the face amount of insurance coverage. A complete display of the surrender charges is provided in the contract. Policy Option B - Transaction Fees
Charge When Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------------------------- Premium Expense Charge/1/ Upon premium payment. We charge up to 25% of the first year target annual premium payment. ------------------------------------------------------------------------------------------------------------------------------- Surrender Charge/2, 3/ Upon full surrender. Minimum and Maximum Charge does not apply to a Charge: policy lapse. $1.88 - 45 per thousand of total face amount Example for a male age 45 and female 42 both in the nonsmoker premium class: $7.21 per thousand of total face amount ------------------------------------------------------------------------------------------------------------------------------- Partial Surrender Charge Upon partial surrender or a A pro rata portion of the applicable surrender charge that would apply reduction In the policy face to a full surrender. amount. ------------------------------------------------------------------------------------------------------------------------------- Partial Surrender Fee Upon partial surrender. $25 ------------------------------------------------------------------------------------------------------------------------------- Transfer Charge Upon transfer. At present, we do not charge for transfers between investment options; however, we reserve the right to charge up to $20 per transfer after the first 12 transfers in any given policy year. -------------------------------------------------------------------------------------------------------------------------------
/1/ The maximum premium expense charge applies only during the first policy year and only on premium amounts up to the Target Annual Premium ("TAP"). We charge a premium expense charge of 6% of premiums in excess of TAP during the first policy year. During the second through the seventh policy years we deduct a reduced premium expense charge of 11% of all premiums up to the TAP, and 6% on all premiums in excess of TAP. Beginning in the eighth policy year we charge 6% of all premiums. We will determine the TAP before we issue the policy, and it will be based on the policy face amount, the policy option you select, and the ages of the people insured by the policy. We provide a table of the premium expense charges for each policy option in the "Charges and Deductions" section. 5 /2/ The maximum surrender charge applies during the ten years after we issue the policy. The surrender charge decreases each year, eventually becoming 0% in the 11th policy year. We provide a month-by-month table of maximum surrender charges in the "Charges and Deductions" section. /3/ We charge up to the Target Annual Premium, or "TAP." The TAP is established at issue by an arithmetic formula based on personal information (age, gender, risk class) and the face amount of insurance coverage. A complete display of the surrender charges is provided in the contract. Policy Option C - Transaction Fees
Charge When Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------------------------- Premium Expense Charge/1/ Upon premium payment. We charge up to 20% of the premium payment. ------------------------------------------------------------------------------------------------------------------------------- Surrender Charge/2, 3/ Upon full surrender Minimum and Maximum Charge does not apply to a Charge policy lapse. $.66 - 15.75 per thousand of total face amount Example for a male age 45 and female 42 both in the nonsmoker premium class: $2.53 per thousand of total face amount ------------------------------------------------------------------------------------------------------------------------------- Partial Surrender Charge Upon partial surrender or a A pro rata portion of the applicable surrender charge that would apply reduction In the policy face to a full surrender. amount. ------------------------------------------------------------------------------------------------------------------------------- Partial Surrender Fee Upon partial surrender. $25 ------------------------------------------------------------------------------------------------------------------------------- Transfer Charge Upon transfer. At present, we do not charge for transfers between investment options; however, we reserve the right to charge up to $20 per transfer after the first 12 transfers in any given policy year. -------------------------------------------------------------------------------------------------------------------------------
/1/ The maximum premium expense charge applies only during the first policy year and only on premium amounts up to the Target Annual Premium ("TAP"). We charge a premium expense charge of 5% of premiums in excess of TAP during the first policy year, and on all other premiums. We will determine the TAP before we issue the policy, and it will be based on the policy face amount, the policy option you select, and the ages of the people insured by the policy. We provide a table of the premium expense charges for each policy option in the "Charges and Deductions" section. /2/ The maximum surrender charge applies during the five years after we issue the policy. The surrender charge decreases each year, eventually becoming 0% in the 6th policy year. We provide a month-by-month table of maximum surrender charges in the "Charges and Deductions" section. /3/ We charge up to 35% of the Target Annual Premium, or "TAP." The TAP is established at issue by an arithmetic formula based on personal information (age, gender, risk class) and the face amount of insurance coverage. A complete display of the surrender charges is provided in the contract. The second set of tables describe the fees and expenses that you will pay periodically during the time that you own the policy, not including fund fees and expenses. Policy Option A - Periodic Charges Other than Fund Operating Expenses
Charge When Deducted ---------------------------------------------------------- Cost of Insurance/1/ On policy date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges Example for a male age 52 and female age 50 both in the nonsmoker preferred class ---------------------------------------------------------- Administrative Charge/2/ On each monthly processing day. ---------------------------------------------------------- Mortality and Expense Risk On policy date and monthly Charge/3/ on policy processing day. ---------------------------------------------------------- Loan Interest Rate Charged/4/ Interest accrues daily is due on each policy anniversary. If not paid on that date, the accrued interest will be treated as another loan against the policy. ----------------------------------------------------------
Charge Amount Deducted ------------------------------------------------------------------------------------------------------ Cost of Insurance/1/ Minimum and Maximum $0.0002 - $83.33 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 52 and female age 50 both in the nonsmoker preferred $0.0016 per $1,000 of amount at risk./5/ We will increase this charge as class they age. ------------------------------------------------------------------------------------------------------ Administrative Charge/2/ $0.01 per $1,000.00 of face amount for the first 15 policy years. We will never charge more than a maximum of $75 per month. ------------------------------------------------------------------------------------------------------ Mortality and Expense Risk We charge a maximum of 0.075% of the average daily balance each Charge/3/ month. ------------------------------------------------------------------------------------------------------ Loan Interest Rate Charged/4/ The maximum net cost to the policy is 2% of the loan balance on an annual basis. ------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------------------------ Other Tax Charges When we become liable for We currently do not charge for taxes, however we reserve the right to taxes. impose a charge should we become liable for taxes in the future. Possible taxes would include state or federal income taxes on investment gains of the Separate Account and would be included in our calculation of investment option values. ------------------------------------------------------------------------------------------------------------------------------ Optional Insurance Benefits ------------------------------------------------------------------------------------------------------------------------------ Estate Term Rider/1/ On Rider Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0001 - $83.33 per $1,000 of term rider benefit. Example for a male age 51 and female age 48 both in the nonsmoker preferred class $0.00100 per $1,000 of term rider benefit ------------------------------------------------------------------------------------------------------------------------------ Guaranteed Death Benefit On Rider Policy Date, and $0.01 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ LifePlan Options Rider We do not charge for this No charge. We describe this rider later under "Optional Insurance rider. It is available on a Benefits." state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Non-Transferable General We do not charge for this No charge. We describe this rider later under "Optional Insurance Account Election Rider rider. It is available on a Benefits." state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Conditional Exchange Options On Rider Policy Date, and $0.03 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ Policy Split Option Rider We do not charge for this No charge, but you must provide any evidence of insurability rider. It is available on a submitted for insurance to the life insured under the new policy. state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Four-Year Survivorship Term On Rider Policy Date, and Rider/1/ monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0004 - $6.15 per $1,000 of total face amount. Example for a male age 55 and female age 52 both in the nonsmoker preferred class $0.0019 per $1,000 of total face amount. ------------------------------------------------------------------------------------------------------------------------------ Credit of Monthly Specified On Rider Policy Date, and Amount upon Death of monthly on each monthly Covered Insured Rider/1/ calculation day./7/ Minimum and Maximum $0.34 - $28.25 per $1,000 of annual benefit for a coverage period of Charges 15 years. Example for a male age 52 and female age 50 both in the nonsmoker preferred $2.6214 and $1.4285 respectively, per $1,000 of annual benefit for a class coverage period of 15 years. ------------------------------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ----------------------------------------------------------------------------------------------------------------------------- Disability Benefit Rider/6/ On Rider Policy Date, and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.22 - $0.82 per $100 of annual benefit. Example for a male age 52 and female age 50 both in the nonsmoker preferred class $0.428 and $0.4815 respectively, per $100 of annual benefit. ----------------------------------------------------------------------------------------------------------------------------- Age 100+ Rider/1/ On Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum $0.00 - $10.00 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 52 and female age 50 both in the nonsmoker preferred $0.00 per $1,000 of amount at risk./5/ We will increase this charge as class the insured people age. -----------------------------------------------------------------------------------------------------------------------------
/1/ These charges will depend on the personal information of those insured under the policy (i.e. age, gender and premium class), the policy year and the net amount at risk. The charges shown in the table may not be typical of the charges you will pay. Your policy's specifications page will indicate the maximum guaranteed cost of insurance. We will provide more detailed information concerning your cost of insurance upon request. Before you purchase the policy, you may request personalized illustrations of your future benefits under the policy based upon the personal information of those to be insured by the policy, the death benefit option, face amount, planned periodic premiums, and any optional riders you request. /2/ We will never charge more than $75 per month. /3/ Your policy may have lower mortality and expense risk charges depending on the non-loaned policy value. We provide a schedule of mortality and expense risk charges in the "Charges and Deductions" section. We do not deduct this charge from amounts allocated to the Guaranteed Interest Account. /4/ The net cost to the policy is the difference between the loan rate we charge (from 2% to 5%) and the rate we credit amounts equal to the loan transferred to the loaned portion of the Guaranteed Interest Account (from 2% to 3%) as collateral. We provide more information in the "Loans" section. /5/ "Amount at risk" is the difference between the death benefit that would be payable and the policy value. /6/ This charge depends on age at issue but does not increase. /7/ The monthly calculation day occurs on the same day as the policy date (the date from which policy years and anniversaries are measured) or, if that date does not fall in any given month, it will be the last day of that month. Policy Option B - Periodic Charges Other than Fund Operating Expenses
Charge When Deducted ------------------------------------------------------------ Cost of Insurance/1/ On policy date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges Example for a male age 57 and female age 55 both in the nonsmoker preferred class ------------------------------------------------------------ Administrative Charge/2/ On each monthly processing day. ------------------------------------------------------------ Mortality and Expense Risk On policy date and monthly Charge/3/ on policy processing day. ------------------------------------------------------------ Loan Interest Rate Charged/4/ Interest accrues daily is due on each policy anniversary. If not paid on that date, the accrued interest will be treated as another loan against the policy. ------------------------------------------------------------
Charge Amount Deducted ------------------------------------------------------------------------------------------------------ Cost of Insurance/1/ Minimum and Maximum $0.0002 - $83.33 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 57 and female age 55 both in the nonsmoker preferred $0.0036 per $1,000 of amount at risk./5/ We will increase this charge as class they age. ------------------------------------------------------------------------------------------------------ Administrative Charge/2/ $0.01 per $1,000.00 of face amount for the first 15 policy years. We will never charge more than a maximum of $75 per month. ------------------------------------------------------------------------------------------------------ Mortality and Expense Risk We charge a maximum of 0.075% of the average daily balance each Charge/3/ month. ------------------------------------------------------------------------------------------------------ Loan Interest Rate Charged/4/ The maximum net cost to the policy is 2% of the loan balance on an annual basis. ------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------------------------ Other Tax Charges When we become liable for We currently do not charge for taxes, however we reserve the right to taxes. impose a charge should we become liable for taxes in the future. Possible taxes would include state or federal income taxes on investment gains of the Separate Account and would be included in our calculation of investment option values. ------------------------------------------------------------------------------------------------------------------------------ Optional Insurance Benefits ------------------------------------------------------------------------------------------------------------------------------ Estate Term Rider/1/ On Rider Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0001 - $83.33 per $1,000 of term rider benefit. Example for a male age 55 and female age 52 both in the nonsmoker preferred class $0.00190 per $1,000 of term rider benefit. ------------------------------------------------------------------------------------------------------------------------------ Guaranteed Death Benefit On Rider Policy Date, and $0.01 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ LifePlan Options Rider We do not charge for this No charge. We describe this rider later under "Optional Insurance rider. It is available on a Benefits." state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Non-Transferable General We do not charge for this No charge. We describe this rider later under "Optional Insurance Account Election Rider rider. It is available on a Benefits." state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Conditional Exchange Options On Rider Policy Date, and $0.03 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ Policy Split Option Rider We do not charge for this No charge, but you must provide any evidence of insurability rider. It is available on a submitted for insurance to the life insured under the new policy. state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Four-Year Survivorship Term On Rider Policy Date, and Rider/1/ monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0004 - $3.07 per $1,000 of total face amount. Example for a male age 55 and female age 52 both in the nonsmoker preferred class $0.0019 per $1,000 of total face amount. ------------------------------------------------------------------------------------------------------------------------------ Credit of Monthly Specified On Rider Policy Date, and Amount upon Death of monthly on each monthly Covered Insured Rider/1/ calculation day./7/ Minimum and Maximum $0.34 - $28.25 per $1,000 of annual benefit for a coverage period of Charges 15 years. Example for a male age 57 and female age 55 both in the nonsmoker premium $4.2183 and $1.9911 respectively, per $1,000 of annual benefit for a class coverage period of 15 years. ------------------------------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ----------------------------------------------------------------------------------------------------------------------------- Disability Benefit Rider/6/ On Rider Policy Date, and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.22 - $0.82 per $100 of annual benefit. Example for a male age 57 and female age 55 both in the nonsmoker preferred class $0.4714 and $0.6363 respectively, per $100 of annual benefit. ----------------------------------------------------------------------------------------------------------------------------- Age 100+ Rider/1/ On Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum $0.00 - $10.00 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 57 and female age 55 both in the nonsmoker preferred $0.00 per $1,000 of amount at risk./5/ We will increase this charge as class the insured people age. -----------------------------------------------------------------------------------------------------------------------------
/1/ These charges will depend on the personal information of those insured under the policy (i.e. age, gender and premium class), the policy year and the net amount at risk. The charges shown in the table may not be typical of the charges you will pay. Your policy's specifications page will indicate the maximum guaranteed cost of insurance. We will provide more detailed information concerning your cost of insurance upon request. Before you purchase the policy, you may request personalized illustrations of your future benefits under the policy based upon the personal information of those to be insured by the policy, the death benefit option, face amount, planned periodic premiums, and any optional riders you request. /2/ We will never charge more than $75 per month. /3/ Your policy may have lower mortality and expense risk charges depending on the non-loaned policy value. We provide a schedule of mortality and expense risk charges in the "Charges and Deductions" section. We do not deduct this charge from amounts allocated to the Guaranteed Interest Account. /4/ The net cost to the policy is the difference between the loan rate we charge (from 2% to 5%) and the rate we credit amounts equal to the loan transferred to the loaned portion of the Guaranteed Interest Account (from 2% to 3%) as collateral. We provide more information in the "Loans" section. /5/ "Amount at risk" is the difference between the death benefit that would be payable and the policy value. /6/ This charge depends on age at issue but does not increase. /7/ The monthly calculation day occurs on the same day as the policy date (the date from which policy years and anniversaries are measured) or, if that date does not fall in any given month, it will be the last day of that month. Policy Option C - Periodic Charges Other than Fund Operating Expenses
Charge When Deducted ------------------------------------------------------------ Cost of Insurance/1/ On policy date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges Example for a male age 55 and female age 52 both in the nonsmoker preferred class ------------------------------------------------------------ Administrative Charge/2/ On each monthly processing day. ------------------------------------------------------------ Mortality and Expense Risk On policy date and monthly Charge/3/ on policy processing day. ------------------------------------------------------------ Loan Interest Rate Charged/4/ Interest accrues daily is due on each policy anniversary. If not paid on that date, the accrued interest will be treated as another loan against the policy. ------------------------------------------------------------
Charge Amount Deducted ------------------------------------------------------------------------------------------------------ Cost of Insurance/1/ Minimum and Maximum $0.0002 - $83.33 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 55 and female age 52 both in the nonsmoker preferred $0.0024 per $1,000 of amount at risk./5/ We will increase this charge as class they age. ------------------------------------------------------------------------------------------------------ Administrative Charge/2/ $0.08 per $1,000.00 of face amount for the first 15 policy years. We will never charge more than a maximum of $200 per month. ------------------------------------------------------------------------------------------------------ Mortality and Expense Risk We charge a maximum of 0.075% of the average daily balance each Charge/3/ month. ------------------------------------------------------------------------------------------------------ Loan Interest Rate Charged/4/ The maximum net cost to the policy is 2% of the loan balance on an annual basis. ------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ------------------------------------------------------------------------------------------------------------------------------ Other Tax Charges When we become liable for We currently do not charge for taxes, however we reserve the right to taxes. impose a charge should we become liable for taxes in the future. Possible taxes would include state or federal income taxes on investment gains of the Separate Account and would be included in our calculation of investment option values. ------------------------------------------------------------------------------------------------------------------------------ Optional Insurance Benefits ------------------------------------------------------------------------------------------------------------------------------ Estate Term Rider/1/ On Rider Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0001 - $83.33 per $1,000 of term rider benefit. Example for a male age 55 and female age 52 both in the nonsmoker premium class $0.00190 per $1,000 of term rider benefit. ------------------------------------------------------------------------------------------------------------------------------ Guaranteed Death Benefit On Rider Policy Date, and $0.01 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ LifePlan Options Rider We do not charge for this No charge. We describe this rider later under "Optional Insurance rider. It is available on a Benefits". state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Non-Transferable General We do not charge for this No charge. We describe this rider later under "Optional Insurance Account Election Rider rider. It is available on a Benefits". state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Conditional Exchange Options On Rider Policy Date, and $0.03 per $1,000 of total face amount. Rider monthly on each monthly calculation day./7/ ------------------------------------------------------------------------------------------------------------------------------ Policy Split Option Rider We do not charge for this No charge, but you must provide any evidence of insurability rider. It is available on a submitted for insurance to the insured under the new policy. state-by-state basis. ------------------------------------------------------------------------------------------------------------------------------ Four-Year Survivorship Term On Rider Policy Date, and Rider/1/ monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.0004 - $3.07 per $1,000 of total face amount. Example for a male age 55 and female age 52 both in the nonsmoker preferred class $0.0019 per $1,000 of total face amount. ------------------------------------------------------------------------------------------------------------------------------ Credit of Monthly Specified On Rider Policy Date, and Amount upon Death of monthly on each monthly Covered Insured Rider/1/ calculation day./7/ Minimum and Maximum $0.34 - $28.25 per $1,000 of annual benefit for a coverage period of Charges 15 years. Example for a male age 55 and female age 52 both in the nonsmoker premium $3.4929 and $1.6206 respectively, per $1,000 of annual benefit for a class coverage period of 15 years. ------------------------------------------------------------------------------------------------------------------------------
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Charge When Deducted Amount Deducted ----------------------------------------------------------------------------------------------------------------------------- Disability Benefit Rider/6/ On Rider Policy Date, and monthly on each monthly calculation day./7/ Minimum and Maximum Charges $0.22 - $0.82 per $100 of annual benefit. Example for a male age 55 and female age 52 both in the nonsmoker preferred class $0.513 and $0.5291 respectively, per $100 of annual benefit. ----------------------------------------------------------------------------------------------------------------------------- Age 100+ Rider/1/ On Policy Date and monthly on each monthly calculation day./7/ Minimum and Maximum $0.00 - $10.00 per $1,000 of amount at risk./5/ We will increase this Charges charge as the insured people age. Example for a male age 55 and female age 52 both in the nonsmoker preferred $0.00 per $1,000 of amount at risk./5/ We will increase this charge as class the insured people age. -----------------------------------------------------------------------------------------------------------------------------
/1/ These charges will depend on the personal information of those insured under the policy (i.e. age, gender and premium class), the policy year and the net amount at risk, and the policy face amount. The charges shown in the table may not be typical of the charges you will pay. Your policy's specifications page will indicate the maximum guaranteed cost of insurance. We will provide more detailed information concerning your cost of insurance is upon request. Before you purchase the policy, you may request personalized illustrations of your future benefits under the policy based upon the personal information of those to be insured by the policy, the death benefit option, face amount, planned periodic premiums, and any optional riders you request. /2/ We will never charge more than $200 per month. /3/ Your policy may have lower mortality and expense risk charges depending on the non-loaned policy value. We provide a schedule of mortality and expense risk charges in the "Charges and Deductions" section. We do not deduct this charge from amounts allocated to the Guaranteed Interest Account. /4/ The net cost to the policy is the difference between the loan rate we charge (from 2% to 5%) and the rate we credit amounts equal to the loan transferred to the loaned portion of the Guaranteed Interest Account (from 2% to 3%) as collateral. We provide more information in the "Loans" section. /5/ "Amount at risk" is the difference between the death benefit that would be payable and the policy value. /6/ This charge depends on age at issue but does not increase. /7/ The monthly calculation day occurs on the same day as the policy date (the date from which policy years and anniversaries are measured) or, if that date does not fall in any given month, it will be the last day of that month. The table below shows the minimum and maximum fees and expenses as a percentage of daily net assets, for the year ended December 31, 2007, charged by the funds that you may pay indirectly during the time that you own the contract. More detail concerning each of the fund's fees and expenses is contained in the prospectus for each fund. Total Annual Fund Operating Expenses are deducted from a fund's assets and include management fees, distribution fees, distribution and/or 12b-1 fees, and other expenses. Total Annual Fund Operating Expenses
Minimum Maximum Gross Annual Fund Operating Expense 0.31% 3.83% Net Annual Fund Operating Expenses 0.28% 3.83%
/1/ Phoenix Variable Advisors, Inc, advisor to the Phoenix Edge Series Fund, and other advisors and/or other service providers to the funds have contractually agreed to reduce the management fees or reimburse certain fees and expenses for certain funds. The Gross Annual Fund Operating Expenses shown in the first row of the table do not reflect the effect of any fee reductions or reimbursements. The Net Annual Fund Operating Expenses shown in the second row reflect the effect of fee reductions and waiver arrangements that are contractually in effect at least through April 30, 2009. There can be no assurance that any contractual arrangement will extend beyond its current terms and you should know that these arrangements may exclude certain extraordinary expenses. See each fund's prospectus for details about the annual operating expenses of that fund and any waiver or reimbursement arrangements that may be in effect. 12 PHL Variable Insurance Company -------------------------------------------------------------------------------- PHL Variable Insurance Company is a Connecticut stock life insurance company incorporated July 15, 1981. We sell life insurance policies and annuity contracts through our affiliated distribution companies and through brokers. Our executive and administrative office is at One American Row in Hartford, Connecticut 06103-2899. Throughout this prospectus we will refer to PHL Variable Insurance Company as "PHL Variable" and in the first person (i.e. as "we", "us", "our", "Company"). The PHLVIC Variable Universal Life Account (the "Separate Account") -------------------------------------------------------------------------------- PHL Variable Insurance Company established the Separate Account as a separate account under Connecticut insurance law on September 10, 1998. The Separate Account is registered with the Securities and Exchange Commission (the "SEC") as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise the management, investment practices or policies of the Separate Account or of PHL Variable. All income, gains or losses, whether or not realized, of the Separate Account are credited to or charged against amounts placed in the Separate Account without regard to the other income, gains and losses of PHL Variable. The assets of the Separate Account may not be charged with liabilities arising out of any other business we conduct. PHL Variable is responsible for all obligations under the policies. The Separate Account is divided into investment options, each of which is available for allocation of policy value. We determine the value of each investment option's shares at the end of every valuation day that the New York Stock Exchange is open. Each investment option will invest solely in a single investment portfolio of a fund. The fund names and the portfolio names are listed on page one of this prospectus. Each portfolio's investment objective is given in Appendix A. PHL Variable does not guarantee the investment performance of the Separate Account or any of its investment options. The policy value allocated to the Separate Account depends on the investment performance of the underlying funds. As policy owner, you bear the full investment risk for all monies invested in the Separate Account. We reserve the right to add, remove, modify, or substitute portfolios in which the Separate Account invests. Copies of the fund prospectuses may be obtained by writing to us or calling us at the address or telephone numbers provided on the first page of this prospectus. Valuation Date A valuation date is every day the New York Stock Exchange ("NYSE") is open for trading and PHL Variable is open for business. However, transaction processing may be postponed for the following reasons: 1.the NYSE is closed or may have closed early; 2.the SEC has determined that a state of emergency exists; or 3.on days when a certain market is closed (e.g., the U.S. Government bond market is closed on Columbus Day and Veteran's Day). The NYSE Board of Directors reserves the right to change the NYSE schedule as conditions warrant. On each valuation date, the value of the Separate Account is determined at the close of the NYSE (usually 4:00 p.m. eastern time). Performance History -------------------------------------------------------------------------------- We may choose to include performance history of the investment options or the underlying portfolios in advertisements, sales literature or reports. Performance information about each investment option is based on past performance and is not an indication of future performance. Voting Rights -------------------------------------------------------------------------------- We legally own all fund shares held by the investment options; however, we vote those shares at shareholder meetings according to voting instructions we receive from policy owners with an interest in the investment options. We may decide to vote the shares in our own right should the law change to permit us to do so. While your policy is in effect, you may provide us with voting instructions for each investment option in which you have an interest. We determine the number of votes you may cast by applying your percentage interest in an investment option to the total number of votes attributable to the investment option. When determining the number of votes, fractional shares will be recognized. We will send you, or if permitted by law, make available electronically, proxy material, reports and other materials relevant to the investment options in which you have a voting interest. In order to vote you must complete the proxy form and return it with your voting instructions. You may also be able to vote your interest by telephone or over the Internet if such instructions are included in the proxy material. We will vote all of the shares we own on your behalf in accordance with your instructions. We will vote the shares for which we do not receive instructions, and any other shares we own, in the same proportion as the shares for which we do receive instructions. We may ask you to provide voting instructions for such items as: 1)the election or removal of the fund's Trustees; 2)the ratification of the independent accountants for the fund; 3)approval or amendment of investment advisory agreements; 4)a change in fundamental policies or restrictions of the series; and 5)any other matters requiring a shareholder vote. You may obtain an available fund's prospectus by contacting VPMO at the address and VULA at the telephone number given on page one. 13 The Variable Investment Options -------------------------------------------------------------------------------- You choose the variable investment options to which you allocate your premium payments. These variable investment options are investment options of the Separate Account. The investment options invest in the underlying funds. You are not investing directly in the underlying fund. Each underlying fund is a portfolio of an open-end management investment company that is registered with the SEC under the Investment Company Act of 1940. These underlying funds are not publicly traded and are offered only through variable annuity and variable life insurance products, or directly to tax qualified plans. They are not the same retail mutual funds as those offered outside of a variable annuity or variable life insurance product, or directly to tax qualified plans, although the investment practices and fund names may be similar, and the portfolio managers may be identical. Accordingly, the performance of the retail mutual fund is likely to be different from that of the underlying fund, and you should not compare the two. The underlying funds offered through this product are selected by the company based on several criteria, including asset class coverage, the strength of the manager's reputation and tenure, brand recognition, performance, and the capability and qualification of each sponsoring investment firm. Another factor the company considers during the initial selection process is whether the underlying fund or an affiliate of the underlying fund will compensate the company for providing administrative, marketing, and support services that would otherwise be provided by the underlying fund, the underlying fund's investment advisor, or its distributor. Finally, when the company develops a variable annuity (or life) product in cooperation with a fund family or distributor (e.g. a "private label" product), the company will generally include underlying funds based on recommendations made by the fund family or distributor, whose selection criteria may differ from the company's selection criteria. Each underlying fund is reviewed periodically after having been selected. Upon review, the company may remove an underlying fund or restrict allocation of additional premium payments to an underlying fund if the company determines the underlying fund no longer meets one or more of the criteria and/or if the underlying fund has not attracted significant policy owner assets. In addition, if any of the underlying funds become available for allocating premium payments, or if we believe that further investment in an underlying fund is inappropriate for the purposes of the policy, we may substitute another variable investment option. However, we will not make any substitutions without notifying you and obtaining any state and SEC approval, if necessary. From time to time we may make new variable investment options available. You will find detailed information about the underlying funds and their inherent risks in the current prospectuses for the underlying funds. Since each option has varying degrees of risk, please read the prospectuses carefully. There is no assurance that any of the underlying funds will meet its investment objectives. Copies of the fund prospectuses may be obtained by contacting us at the address or telephone number provided on the first page of this prospectus. Administrative, Marketing and Support Service Fees The Company and the principal underwriter for the policy have entered into agreements with the investment adviser, subadviser, distributor, and/or affiliated companies of most of the underlying funds under which the company and the principal underwriter for the policies receive payments. We have also entered into agreements with the Phoenix Edge Series Fund and its advisor, Phoenix Variable Advisors, Inc., with whom we are affiliated. These agreements compensate the Company and the principal underwriter for the policies for providing certain administrative, marketing, or other support services to the underlying funds. Proceeds of these payments may be used for any corporate purpose, including payment of expenses that the company and the principal underwriter for the policies incur in promoting, issuing, distributing and administering the policies. As stated previously, such payments are a factor in choosing which funds to offer in the Company's variable products. These payments may be significant and the Company and its affiliates may profit from them. The payments are generally based on a percentage of the average assets of each underlying fund allocated to the variable investment options under the policy or other policies offered by the company. The amount of the fee that an underlying fund and its affiliates pay the company and/or the company's affiliates is negotiated and varies with each underlying fund. Aggregate fees relating to the different underlying funds may be as much as 0.40% of the average net assets of an underlying fund attributable to the relevant policies. A portion of these payments may come from revenue derived from the Distribution and/or Service Fees (12b-1 fees) that are paid by an underlying fund out of its assets as part of its total annual operating expenses and is not paid directly from the assets of your variable insurance policy. The Guaranteed Interest Account -------------------------------------------------------------------------------- In addition to the Separate 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 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 investment 14 options over a consecutive 4-year period according to the following schedule: .First Year: 25% of the total value .Second Year: 33% of remaining value .Third Year: 50% of remaining value .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 SEC has not reviewed the general account disclosures. These disclosures may, however, be subject to certain provisions of the federal securities law regarding accuracy and completeness of statements made in this prospectus. 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. Charges Deducted from Premium Payments Premium Expense Charge We impose a charge on premiums paid on the policy to help reimburse the Company for a variety of expenses we incur in selling the policy (e.g., commissions, advertising and printing). The premium expense charge is assessed according to the following schedule:
Premium Expense Charges deducted from all premiums paid Option A Option B Option C -------- -------- -------- Policy year 1 payments up to first TAP*: 50% 25% 20% Policy year 1 payments in excess of TAP: 6% 6% 5% Policy years 2 to 7 Payment up to TAP: 6% 11% 5% Policy years 2 to 7 Payment in excess of TAP: 6% 6% 5% Policy years 8 on: 6% 6% 5%
* We will establish the Target Annual Premium, or TAP, when we issue the policy. The TAP will be the same for all three Policy Options, and will be based on the insured persons' gender, ages, risk classifications and the face amount of insurance coverage. Periodic Charges Monthly Charges We make monthly deductions on each monthly calculation day from the investment options and the non-loaned portion of the Guaranteed Interest Account according to your specified allocation schedule. You initially choose this schedule in your application, but can change it later. Should any of the investment options on your schedule become depleted, unless we agree otherwise, we will proportionally increase the deduction from the remaining investment options. . 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 persons' 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 ("CSO") 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 lives as either 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. Lives in the standard risk classes will have a lower cost of insurance for otherwise identical policies, than lives in the higher mortality risk classes. Nonsmokers will generally incur a lower cost of insurance than will similarly situated smokers. . Administrative Charge. We deduct a charge to compensate us for the costs incurred administering the policies. It applies during the first 15 years the policy is in force. This charge is made per thousand dollars of face amount and depends on your policy option:
Charge per $1,000 of base face Maximum each amount month Policy Option A $ .01 $ 75 Policy Option B $.01 $75 Policy Option C $.08 $200
. 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 incurred due to policy loans. If the 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. Your policy will pay a mortality and expense risk charge that depends on how your non-loaned policy value compares to your policy's face amount. Non-loaned policy values above 15 certain amounts (thresholds) qualify you for more favorable (lower) charges. Thresholds for lower charges depend on the policy option you choose as outlined in the following chart.
Non-loaned policy value as a percentage of Mortality total & policy face amount/1/ Expense Option A Option B Option C Charge/2/ less than 20% less than 30% less than 50% .075% greater than greater than greater than or equal to or equal to or equal to 20%, but less 30%, but 50%, but than 40% less than less than 60% 100% .050% 40% or more 60% or 100% or more more .025%
/1/ Total policy face amount is the sum of the base policy face amount plus the face amount of any Estate Term rider you elect. /2/ These rates are current and are not guaranteed. . Cost of Optional Insurance Benefits. Some of the available rider benefits you may choose incur an additional monthly charge. Each rider is available only if it is approved for use in your state. The Phoenix Edge(R) - SVUL policy has three riders available at no additional charge: . LifePlan Options Rider . Non-Transferable General Account Election Rider . Policy Split Option - do not charge for this rider, but you must provide proof of insurability when you exercise the option. We charge for providing benefits under the following riders: . Estate Term Rider charges vary based on age, gender, risk classification and rider face amount. Charges will increase as the insured people age. . Guaranteed Death Benefit Rider charges is $0.01 per $1,000 of total face amount. Total face amount is equal to the base policy face amount plus the face amount of any Estate Term Rider. . Conditional Exchange Option Rider charges is $0.03 per $1,000 of total face amount. . Four Year Survivorship Term Rider charges depend on the age and risk classification(s) of the person or people insured and the face amount of coverage. . Credit of Monthly Specified Amount upon Death of Covered Insured Rider charges vary based on the age(s), and risk classification(s) of those insured, and are also dependent on the single-life insurance rates and value of the remaining benefits. . Disability Benefit Rider charges vary based on the age, and risk classification of the person insured and on the amount of the specified monthly benefit. . Age 100+ Rider charges vary based on age, gender, risk classification and rider face amount. Charges will increase as the insured people age. Loan Interest Charged We charge your policy for outstanding loans at the rates illustrated in the tables below. As shown, the rate we charge your policy is higher than the rate we credit the loaned portion of the Guaranteed Interest Account. The difference is to compensate us for costs associated with administering the loans. These rates apply until the person insured reaches age 65.
Rate we credit the loaned portion of the Loan Interest Rate Guaranteed Interest Charged Account Policy Most NJ and Most NJ and Years: States TX States TX 1-10 4% 5% 2% 3% 11-16 3% 4% 2% 3% 16+ 2% 3% 2% 3%
Loans can reduce the policy's death benefit. We deduct the amount of any outstanding loans plus any accrued loan interest from your policy value before we calculate the death benefit. Conditional Charges We impose some other charges only if certain events occur: . Surrender Charge. The surrender charge applies if you surrender the policy for its cash surrender value or allow the policy to lapse. Your choice of Policy Option determines 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 depends 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. This charge is intended to recoup the costs of issuing the policy.
----------------------------------------------- Surrender Charge Table ----------------------------------------------- Surrender Charge as a percentage of TAP* Policy Policy Policy Policy Years Option A Option B Option C 1 200% 100% 35% 2 200% 100% 35% 3 200% 100% 35% 4 200% 100% 24% 5 200% 100% 12% 6 200% 98% 0% 7 200% 74% 0% 8 196% 50% 0% 9 166% 26% 0% 10 142% 11% 0% 11 118% 0% 0% 12 94% 0% 0% 13 70% 0% 0% 14 46% 0% 0% 15 22% 0% 0% 16+ 0% 0% 0%
* Target Annual Premium ("TAP") is established at the time of policy issue by an arithmetic formula based on personal information (age, gender, risk class) and the Face amount of insurance coverage. Sample Surrender Charges for Policy Option A. We provide the first year surrender charge calculations in order to illustrate how the TAP and the surrender charge can vary in relation to the 16 insured persons' ages and gender. The examples given are for non-smokers. . The sample policy's initial face amount is $1 million.
First Insured/ Target Annual First Year Second Insured Premium Surrender Age Gender (TAP) Charge* 45 Male $ 8,018 $16,036 45 Female 55 Male $14,932 $26,030 55 Female 65 Male $28,964 $36,508 65 Female
* The first year surrender charge is equal to one 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. . Partial Surrender Charge. A pro rata portion of the surrender charge will be deducted from your policy value in direct proportion to any decrease in face amount. Face amount reductions may result if you request a decrease in face amount, request a death benefit option change or make a partial withdrawal. This charge is intended to recoup the costs of issuing the policy. . Partial Surrender Fee. Should you withdraw a portion of your policy value, we may deduct a $25 fee from your policy value. A portion of the surrender charge may also apply. This charge is intended to recoup the cost of administering the partial surrender of policy value. . Transfer Charge. Currently we do not charge for transfers between investment options, however we reserve the right to charge up to $20 for each transfer in excess of 12 each calendar year. This charge, if we were to impose a transfer charge would be intended to recoup the cost of administering the transfer. Other Tax Charges Currently no charge is made to the Separate Account for federal income taxes that may be attributable to the Separate Account. We may however, make such a charge in the future for these or any other taxes attributable to the Separate Account. Fund Charges As compensation for investment management services to the funds, the advisors are entitled to fees, payable monthly and based on an annual percentage of the average aggregate daily net asset values of each series. For more information, see "Annual Fund Expenses" and the fund prospectuses. The Policy -------------------------------------------------------------------------------- Contract Rights Owner The owner is the person who applies for the policy and who will generally make the choices that determine how the policy operates while it is in force. When we use the terms "you" or "your", in this prospectus, we are referring to the owner. Insured The insured are the people on whose lives the policy is issued. You name the insured in the application for the policy. We will not issue a policy if the younger person to be insured is 85 or older, or if the older person to be insured is 90 or older. We will require that you provide evidence that the people to be insured are, in fact, insurable. This will usually require a medical examination. Beneficiary The beneficiary is the person you name in the application to receive any death benefit. You may name different classes of beneficiaries, such as primary and secondary. These classes will set the order of payment. Unless an irrevocable beneficiary has been named, you can change the beneficiary at any time before the insured dies by sending a written request to VPMO. Generally, the change will take effect as of the date your request is signed. If no beneficiary is living when the second person insured dies, unless you have given us different instructions, we will pay you the death benefit. If you are deceased, it will be paid to your estate. Contract Limitations Assignment You may assign the policy. We will not be bound by such assignment until we receive a written copy of the assignment, nor will we be liable for any payment we make before then. We assume no responsibility for determining whether an assignment is valid. Purchasing a Policy Underwriting Procedures We base our rates on the insured persons' gender(s), attained age(s), and risk class(es). We may require certain medical information in order to determine the risk class(es) of the people to be insured. We are not permitted to consider gender as a factor in some states and under certain qualified plans. We will accept payment with your application and allocate the premium as described below. We retain the right to refuse to process your application within 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 your "right to cancel" period. Eligible Purchasers Any two people who are at least 18 years old, the younger below the age of 85 and the older below the age of 90 are eligible to be insured under a newly purchased policy after providing suitable evidence of insurability. You must have an insurable interest in the lives to be insured and the consents of both people. 17 Premium Payments The Phoenix Edge(R) - SVUL is a flexible premium survivorship variable universal life insurance policy. It has a death benefit, cash surrender value and a loan privilege, as does a traditional fixed benefit whole life policy. The policy differs from a fixed benefit whole life policy, however, because you may allocate your premium into one or more of several investment options of the Separate Account or the Guaranteed Interest Account. Each investment option of the Separate Account, in turn, invests its assets exclusively in a portfolio of the funds. The policy value varies according to the investment performance of the series to which premiums have been allocated. A number of factors concerning the people you insure and the policy features you desire will affect our required issue premium. The age, gender, and risk class of each life can affect the issue premium, as can policy features such as the face amount and added benefits. The issue premium is due on the policy date. Both people must be alive when the issue premium is paid. We will not apply your initial premium payment before we approve you for coverage. If you submit the initial premium payment before we make a coverage determination, we will deposit your premium into a non-interest bearing account. 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 on the valuation date we approve you for coverage assuming we have received your completed application in good order. We may delay the application of a subsequent premium payment if applying it would cause the policy to become a MEC. Generally, we will apply the portion of the subsequent premium payment that will not cause the policy to become a MEC and we will refund the balance to you. However, if we receive a subsequent premium payment that will cause the policy to become a MEC within 20 days prior to the policy anniversary date, we will hold the portion of the subsequent premium payment that would cause MEC status. We will apply the remaining portion on the policy anniversary date when it can be applied without creating a MEC. If it is your intention to create a MEC or if you would like the portion of the premium payment that will create a MEC returned to you, you must notify us in writing within thirty days of the policy anniversary date. If you intend to create a MEC, you will be required to sign a form acknowledging that you understand the tax consequences of MEC status. For policies in which a material change impacting the 7-pay limit or 7-pay period occurred, if the material change caused the start of the 7-pay year to no longer coincide with the policy anniversary, the procedure described above for holding payments may not apply. Generally speaking, the 7-pay limit and 7-pay period are measures of the amount of premium that can be paid into a life insurance contract without causing the contract to become a MEC under federal tax law. For additional information about the 7-pay test, see the "Modified Endowments Contracts" section of this prospectus. For more information, refer to the section headed "Federal Income Tax Considerations." 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 right to cancel period to the Phoenix Money Market Investment Option. When your right to cancel expires we allocate the policy value among the investment options 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. 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 investment option units at the investment option 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. The policy contains a total premium limit as shown on the schedule page. This limit is applied to the sum of all premiums paid under the policy. If the total premium limit is exceeded, the policy owner will receive the excess, with interest at an annual rate of not less than 4%, not later than 60 days after the end of the policy year in which the limit was exceeded. The policy value will then be adjusted to reflect the refund. To pay such refund, amounts taken from each investment option or the Guaranteed Interest Account will be done in the same manner as for monthly deductions. You may write to us and give us different instructions. The total premium limit may be exceeded if additional premium is needed to prevent lapse or if we subsequently determine that additional premium would be permitted by federal laws or regulations. Payment by Check We may wait to credit your policy if you pay by check until your check has cleared your bank. You may elect to pay subsequent premiums by pre-authorized check. Under this service, we automatically deduct premiums each month from a bank account you designate. We will not send a bill for these automatic payments. Withdrawals from your bank account will be made on the 15 of each month. You may commence the pre-authorized check serviced at any time, unless your policy has entered its grace period. You can discontinue this service by contacting our VPMO. We must receive notification of account changes at our VPMO at least 30 days before the next draft date. Upon termination of this service, the premium payment frequency will be changed to the most frequent modal premium available under your policy. We may automatically switch you to quarterly billing if we are unable to obtain the premium payment from your bank account. We may discontinue this service with 30 days' written notice to you. Automated Payments You may elect to have us deduct periodic premium payments directly from your bank account. The minimum we will withdraw under such a plan is $25 per month. Allocation of Premium We will generally allocate the issue premium less applicable charges to the Separate Account or to the Guaranteed Interest 18 Account upon receipt of a completed application, in accordance with the allocation instructions in the application for a policy. However, policies issued in certain states and policies issued in certain states pursuant to applications which state the policy is intended to replace existing insurance, are issued with a Temporary Money Market Allocation Amendment. Under this Amendment, we temporarily allocate the entire issue premium paid less applicable charges (along with any other premiums paid during your right to cancel period) to the Phoenix Money Market Investment Option of the Separate Account and, at the expiration of the right to cancel period, the policy value of the Phoenix Money Market Investment Option is allocated among the investment options of the Separate Account or to the Guaranteed Interest Account in accordance with the applicant's allocation instructions in the application for insurance. Premium payments received during a grace period, after deduction of any premium expense charge, will first be used to cover any monthly deductions during the grace period. Any balance will be applied on the payment date to the various investment options of the Separate Account or to the Guaranteed Interest Account, based on the premium allocation schedule elected in the application for the policy or by your most recent instructions. See "Transfer of Policy Value--Nonsystematic Transfers." Policy Refund Should you elect to return your policy under your right to cancel we will treat your policy as if we had never issued it. For policies other than those issued with a Temporary Money Market Allocation Amendment, we will return the sum of the following as of the date we receive the returned policy: (1)the current policy value less any unpaid loans and loan interest; plus (2)any monthly deductions, partial surrender fees and other charges made under the policy. For policies issued with the Temporary Money Market Amendment, the amount returned will equal any premiums paid less any unpaid loans and loan interest and less any partial surrender amounts paid. We retain the right to decline to process an application within seven days of our receipt of the completed application for insurance. If we decline to process the application, we will return the premium paid. Even if we have approved the application for processing, we retain the right to decline to issue the policy. If we decline to issue the policy, we will refund to you the same amount as would have been refunded under the policy had it been issued but returned for refund while you have your right to cancel. General -------------------------------------------------------------------------------- Postponement of Payments We may postpone payment of surrenders, partial withdrawals, policy loan or death benefits under certain circumstances. We may also postpone investment option transfers under any of the following circumstances: . We may postpone for up to six months, payment for any transaction that depends on the value of the Guaranteed Interest Account; . We may postpone payment whenever the NYSE is closed other than for customary weekend and holiday closings, trading on the NYSE is restricted, on days when a certain market is closed (e.g., the U.S. Government bond market is closed on Columbus Day and Veteran's Day); or . When the SEC decides an emergency exists and the sale of securities or the determination of the value of securities in the Separate Account is not reasonably practicable. Transfers also may be postponed under these circumstances. Federal laws designed to counter terrorism and prevent money laundering might, in certain circumstances require us to block a policy owner's ability to make certain transactions and, as a result, we may refuse to accept requests for transfers, withdrawals, surrenders or death benefits, until we are so instructed by the appropriate regulator. We may also be required to provide additional information about you and your policy to government regulators. Optional Insurance Benefits You may elect additional benefits by selecting available riders under a policy. Generally, riders are elected prior to the policy being issued. 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 in your state). We may make additional riders available in future. . Estate Term. This rider provides annually renewable term insurance coverage to age 100 of the younger of the insured persons. The rider has a target face amount that can be increased under Death Benefit Option 1. Four increase options are available: 1.Premiums Paid Increases - provides a monthly increase equal to the premiums paid for the previous policy month. 2.Percentage Increase - allows the total death benefit to increase each year by a whole percentage up to 5%. 3.Dollar Increase - allows the total death benefit to increase each year by an annually fixed dollar amount. 4.Varying Schedule Increases - provides a schedule of varying amounts to increase the total death benefit up to 10% each year. We assess cost of insurance charges for the rider. . Guaranteed Death Benefit. This rider guarantees the face amount of coverage even if the policy value is insufficient to cover the monthly deduction. We will set a monthly guaranteed premium based on the age, gender and risk class of the insured people, the policy's face amount and how long it has been in force. 19 The rider will remain in effect if the conditions of the Total Cumulative Premiums Test are met monthly. Otherwise, the rider will lapse subject to the grace period and the underlying policy will continue without the rider benefits or charges. . Total Cumulative Premiums Test - the total premium paid less debt and less the sum of all surrender amounts is not less than the cumulative sum of all monthly guarantee premiums since policy issue. . LifePlan Options. Subject to various limitations as set forth in the rider, the following favorable policy options may be exercised or elected on the 5th, 10th and 15th year policy anniversaries: 1.An option to increase the total face amount of the term insurance rider amount by up to a maximum lifetime increase of $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. 4.An option to split the policy into single-life policies without incurring a surrender charge and without a medical exam requirement, while other ordinary underwriting rules will still apply. We do not charge for this rider. . Non-Transferable General Account Election Rider. This rider permits you to transfer your policy values irrevocably to the policy Non-Transferable General Account. We will pay a fixed minimum interest rate on the value transferred to the Non-Transferable General Account. You may make this election on or after the 15th policy anniversary. We do not charge for this rider. . Conditional Exchange Option. This rider provides for the exchange of the policy for two new single life policies, without evidence of insurability, for either of the following events: 1.the insured people divorce each other; or 2.a major change in federal estate tax law that eliminates the unlimited marital deduction. Both of those insured must be living on the date of exchange and there must continue to be an insurable interest. We assess additional cost of insurance charges for this rider. . Policy Split Option. This rider allows you to exchange your policy for two single life policies on the lives of the same people insured under this policy. You may split the policy by any percentage subject to our minimum requirements for single life policies. We do not charge for this rider, but you must provide us with satisfactory evidence of insurability. . Four Year Survivorship Term. This rider provides a level death benefit on the second death if both the insured people die within four years of policy issue. This rider is not convertible into any other policy or coverage. The rider's face amount will be up to 125% of the policy's initial face amount. We assess additional cost of insurance charges for this rider. . Credit of Monthly Specified Amount upon Death of Covered Insured. You may elect this rider to cover either one or both of the insured lives. Upon a covered person's death, we will credit an amount specified in the rider to the policy each month. We will treat this credit as though you have paid it as a premium (i.e., subject to the premium expense charge and your policy's total premium limit) any excess amount will be paid in cash to the policy owner. You will designate a coverage period upon policy issue. This rider terminates upon a covered person's death or at the end of the coverage period, whichever comes first. We assess additional cost of insurance charges for this rider. . Disability Benefit. You may elect this rider to cover one or both of the insured lives. Should a covered person become disabled before age 65, we will credit an amount specified in the rider to your policy each month while total disability exists. After the insured person reaches age 60 and while disability persists, payments are limited to one year or until that person reaches age 65, if sooner. This rider terminates for each person upon reaching age 65. However, benefits will continue to be paid for the covered person's lifetime whether or not disability continues if he or she has been continuously disabled under the terms of the rider from attained age 60 to age 65. We assess additional cost of insurance charges for this rider. . Age 100+ Rider. This rider allows the base policy coverage and any coverage previously provided by the Estate Term Rider to extend beyond the younger insured's age of 100 as long as the policy value is greater than zero. On and after the policy date nearest the younger insured's age of 100: . the death benefit will be equal to the greater of: i)the policy's total face amount (including any Estate Term Rider coverage); and ii)the policy value or the date of the second death. . no further cost of insurance or monthly administrative charges will be assessed against the policy; and . no further premium payments will be accepted. This rider does not extend the Guaranteed Death Benefit coverage beyond the younger insured's age 100. We assess Cost of Insurance charges for this rider. Under federal tax law, this policy may not qualify as life insurance after the Younger Insured's attained age 100. It may be subject to adverse tax consequences and a tax advisor should be consulted before the policyholder chooses to continue the policy after the Younger Insured's attained age 100. 20 Death Benefit You choose your Death Benefit Option when you apply for your policy, and are permitted to change it. If you fail to choose, we will use Death Benefit Option 1. Death Benefit Option 1 will pay the policy's face amount on the date of the second 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 on the date of the second 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 as shown by a table in your policy. The applicable percentage will be based on the younger insured person's attained age at the beginning of the policy year in which the second death occurs. Loans can reduce the policy's death benefit. We deduct the amount of any outstanding loans plus any accrued loan interest from your policy value before we calculate the death benefit. Partial Surrender and Decreases in Face Amount: Effect on Death Benefit A partial surrender or a decrease in face amount generally decreases the death benefit. Upon a decrease in face amount or partial surrender, a partial surrender charge may be deducted from 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 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 $25,000 and the face amount remaining after the decrease must be at least $100,000. All face amount decrease requests must be in writing and will be effective on the first monthly calculation day following the date we approve the request. A partial surrender charge will be deducted from the 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. The fraction is equal to the decrease in face amount divided by the face amount of the policy before the decrease. Future cost of insurance charges will be applied to the net amount at risk after the face decrease. Payment of Proceeds -------------------------------------------------------------------------------- Surrender and Death Benefit Proceeds We will process death benefits and full or partial surrenders 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. Payment of surrender or death proceeds usually will be made in one lump sum within seven days, unless another payment option has been 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. Under this policy, the death proceeds will be paid upon the death of the last surviving insured. You may elect a payment option for payment of the death proceeds to the beneficiary. You may do this only before the second death. You may revoke or change a prior election, unless such right has been waived. The beneficiary may make or change an election before payment of the death proceeds, unless you have made an election that does not permit such further election or changes by the beneficiary. A written request in a form satisfactory to us is required to elect, change or revoke a payment option. The minimum amount of surrender or death proceeds that may be applied under any payment option is $1,000. You should know that we offer the Phoenix Concierge Account ("PCA") as the default method of payment for all death claims greater or equal to $5,000 when the beneficiary is an individual, trust or estate. The PCA is generally not offered to corporations or similar entities. The PCA is an interest bearing checking account that is made available to beneficiaries in lieu of a single check. A beneficiary may opt out of the PCA and may elect one of the payment options below, or another option we are then offering for this policy before payment of the death proceeds. The PCA is not insured by the FDIC, NSUSIF, or any other state or federal agency which insures deposits. The guarantee of principal is based on the claims-paying ability of the company. Also, if the recipient chooses, death benefit proceeds will be payable in the form of an annuity option. Any such annuity option is subject to certain restrictions (including minimum amount requirements). In addition, there may be legal requirements that limit the recipient's annuity options and the timing of payments. A recipient should consult a qualified tax adviser before electing to receive an annuity. If the policy is assigned 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.
Value we apply to payment option Death Benefit Option 1 Policy face amount Death Benefit Option 2 Policy face amount plus policy value
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. Loans can reduce the policy's death benefit. We deduct the amount of any outstanding loans plus any accrued loan interest from your policy value before we calculate the death benefit. 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. Your policy will have more information about the payment options. 21 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 for the beneficiary's lifetime. We guarantee an annual interest rate of at least 3%. 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 will 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: . 10 years; or . 20 years; or . 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 3% to compute payments for any life annuity with a period certain of less than 20 years. We use an annual interest rate of 3% to compute payments for any life annuity with a period certain of 20 years or more. Payment Option 5--Life Annuity We pay equal installments to the payee for life beginning on the date of settlement. When the payee dies we will make no more payments of any kind. We will use a guaranteed annual interest rate of at least 3 1/2% to compute payments under this option. 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 3/8% to compute payments under this option. Surrenders You may take a full or partial surrender of your policy at any time as long as at least one insured person is living 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 the surrender request. We generally pay a surrendered amount within seven days of receiving 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 in a form satisfactory 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. A partial surrender will reduce your policy value by the sum of the: . Partial Surrender Amount--the portion of the cash surrender value you choose, but not less than $500; plus . Partial Surrender Fee of $25; plus . Prorated Surrender Charge. We deduct a pro rata portion of the surrender charge that would apply to a full surrender. 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 as described above for the reduction of policy value. Transfer of Policy Value -------------------------------------------------------------------------------- Internet, Interactive Voice Response and Telephone Transfers You may transfer your policy value among the available investment options and make changes to your premium payment allocations by Internet, Interactive Voice Response ("IVR") or telephone. You may write to VPMO or call VULA between the 22 hours of 8:30 AM and 4:00 PM, Eastern Time. (The appropriate address and telephone number are on page 1.) The Company may discontinue any of these options and may provide other options at any time. We will execute a written request the day we receive it at VPMO. We will execute transfers on the day you make the request except as noted below. We do not charge for transfers at this time. However, we reserve the right to charge up to $20 for each transfer in excess of 12 each calendar year. Should we begin imposing this charge, we would not count transfers made under a Systematic Transfer Program toward the transfer limit. You may permit your registered representative to submit transfer requests on your behalf. PHL Variable and Phoenix Equity Planning Corporation ("PEPCO"), our national distributor, will use reasonable procedures to confirm that transfer instructions are genuine. We require verification of account information and will record telephone instructions on tape. You will receive written confirmation of all transfers. PHL Variable and PEPCO may be liable for following unauthorized instructions if we fail to follow our established security procedures. However, you will bear the risk of a loss resulting from instructions entered by an unauthorized third party that PHL Variable and PEPCO reasonably believe to be genuine. We may modify or terminate your transfer and allocation privileges 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. Transfer Restrictions We do not permit transfers of less than $500 unless either: . the entire balance in the investment option or the Guaranteed Interest Account is being transferred; or . the transfer is part of a Systematic Transfer Program. We reserve the right to prohibit a transfer to any investment option if the value of your investment in that investment option immediately after the transfer would be less than $500. We further reserve the right to require that the entire balance of an investment option or the Guaranteed Interest Account be transferred if the value of your investment in that investment option immediately after the transfer, would 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. Market Timing and Other Disruptive Trading -------------------------------------------------------------------------------- We discourage market timing activity, frequent transfers of policy value among investment options and other activity determined to be "Disruptive Trading", as described below. Your ability to make transfers among investment options under the policy is subject to modification if we determine, in our sole opinion, that your exercise of the transfer privilege constitutes "Disruptive Trading" that may disadvantage or potentially harm the rights or interests of other policy owners. "Disruptive Trading" includes, but is not limited to: frequent purchases, redemptions and transfers; transfers into and then out of an investment option in a short period of time; and transfers of large amounts at one time. The risks and harmful effects of Disruptive Trading include: . dilution of the interests of long-term investors in an investment option, if market timers or others transfer into or out of the investment option rapidly in order to take advantage of market price fluctuations; . an adverse affect on portfolio management, as determined by portfolio management in its sole discretion, such as causing the underlying fund to maintain a higher level of cash than would otherwise be the case, or causing the underlying fund to liquidate investments prematurely; and . increased brokerage and administrative expenses. To protect our policy owners and the underlying funds from Disruptive Trading, we have adopted certain policies and procedures. Under our Disruptive Trading policy, we can modify your transfer privileges for some or all of the investment options. Modifications include, but are not limited to, not accepting a transfer request from you or from any person, asset allocation service, and/or market timing service made on your behalf. We may also limit the amount that may be transferred into or out of any investment option at any one time. Unless prohibited by the terms of your policy, we may (but are not obligated to): . limit the dollar amount and frequency of transfers (e.g., prohibit more than one transfer a week, or more than two a month, etc.), . restrict the method of making a transfer (e.g., require that all transfers into a particular investment option be sent to our Service Center by first class U.S. mail and/or rescind telephone, internet, IVR or fax transfer privileges), . require a holding period for some investment options (e.g., prohibit transfers into a particular investment option within a specified period of time after a transfer out of that investment option), . impose redemption fees on short-term trading (or implement and administer redemption fees imposed by one or more of the underlying funds), or . impose other limitations or restrictions. Currently we attempt to detect Disruptive Trading by monitoring both the dollar amount of individual transfers and the frequency of a policy owner's transfers. With respect to both dollar amount and frequency, we may consider an individual transfer alone or when combined with transfers from other policies owned by or under the control or influence of the same individual or entity. 23 We currently review transfer activity on a regular basis. We also consider any concerns brought to our attention by the managers of the underlying funds. We may change our monitoring procedures at any time without notice. Because we reserve discretion in applying these policies, they may not be applied uniformly. However, we will to the best of our ability apply these policies uniformly. Consequently, there is a risk that some policy owners could engage in Disruptive Trading while others will bear the effects of their activity. Currently we attempt to detect Disruptive Trading by monitoring activity for all policies. Possible Disruptive Trading activity may result in our sending a warning letter advising the owner of our concern. Regardless of whether a warning letter is sent, once we determine that Disruptive Trading activity has occurred, we may revoke the owner's right to make Internet and Interactive Voice Response ("IVR") transfers. We will notify policy owners in writing (by mail to their address of record on file with us) if we limit their trading. We have adopted these policies and procedures as a preventative measure to protect all policy owners from the potential affects of Disruptive Trading, while recognizing the need for policy holders to have available reasonable and convenient methods of making transfers that do not have the potential to harm other policy owners. We currently do not make any exceptions to the policies and procedures discussed above to detect and deter Disruptive Trading. We may reinstate Internet, IVR, telephone and fax transfer privileges after they are revoked, but we will not reinstate these privileges if we have reason to believe that they might be used thereafter for Disruptive Trading. We cannot guarantee that our monitoring will be 100% successful in detecting and restricting all transfer activity that constitutes Disruptive Trading. Moreover, we cannot guarantee that revoking or limiting a policy owner's Internet, IVR, telephone and fax transfer privileges will successfully deter all Disruptive Trading. In addition, some of the underlying funds are available to insurance companies other than Phoenix and we do not know whether those other insurance companies have adopted any policies and procedures to detect and deter Disruptive Trading, or if so what those policies and procedures might be. Because we may not be able to detect or deter all Disruptive Trading and because some of these funds are available through other insurance companies, some policy owners may be treated differently than others, resulting in the risk that some policy owners could engage in Disruptive Trading while others will bear the effects of their activity. Orders for the purchase of underlying fund shares are subject to acceptance by the relevant fund. Phoenix has entered into information sharing agreements with the underlying funds of this variable life insurance product as required by Rule 22c-2 of the Investment Company Act of 1940. The purpose of the information sharing is to provide information to the underlying funds so that they can monitor, warn, and restrict policyholders who may be engaging in disruptive trading practices as determined by the underlying funds. We reserve the right to reject, without prior notice, any transfer request into any investment option if the purchase of shares in the corresponding underlying fund is not accepted for any reason. We may, without prior notice, take whatever action we deem appropriate to comply with or take advantage of any state or federal regulatory requirement. We do not include transfers made pursuant to the Dollar Cost Averaging, Automatic Asset Rebalancing or other similar programs when applying our Disruptive Trading policy. Systematic Transfer Programs -------------------------------------------------------------------------------- You may elect a systematic transfer program that we offer under the policy. We reserve the right to change, eliminate or add optional programs subject to applicable laws. We base transfers under a Systematic Transfer Program on the investment option values next determined following our receipt of your transfer request. Except as described below, you may have only one program in effect at a time. Dollar Cost Averaging Program Under this program, you can allocate initial or subsequent premium to one of the investment options or the Guaranteed Interest Account (a "source account") and periodically we will make transfers from the source account you designate to one or several of the available investment options ("target investment options"). You choose to make these transfers monthly, quarterly, semiannually or annually. The minimums you may transfer from the source account are: . $25 monthly . $150 semiannually . $75 quarterly . $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 6 months. The Dollar Cost Averaging Program is not available if you invest through a bank draft program. We do not charge for transfers at this time. However, we reserve the right to charge a fee of $20 for each transfer after your first twelve transfers in a policy year. Should we begin imposing this charge, we would not count transfers made under a Systematic Transfer Program toward the twelve-transfer limit. You may start or discontinue this program at any time by submitting a written request to VPMO, or calling VULA (see page one). Dollar Cost Averaging does not ensure a profit nor guarantee against a loss in a declining market. Except as described below, the Dollar Cost Averaging Program is not available while the Asset Rebalancing Program is in effect. We do not charge for this program. Asset Rebalancing Program Under this program, we transfer policy value among the investment options 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. 24 You may start or discontinue this program at any time by submitting a written request to VPMO or calling VULA (see page one). The Asset Rebalancing Program does not ensure a profit nor guarantee against a loss in a declining market. Except as described below, the Asset Rebalancing Program is not available while the Dollar Cost Averaging Program is in effect. We do not charge for this program. Use of Asset Rebalancing and Dollar Cost Averaging Programs If you elect to participate in either 1.the Franklin Templeton Founding Investment Strategy; or 2.the Phoenix-Ibbotson Strategic Asset Allocation Program, then you can also elect to participate in one or both of the following: 1.Dollar Cost Averaging, and 2.Asset Rebalancing with annual rebalancing in the Phoenix-Ibbotson Strategic Asset Allocation Program, or Asset Rebalancing with monthly rebalancing in the Franklin Templeton Founding Investment Strategy. Additional Programs -------------------------------------------------------------------------------- You may elect any of the additional programs described below at no charge and at any time. We may discontinue, modify or amend these programs as well as offer new programs in the future. Asset Allocation and Strategic Programs Asset allocation and strategic programs (referred to as "programs" throughout this section) are intended to optimize the selection of investment options for a given level of risk tolerance, in order to attempt to maximize returns and limit the effects of market volatility. The programs reflect the philosophy that diversification among asset classes may help reduce volatility. An asset class is a category of investments that have similar characteristics, such as stocks or bonds. Within asset classes there are often further divisions. For example, there may be divisions according to the size of the issuer (large cap, mid cap, small cap) or type of issuer (government, corporate, municipal). We currently offer the following programs: Franklin Templeton Founding Investment Strategy, Phoenix-Ibbotson Strategic Asset Allocation, and Phoenix Dynamic Asset Allocation Series which are described below. For ease of reference, throughout this section of the prospectus, we refer to these asset allocation and strategic programs, simply as "programs", and we refer to the asset allocation options available within the programs, as "options." There is presently no additional charge for participating in these programs and options. We may, on a prospective basis, charge fees for individual programs and may vary fees among the available programs. You may participate in only one program at a time. Subject to regulatory requirements and approvals, in the future we may modify or eliminate any existing program or option, or may offer other asset allocation services which, at our discretion, may be available to current and/or prospective contract owners. For the most current information on any program or option, please contact your registered representative. Selecting a Program and Option If you are interested in adding a program, consult with your registered representative to discuss your choices. For certain programs, a questionnaire may be used to help you and your registered representative assess your financial needs, investment time horizon, and risk tolerance. You should periodically review these factors to determine if you need to change programs or options. You may at any time switch your current program or option, as well as to any modified or new programs or options the Company may make available. You may cancel your participation in a program at any time, and later re-enroll in a program, after first consulting with your registered representative and then contacting our Main Administrative Office. If a program is eliminated, you will receive notice and you may choose, in consultation with your registered representative, among the other programs available at that time. The following programs are currently available: . Franklin Templeton Founding Investment Strategy Through the Franklin Templeton Founding Investment Strategy, premium payments and policy value are allocated to the three investment options as listed below. On a monthly basis, we will rebalance the policy value allocated to the three investment options back to the original allocation percentages in each investment option. . Franklin Income Securities Fund - 34% . Mutual Shares Securities Fund - 33% . Templeton Growth Securities Fund - 33% . Phoenix-Ibbotson Strategic Asset Allocation PHL Variable and Ibbotson Associates have developed five asset allocation options, each comprised of selected combinations of investment options. The options approved for use are: . Conservative Portfolio . Moderately Conservative Portfolio . Moderate Portfolio . Moderately Aggressive Portfolio . Aggressive Portfolio On a periodic basis (typically annually), Ibbotson evaluates the options and updates them to respond to market conditions and to ensure style consistency. If you select one of the Phoenix-Ibbotson options, your premium payments (policy value for in force policies), however, will not be allocated in accordance with the updated options unless you specifically request we do so. If you elect to participate in the Phoenix-Ibbotson Strategic Asset Allocation program on and after September 10, 2007, on an annual basis we will reallocate the policy value allocated to the investment options included in the program so that, following this reallocation, the percentage in each investment option equals the percentage originally used for the program. We will make this reallocation effective on the valuation date immediately preceding each anniversary of your policy date for as long as the asset allocation program is in effect for your policy. 25 You should consult with your registered representative for the most current information on this program and the options within the program. . Phoenix Dynamic Asset Allocation Series The Phoenix Dynamic Asset Allocation Series are "funds of funds" that invest in other mutual funds based on certain target percentages. The series were designed on established principles of asset allocation and are intended to provide various levels of potential total return at various levels of risk. Asset allocations are updated quarterly, or more often, depending on changes in the economy or markets. Each option is rebalanced regularly to the most recent allocations. The options approved for use are: . Phoenix Dynamic Asset Allocation Series: Moderate . Phoenix Dynamic Asset Allocation Series: Moderate Growth . Phoenix Dynamic Asset Allocation Series: Growth . Phoenix Dynamic Asset Allocation Series: Aggressive Growth If you should elect any of the programs listed above, transfers made under these programs will not reduce the 12 transfers per year limit under this policy. 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. Policy value for loaned amounts increases at the rate we credit the loaned portion of the Guaranteed Interest Account, whereas non-loaned policy value varies with the investment performance of the chosen investment options or at the rate we credit the non-loaned portion of the Guaranteed Interest Account. Loans can also reduce your policy's death benefit. We deduct the amount of any outstanding loans plus any accrued loan interest when we calculate the death benefit. The policy's cash value available for withdrawal is also reduced by the amount of any outstanding loans and loan interest. 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 monthly deductions. We charge interest on the loan at annual rates given below, compounded daily and payable in arrears:
New Jersey Policy Years Most States/1/ & Texas/2/ 1-10: 4% 5% 11-15: 3% 4% 16 and after: 2% 3%
/1/ We credit the loaned portion of the Guaranteed Interest Account at 2% for these policies. /2/ We credit the loaned portion of the Guaranteed Interest Account at 3% for those policies. At the end of each policy year, all interest due will be treated as a new loan and will be offset by a transfer from your investment options 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), 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 at least one 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 will then apply any remaining balance to reduce loan interest and any loans. We will apply any payment we receive while you have outstanding loans to reduce loan interest and the 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 since we subtract any outstanding loans and loan interest from policy value before we determine the payable benefit. 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 could be higher or lower than that of the investment options, the non-loaned portion of the Guaranteed Interest Account and the Long-term Guaranteed Interest Account. The longer a loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. Outstanding loans affect the policy's death benefit. The death benefit under Death Benefit Option 1 is equal to the greater of the face amount and the policy value multiplied by the applicable percentage as shown by a table in your policy. Under Death Benefit Option 2, the death benefit would be equal to the sum of the face amount and the policy value, or, if greater, the policy value multiplied by the applicable percentage as shown by 26 a table in your policy. Because we deduct the amount of the outstanding loans plus any accrued loan interest, loans also directly reduce the death benefit proceeds. Lapse and Reinstatement -------------------------------------------------------------------------------- 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 you take a partial surrender or a policy loan, it could negatively affect the policy value, and therefore increase the risk of policy lapse. If, during the first seven policy years, the policy value less any outstanding debt 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 the policy from 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 the policy from lapse. 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 potential lapse will occur. The policy will remain in force during the grace period however; we will not permit any investment option transfers, loans, full or partial surrenders. We apply any premium payment we receive during the grace period, less the premium expense charge, to first pay any unpaid deductions. We will apply any excess premium according to your current premium allocation schedule. The death benefit during the grace period is equal to the death benefit immediately before the grace period begins. 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 Separate 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 policy owner. Policy owners should consult their own independent tax advisors for advice and information relating to their particular tax situation. Income Tax Status We are taxed as a life insurance company under the Internal Revenue Code of 1986 (the "Code"), as amended. For federal income tax purposes, neither the Separate Account nor the Guaranteed Interest Account is a separate entity from Phoenix Life Insurance Company, PHL Variable Insurance Company and Phoenix Life and Annuity Company and their operations form a part of the companies. Investment income and realized capital gains on the assets of the Separate Account are reinvested and taken into account in determining the value of the Separate Account. Investment income of the Separate 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 Separate Account for our federal income taxes which may be attributable to the Separate 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 Separate Account. Policy Benefits Tax Treatment as Life Insurance In order to be treated as life insurance for federal income tax purposes, the policy must meet certain requirements. If these requirements are met, the death benefits are generally received without federal income tax and the earnings on the policy are not subject to federal income tax until withdrawn. These requirements include definitional tests and rules for diversification of the policy's investments (described below). There are two definitional tests for life insurance in the Internal Revenue Code: (1) Cash Value Accumulation Test, and (2) Guideline Premium Test. The selection of the tests is made at issue and cannot be changed thereafter. The choice of test is dependent on several factors, including the insured's age at issue and intention of the owner concerning policy funding patterns. If this policy permits the policy owner to select the applicable test, this selection must be made at issue. Under the Cash Value Accumulation Test, there must, at all times, be a minimum ratio of death benefit to cash value. Compliance with the test is based on the policy design at issue. The premiums permitted under this test are based on the death benefit, age and characteristics of the insured and types of riders on the policy. Under the Guideline Premium Test, there is a limit as to the amount of premium that can be paid into the policy in relation to the death benefit. The initial premium limit is based on the death benefit, age and characteristics of the insured and types of riders on the policy. The actual premium limits each year will depend on the amount of premiums paid in a prior year. In addition to this premium test, there is also a minimum ratio of death benefit to cash value under the Cash Value Corridor. This Corridor looks to the age of the insured and the cash value each year and may 27 require periodic adjustments in death benefit for compliance. In general, the death benefit required under this test is lower in the early years than that under the Cash Value Accumulation Test. 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) unless there has been a transfer for valuable consideration or unless the specific requirements relating to Business and Corporate-Owned Policies are not met (see "Business and Corporate-Owned Policies"). 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, it is possible that the IRS may consider a benefit paid under a Living Benefits Rider as taxable income in the year of receipt. As described above, 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 classified as 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 are generally not taxable. There are situations, however, in which a partial surrender, accompanied by a reduction in death benefits can result in current taxation. Under Code Section 7702(f)(7), 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 that 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 rules affecting modified endowment contracts. 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 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 as long as the policy remains in force. The deductibility by a policy owner of loan interest under a policy is limited under Code Section 264. In most cases, there is no interest deduction permitted, although in limited circumstances, a current deduction may be permitted. We suggest you consult with your tax advisor to determine that amount, if any, of your policy loan interest that may be deductible. Business and Corporate-Owned Policies If the policy is owned by an entity engaged in a trade or business, there are Internal Revenue Code provisions that apply to the tax treatment of premiums, policy loan interest, policy earnings and death benefits. No deduction is permitted for premiums paid if the policy owner is a beneficiary under the policy. With limited exceptions, no deduction is allowed for interest paid or accrued on any policy loan. An interest deduction disallowance rule on non-policy interest (e.g., interest relating to a different investment) paid or incurred by the owner may also apply in the case of a policy insuring the life of an individual who is not an owner of the policy owner, or an officer, director, or employee of the policy owner's business. Death benefits may be subject to income tax unless (1) specified notice and consent provisions are met and (2) criteria are satisfied concerning the relationship between the insured and policy owner or the insured and the death benefits. The policy owner is solely responsible for ensuring that the notice and consent requirements and additional statutory criteria are satisfied. As required by the Internal Revenue Service, the policy owner must also comply with any required annual reporting and recordkeeping requirements. In addition, for certain corporate policy owners, the death benefits and policy earnings may be subject to tax under the corporate alternative minimum tax. Modified Endowment Contracts General A life insurance policy is tested under the "7-pay test" of Code Section 7701A to determine if it is a modified endowment contract "MEC". This test is designed to distinguish policies that have more investment orientation from policies which are less investment oriented. Under this test, there is a premium limit that applies for the first 7 years of the policy and for 7 years after a material change to the policy. If the policy is classified as a MEC, there is no change to the terms of the policy; however, the tax treatment of loans, distributions and decreases is changed from the treatment for non-MEC policies. For a MEC, loans and other distributions will, in general, be taxed to the extent of accumulated income (generally, the excess of cash value over premiums paid). 28 We will modify your premium payments to determine if the premium paid will exceed the 7-pay limit. If such a payment occurs, we will remove the excess premium from your policy to reverse MEC status and offer you the opportunity to have the excess amounts reapplied. Premiums paid during a policy year but which are removed from the policy, with interest if any, within 60 days after the end of the policy year will be excluded from the 7-pay test. If you chose to have the premiums reapplied to your policy during the same policy year and your policy becomes a MEC, the MEC status cannot be reversed. 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 Seven Years If, for a single life contract, during the first seven contract years, there is a reduction in death benefits or reduction or elimination of any Optional Insurance Benefits previously elected, the 7-pay test is recalculated assuming the lowered death benefits. This recalculation is retroactive back to the beginning of the policy and each premium actually paid is tested against the recalculated limit. For a contract insuring more than one insured under which the death benefit is payable following the death of another insured (such as survivorship policy), a reduction in death benefits or reduction or elimination of any Optional Insurance Benefits elected at any time causes a recalculation of the 7-pay test retroactive to policy issue. 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 (defined as specifically including distributions made within two years prior to such failure) are considered distributions under a modified endowment contract. Penalty Tax Any amounts taxable under the modified endowment contract rule will be subject to an additional 10% excise tax, except for distributions that are: . made on or after the taxpayer attains age 59 1/2; . attributable to the taxpayer's disability (within the meaning of Code Section 72(m)(7)); or . 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, except for an increase that 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. A material change may occur at any time during the life of the policy (within the first seven 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 one modified endowment contract in determining the taxable portion of any loans or distributions made to the policy owner. 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 contract is required to be adequately diversified. Through the use of separate accounts, a contract can satisfy the diversification requirements as long as on the last day of each calendar quarter the series' assets be invested in no more than: . 55% in any one investment . 70% in any two investments . 80% in any three investments . 90% in any four investments A "look-through" rule applies to treat a pro rata portion of each asset of a series as an asset of the Separate 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. 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. 29 Owner Control For variable contracts, tax deferral depends on the insurance company and not you having control of the assets held in the separate accounts. You can allocate Account Values from one fund of the separate account to another but you specifically cannot direct the investments each fund makes. If you have too much "investor control" of the assets supporting the separate account funds, then you will be taxed on the gain in the contract as it is earned rather than when it is withdrawn. In 2003, the Internal Revenue Service (IRS) in Revenue Ruling 2003-91, issued formal guidance that indicates that if the number of underlying mutual funds available in a variable insurance product does not exceed 20, the number of underlying mutual funds alone would not cause the contract to not qualify for the desired tax treatment. The IRS has also indicated that exceeding 20 investment options may be considered a factor, along with other factors, including the number of transfer opportunities available under the contract, when determining whether the contract qualifies for the desired tax treatment. The Revenue Ruling did not indicate the actual number of underlying mutual funds that would cause the contract to not provide the desired tax treatment but stated that whether the owner of a variable contract is to be treated as the owner of the assets held by the insurance company under the contract will depend on all of the facts and circumstances. The Revenue Ruling considered certain variable annuity and variable life insurance contracts and held that the types of actual and potential control that the contract owners could exercise over the investment assets held by the insurance company under the variable contracts was not sufficient to cause the contract owners to be treated as the owners of those assets and thus to be subject to current income tax on the income and gains produced by those assets. Under this contract, like the contracts described in the Revenue Ruling, there is no arrangement, plan, contract, or agreement between the contract owner and the company regarding the availability of a particular investment option and, other than the contract owner's right to allocate premium payments and transfer funds among the available investment options, all investment decisions concerning the investment options will be made by us or an advisor in its sole and absolute discretion. At this time, it cannot be determined whether additional guidance will be provided by the U.S. Treasury on this issue and what standards may be contained in such guidance. Should the U.S. Treasury issue additional rules or regulations limiting the number of underlying mutual funds, transfers between or among underlying mutual funds, exchanges of underlying mutual funds or changes in investment objectives of underlying mutual funds such that the contract would no longer qualify for tax deferred treatment, the company reserves the right to modify the contract to the extent required to maintain favorable tax treatment. 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. 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. Withholding We are required to withhold federal income taxes on the taxable portion of any amounts received under the policy unless you elect to not have any withholding or in certain other circumstances. You are not permitted to elect out of withholding if you do not provide a social security number or other taxpayer identification number. Special withholding rules apply to payments made to nonresident aliens. You are liable for payment of federal income taxes on the taxable portion of any amounts received under the policy. You may be subject to penalties if your withholding or estimated tax payments are insufficient. In 2004, the Department of Treasury ruled that income received by residents of Puerto Rico under a life insurance policy issued by a United States company is U.S.-source income that is subject to United States Federal income tax. See Rev. Rul. 2004-74, 2004-31 I.R.B. 109. This ruling is also understood to apply to other nonresident alien policyholders. The Phoenix Companies, Inc. - Legal Proceedings about Company Subsidiaries -------------------------------------------------------------------------------- We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming us as a defendant ordinarily involves our activities as an insurer, investor, investment advisor, or taxpayer. It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods. State regulatory bodies, the Securities and Exchange Commission, or SEC, the Financial Industry Regulatory Authority, or "FINRA" (formerly known as the National Association of Securities Dealers, Inc., or NASD), and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws and securities laws. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. 30 In 2005, the Boston District Office of the SEC conducted a compliance examination of certain of PNX's affiliates that are registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for monitoring trading to prevent market timing activity. The staff requested PNX to conduct an analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have been affected by undetected market timing activity had suffered harm and to advise the staff whether PNX believes reimbursement is necessary or appropriate under the circumstances. A third party was retained to assist PNX in preparing the analysis. Based on this analysis, PNX advised the SEC that it does not believe that reimbursement is appropriate. Over the past several years, a number of companies have announced settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York Attorney General's Office. While no such action has been initiated against us, it is possible that one or more regulatory agencies may pursue this type of action against us in the future. Financial services companies have also been the subject of broad industry inquiries by state regulators and attorneys general which do not appear to be company-specific. These types of regulatory actions may be difficult to assess or quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and magnitude of their outcomes may remain unknown for substantial periods of time. While it is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these actions and the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operation or cash flows in particular quarterly or annual periods. Financial Statements -------------------------------------------------------------------------------- The financial statements of PHLVIC Variable Universal Life Account as of December 31, 2007, and the results of its operations and the changes in its net assets for each of the periods indicated and the financial statements of PHL Variable Insurance Company as of December 31, 2007 and 2006, and for each of the three years in the period ended December 31, 2007 are contained in the Statement of Additional Information (SAI), which you can get free of charge by calling the toll free number given on page one. The financial statements of PHL Variable Insurance Company included herein should be considered only as bearing upon the ability of PHL Variable Insurance Company to meet its obligations under the policies. You should not consider them as bearing on the investment performance of the assets held in the Separate Account or the Guaranteed Interest Account rates that we credit during a guarantee period. Distribution -------------------------------------------------------------------------------- PHL Variable has appointed Phoenix Equity Planning Corporation ("PEPCO") to serve as the principal underwriter and distributor of the securities offered through this prospectus, pursuant to the terms of a distribution agreement. PEPCO, which is an affiliate of PHL Variable, also acts as the principal underwriter and distributor of other variable life insurance policies and variable annuity contracts issued by PHL Variable and its affiliated companies. PHL Variable reimburses PEPCO for expenses PEPCO incurs in distributing the policies (e.g., commissions payable to retail broker-dealers who sell the policies). PEPCO does not retain any fees under the policies; however, PEPCO may receive 12b-1 fees from the Funds. PEPCO's principal executive offices are located at 56 Prospect Street, Hartford, Connecticut 06103. PEPCO is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as well as the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority, or FINRA. PEPCO and PHL Variable enter into selling agreements with broker-dealers who are registered with the SEC and are members of the FINRA, and with entities that may offer the policies but are exempt from registration. Applications for the Policy are solicited by registered representatives who are associated persons of such broker-dealer firms. Those representatives act as appointed agents of PHL Variable under applicable state insurance law and must be licensed to sell variable life insurance products. PHL Variable intends to offer the policy in all jurisdictions where it is licensed to do business and where the policy is approved. The policies are offered on a continuous basis. Compensation. Broker-dealers having selling agreements with PEPCO and PHL Variable are paid compensation for the promotion and sale of the policies. Registered representatives who solicit sales of the policy typically receive a portion of the compensation payable to the broker-dealer firm, depending on the agreement between the firm and the registered representatives. A broker-dealer firm or registered representative of a firm may receive different compensation for selling one product over another and/or may be inclined to favor or disfavor one product provider over another product provider due to differing compensation rates. Compensation paid on the policies, as well as other incentives or payments, are not assessed as an additional direct charge to policy owners or the Separate Account. Instead, you pay for sales and distribution expenses through overall charges and fees assessed under your policy. For example, front end sales charges, per thousand sales loads, and/or any profits PHL Variable may realize through assessing the mortality and expense risk charge under your policy may be used to pay for sales and distribution expenses. PHL Variable may also pay for sales and distribution expenses out of any payments PHL Variable or PEPCO may receive from the Funds for providing administrative, marketing and other support and services to the Funds. 31 The amount and timing of overall compensation, which includes both commissions and the additional compensation as outlined below, may vary depending on the selling and other agreements in place. The additional compensation or reimbursement we pay to certain broker-dealers may be paid in the form of flat fees. However, these payments may be represented as a percentage of expected premium payments. Sales commissions will be paid to registered representatives on purchase payments we receive under these policies. Phoenix will pay up to a maximum total sales commission of up to 112% of target premium payments in the first policy year, up to 20% of excess target premium payments in the first policy year, up to 20% of target premium payments in the following policy years, and asset based fees of up to 0.25% of policy value in the following policy years. Percentage of Premium Payment. We generally pay compensation as a percentage of premium payments invested in the policy ("commissions"). In addition, we pay periodic asset-based commission based on all or a portion of the policy value. The amount of commissions we pay may vary depending on the selling agreement. Promotional Incentives and Payments. To the extent permitted by FINRA rules and other applicable laws and regulations, PEPCO may pay or allow other promotional incentives or payments in the firm of cash or other compensation. Preferred Distribution Arrangements. PHL Variable and PEPCO have also entered into preferred distribution arrangements with certain broker-dealer firms. These arrangements are sometimes called "shelf space" arrangements. Under these arrangements, PHL Variable and PEPCO pay separate, additional compensation to the broker-dealer firm for services the broker-dealer provides in connection with the distribution of the Company's products. The payments are made from the Company's general assets and they may be significant. The broker-dealer may realize a profit on these payments. These services may include providing PHL Variable with access to the distribution network of the broker-dealer, the hiring and training of the broker-dealer's sales personnel, the sponsoring of conferences and seminars by the broker-dealer, or general marketing services performed by the broker-dealer. The broker-dealer may also provide other services or incur other costs in connection with distributing PHL Variable's products. These preferred distribution arrangements will not be offered to all broker-dealer firms and the terms of such arrangements may differ between broker-dealer firms. Compensation payable under such arrangements may be based on: aggregate, net or anticipated sales of the policies; total assets attributable to sale of the policies by registered representatives of the broker-dealer firm; the length of time that a policy owner has owned the policy; meeting certain sales thresholds; and/or actual or anticipated overhead expenses incurred by the broker-dealer firms in offering the policies and other variable insurance products offered by PHL Variable or its affiliates. Compensation under these arrangements may be in the form of one-time or periodic lump sum payments. The company and PEPCO have entered into such arrangements with State Farm VP Management Corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc., Wachovia Securities, Woodbury Securities, AXA Network, A.G. Edwards & Sons, Inc., LPL Financial Services and certain of its affiliates, National Financial Partners, FFR Financial and Insurance Services, and Crump Group, Inc. 32 APPENDIX A - Investment Options --------------------------------------------------------------------------------
Fund Name Investment Objective AIM V.I. Capital Appreciation Fund Growth of capital --------------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund/ 1, 3/ Growth of capital --------------------------------------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund/ 1, 3/ Long term growth of capital --------------------------------------------------------------------------------------------------------- Alger American Capital Appreciation Portfolio Long term capital appreciation (formerly Alger American Leveraged AllCap Portfolio)/ 1, 3/ --------------------------------------------------------------------------------------------------------- DWS Equity 500 Index VIP Seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index, which emphasizes stocks of large U.S. companies --------------------------------------------------------------------------------------------------------- DWS Small Cap Index VIP Seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Russell 2000(R) Index, which emphasizes stocks of small US companies. --------------------------------------------------------------------------------------------------------- Federated Fund for U.S. Government Securities II Current income by investing primarily in a diversified portfolio of U.S. government and government agency securities --------------------------------------------------------------------------------------------------------- Federated High Income Bond Fund II High current income by investing primarily in a professionally managed, diversified portfolio of high yield, lower rated corporated bonds (also known as "Junk Bonds") --------------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund(R) Portfolio Long-term capital appreciation --------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Opportunities Portfolio Capital growth --------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio Capital appreciation --------------------------------------------------------------------------------------------------------- Fidelity VIP Investment Grade Bond Portfolio As high a level of current income as is consistent with the preservation of capital --------------------------------------------------------------------------------------------------------- Franklin Income Securities Fund Maximize income while maintaining prospects for capital appreciation --------------------------------------------------------------------------------------------------------- Lazard Retirement Small Cap Portfolio/ 1, 3/ Long term capital appreciation --------------------------------------------------------------------------------------------------------- Lord Abbett Bond-Debenture Portfolio High current income and the opportunity for capital appreciation to produce a high total return --------------------------------------------------------------------------------------------------------- Lord Abbett Growth and Income Portfolio Long-term growth of capital and income without excessive fluctuations in market value ---------------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor AIM V.I. Capital Appreciation Fund Invesco Aim Advisors, Inc. Subadvisor(s): Invesco Trimark Investment Management Inc.; Invesco Global Asset Management (N.A.), Inc.; Invesco Institutional (N.A.), Inc.; Invesco Senior Secured Management, Inc.; Invesco Hong Kong Limited; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Asset Management Deutschland, GmbH; and Invesco Australia Limited -------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund/ 1, 3/ Invesco Aim Advisors, Inc. Subadvisor(s): Invesco Trimark Investment Management Inc.; Invesco Global Asset Management (N.A.), Inc.; Invesco Institutional (N.A.), Inc.; Invesco Senior Secured Management, Inc.; Invesco Hong Kong Limited; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Asset Management Deutschland, GmbH; and Invesco Australia Limited -------------------------------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund/ 1, 3/ Invesco Aim Advisors, Inc. Subadvisor(s): Invesco Trimark Investment Management Inc.; Invesco Global Asset Management (N.A.), Inc.; Invesco Institutional (N.A.), Inc.; Invesco Senior Secured Management, Inc.; Invesco Hong Kong Limited; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Asset Management Deutschland, GmbH; and Invesco Australia Limited -------------------------------------------------------------------------------------------------- Alger American Capital Appreciation Portfolio Fred Alger Management, Inc. (formerly Alger American Leveraged AllCap Portfolio)/ 1, 3/ -------------------------------------------------------------------------------------------------- DWS Equity 500 Index VIP Deutsche Asset Management Americas Inc. Subadvisor: Northern Trust Investments, N.A -------------------------------------------------------------------------------------------------- DWS Small Cap Index VIP Deutsche Asset Management Americas Inc. Subadvisor: Northern Trust Investments, N.A -------------------------------------------------------------------------------------------------- Federated Fund for U.S. Government Securities II Federated Investment Management Company -------------------------------------------------------------------------------------------------- Federated High Income Bond Fund II Federated Investment Management Company -------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund(R) Portfolio Fidelity Management and Research Company -------------------------------------------------------------------------------------------------- Fidelity VIP Growth Opportunities Portfolio Fidelity Management and Research Company -------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio Fidelity Management and Research Company -------------------------------------------------------------------------------------------------- Fidelity VIP Investment Grade Bond Portfolio Fidelity Management and Research Company Subadvisor: Fidelity Investments Money Management, Inc. -------------------------------------------------------------------------------------------------- Franklin Income Securities Fund Franklin Advisers, Inc. -------------------------------------------------------------------------------------------------- Lazard Retirement Small Cap Portfolio/ 1, 3/ Lazard Asset Management LLC -------------------------------------------------------------------------------------------------- Lord Abbett Bond-Debenture Portfolio Lord, Abbett & Co. LLC -------------------------------------------------------------------------------------------------- Lord Abbett Growth and Income Portfolio Lord, Abbett & Co. LLC --------------------------------------------------------------------------------------------------
A-1
Fund Name Investment Objective Lord Abbett Mid-Cap Value Portfolio Capital appreciation through investments, primarily in equity securities which are believed to be undervalued in the marketplace ---------------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund Capital appreciation with income as a secondary goal ---------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Small Cap Growth Portfolio Long term capital growth (formerly Neuberger Berman AMT Fasciano Portfolio) ---------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Guardian Portfolio Long term growth of capital; current income is a secondary goal ---------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund/VA Capital appreciation by investing in securities of well-known, established companies ---------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA Long-term capital appreciation by investing in securities of foreign insurers, "growth-type" companies, cyclical industries and special situations ---------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Small-Cap Fund/VA Capital appreciation ---------------------------------------------------------------------------------------------------------------- Phoenix Capital Growth Series Intermediate and long-term capital appreciation with income as a secondary consideration ---------------------------------------------------------------------------------------------------------------- Phoenix Growth and Income Series Dividend growth, current income and capital appreciation ---------------------------------------------------------------------------------------------------------------- Phoenix Mid-Cap Growth Series Capital appreciation ---------------------------------------------------------------------------------------------------------------- Phoenix Money Market Series As high a level of current income as is consistent with the preservation of capital and maintenance of liquidity ---------------------------------------------------------------------------------------------------------------- Phoenix Multi-Sector Fixed Income Series Long-term total return ---------------------------------------------------------------------------------------------------------------- Phoenix Multi-Sector Short Term Bond Series High current income while attempting to limit changes in the series' net asset value per share caused by interest rate changes ---------------------------------------------------------------------------------------------------------------- Phoenix Strategic Allocation Series High total return consistent with prudent investment risk ---------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International Series High total return consistent with reasonable risk ---------------------------------------------------------------------------------------------------------------- Phoenix-Alger Small-Cap Growth Series Long-term capital growth ---------------------------------------------------------------------------------------------------------------- Phoenix-Duff & Phelps Real Estate Securities Series Capital appreciation and income with approximately equal emphasis ---------------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Long-term capital growth Aggressive Growth /2, 3/ ---------------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Growth /2, 3/ Long-term capital growth with current income as a secondary consideration ---------------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Current income with capital growth as a secondary Moderate /2, 3/ consideration ---------------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Moderate Long-term capital growth and current income with a Growth /2, 3/ greater emphasis on capital growth ---------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Mid-Cap Value Series Long-term capital appreciation with current income as a secondary investment objective ---------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Small-Cap Value Series Long-term capital appreciation by investing primarily in small-capitalization stocks that appear to be undervalued with current income as a secondary investment objective ---------------------------------------------------------------------------------------------------------------- Phoenix-Van Kampen Comstock Series Long-term capital appreciation with current income as a secondary consideration ---------------------------------------------------------------------------------------------------------------- Phoenix-Van Kampen Equity 500 Index Series High total return ---------------------------------------------------------------------------------------------------------------- PIMCO CommodityRealReturn/TM/ Strategy Portfolio Seeks maximum real return consistent with prudent investment management ----------------------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor Lord Abbett Mid-Cap Value Portfolio Lord, Abbett & Co. LLC ------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund Franklin Mutual Advisers, LLC ------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Small Cap Growth Portfolio Neuberger Berman Management Inc. (formerly Neuberger Berman AMT Fasciano Subadvisor: Neuberger Berman, LLC Portfolio) ------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Guardian Portfolio Neuberger Berman Management Inc. Subadvisor: Neuberger Berman, LLC ------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund/VA OppenheimerFunds, Inc. ------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA OppenheimerFunds, Inc. ------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Small-Cap Fund/VA OppenheimerFunds, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Capital Growth Series Phoenix Variable Advisors, Inc. Subadvisor: Harris Investment Management, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Growth and Income Series Phoenix Variable Advisors, Inc. Subadvisor: Phoenix Investment Counsel, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Mid-Cap Growth Series Phoenix Variable Advisors, Inc. Subadvisor: Neuberger Berman Management, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Money Market Series Phoenix Variable Advisors, Inc. Subadvisor: Goodwin Capital Advisers, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Multi-Sector Fixed Income Series Phoenix Variable Advisors, Inc. Subadvisor: Goodwin Capital Advisers, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Multi-Sector Short Term Bond Series Phoenix Variable Advisors, Inc. Subadvisor: Goodwin Capital Advisers, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Strategic Allocation Series Phoenix Variable Advisors, Inc. Subadvisors: Goodwin Capital Advisers, Inc. (fixed income portion) Phoenix Investment Counsel, Inc. (equity portion) ------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International Series Phoenix Variable Advisors, Inc. Subadvisor: Aberdeen Asset Management Inc. ------------------------------------------------------------------------------------------------------- Phoenix-Alger Small-Cap Growth Series Phoenix Variable Advisors, Inc. Subadvisor: Fred Alger Management, Inc. ------------------------------------------------------------------------------------------------------- Phoenix-Duff & Phelps Real Estate Securities Series Phoenix Variable Advisors, Inc. Subadvisor: Duff & Phelps Investment Management Company ------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Phoenix Variable Advisors, Inc. Limited Services Aggressive Growth /2, 3/ Subadvisor: Ibbotson Associates, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Growth /2, 3/ Phoenix Variable Advisors, Inc. Limited Services Subadvisor: Ibbotson Associates, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Phoenix Variable Advisors, Inc. Limited Services Moderate /2, 3/ Subadvisor: Ibbotson Associates, Inc. ------------------------------------------------------------------------------------------------------- Phoenix Dynamic Asset Allocation Series: Moderate Phoenix Variable Advisors, Inc. Limited Services Growth /2, 3/ Subadvisor: Ibbotson Associates, Inc. ------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Mid-Cap Value Series Phoenix Variable Advisors, Inc. Subadvisor: AllianceBernstein L.P. ------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Small-Cap Value Series Phoenix Variable Advisors, Inc. Subadvisor: AllianceBernstein L.P. ------------------------------------------------------------------------------------------------------- Phoenix-Van Kampen Comstock Series Phoenix Variable Advisors, Inc. Subadvisor: Morgan Stanley Investment Management Inc., d/b/a Van Kampen ------------------------------------------------------------------------------------------------------- Phoenix-Van Kampen Equity 500 Index Series Phoenix Variable Advisors, Inc. Subadvisor: Morgan Stanley Investment Management Inc., d/b/a Van Kampen ------------------------------------------------------------------------------------------------------- PIMCO CommodityRealReturn/TM/ Strategy Portfolio Pacific Investment Management Company LLC -------------------------------------------------------------------------------------------------------
A-2
Fund Name Investment Objective PIMCO Real Return Portfolio Seeks maximum real return, consistent with preservation of real capital and prudent investment management --------------------------------------------------------------------------------------------------------- PIMCO Total Return Portfolio Seeks maximum total return, consistent with preservation of capital and prudent investment management --------------------------------------------------------------------------------------------------------- Rydex Variable Trust Inverse Government Long Seeks to provide total returns that inversely correlate Bond Strategy Fund /1, 3/ to the price movements of a benchmark for U.S. Treasury debt instruments or futures contract on a specified debt instrument. The Fund's current benchmark is the inverse of the daily price movement of the Long Treasury Bond. --------------------------------------------------------------------------------------------------------- Rydex Variable Trust Nova Fund /1, 3/ Seeks to provide investment results that match the performance of its benchmark on a daily basis. The Fund's current benchmark is 150% of the performance of the S&P 500 Index --------------------------------------------------------------------------------------------------------- Rydex Variable Trust Sector Rotation Fund /1, 3/ Seeks long-term capital appreciation --------------------------------------------------------------------------------------------------------- Sentinel VPT Balanced Fund Seeks a combination of growth of capital and current income, with relatively low risk and relatively low fluctuations in value --------------------------------------------------------------------------------------------------------- Sentinel VPT Bond Fund Seeks high current income while seeking to control risk --------------------------------------------------------------------------------------------------------- Sentinel VPT Common Stock Fund Seeks a combination of growth of capital, current income, growth of income and relatively low risk as compared with the stock market as a whole --------------------------------------------------------------------------------------------------------- Sentinel VPT Mid Cap Growth Fund Seeks growth of capital --------------------------------------------------------------------------------------------------------- Sentinel VPT Small Company Fund Seeks growth of capital --------------------------------------------------------------------------------------------------------- Summit S&P MidCap 400 Index Portfolio Seeks investment results that correspond to the total return performance of U.S. common stock, as represented by the S&P MidCap 400 Index --------------------------------------------------------------------------------------------------------- Templeton Developing Markets Securities Fund Long-term capital appreciation --------------------------------------------------------------------------------------------------------- Templeton Foreign Securities Fund Long-term capital growth --------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund Long-term capital growth --------------------------------------------------------------------------------------------------------- Van Kampen UIF Equity and Income Portfolio Capital appreciation and current income --------------------------------------------------------------------------------------------------------- Wanger International Select Long-term growth of capital --------------------------------------------------------------------------------------------------------- Wanger International Small Cap /4/ Long-term growth of capital --------------------------------------------------------------------------------------------------------- Wanger Select Long-term growth of capital --------------------------------------------------------------------------------------------------------- Wanger U.S. Smaller Companies /5/ Long-term growth of capital ---------------------------------------------------------------------------------------------------------
Fund Name Investment Advisor / Subadvisor PIMCO Real Return Portfolio Pacific Investment Management Company LLC ------------------------------------------------------------------------------------------ PIMCO Total Return Portfolio Pacific Investment Management Company LLC ------------------------------------------------------------------------------------------ Rydex Variable Trust Inverse Government Long Rydex Investments Bond Strategy Fund /1, 3/ ------------------------------------------------------------------------------------------ Rydex Variable Trust Nova Fund /1, 3/ Rydex Investments ------------------------------------------------------------------------------------------ Rydex Variable Trust Sector Rotation Fund /1, 3/ Rydex Investments ------------------------------------------------------------------------------------------ Sentinel VPT Balanced Fund Sentinel Asset Management, Inc. ------------------------------------------------------------------------------------------ Sentinel VPT Bond Fund Sentinel Asset Management, Inc. ------------------------------------------------------------------------------------------ Sentinel VPT Common Stock Fund Sentinel Asset Management, Inc. ------------------------------------------------------------------------------------------ Sentinel VPT Mid Cap Growth Fund Sentinel Asset Management, Inc. ------------------------------------------------------------------------------------------ Sentinel VPT Small Company Fund Sentinel Asset Management, Inc. ------------------------------------------------------------------------------------------ Summit S&P MidCap 400 Index Portfolio Summit Investment Partners, Inc. ------------------------------------------------------------------------------------------ Templeton Developing Markets Securities Fund Templeton Asset Management Ltd. ------------------------------------------------------------------------------------------ Templeton Foreign Securities Fund Templeton Investment Counsel, LLC ------------------------------------------------------------------------------------------ Templeton Growth Securities Fund Templeton Global Advisors Limited ------------------------------------------------------------------------------------------ Van Kampen UIF Equity and Income Portfolio Morgan Stanley Investment Management Inc. ------------------------------------------------------------------------------------------ Wanger International Select Columbia Wanger Asset Management, L.P. ------------------------------------------------------------------------------------------ Wanger International Small Cap /4/ Columbia Wanger Asset Management, L.P. ------------------------------------------------------------------------------------------ Wanger Select Columbia Wanger Asset Management, L.P. ------------------------------------------------------------------------------------------ Wanger U.S. Smaller Companies /5/ Columbia Wanger Asset Management, L.P. ------------------------------------------------------------------------------------------
/1/ This fund closed to new investment on May 1, 2006. /2/ This fund closed to new investment on March 24, 2008. /3/ Contract/policy owners who had value allocated to a fund before its applicable closure date, the following restrictions apply: (1) only regular premium payments are allowed into the fund; (2) no transfers from other funds are allowed into the fund; (3) existing allocation percentages may only be reduced and the fund may not be added to an allocation schedule; (4) existing DCA percentages may only be reduced and the fund may not be added to a DCA allocation schedule; and (5) existing rebalancing percentages may only be reduced and the fund may not be added to the rebalancing allocation schedule. /4/ Effective June 1, 2008, to be known as Wanger International. /5/ Effective June 1, 2008, to be known as Wanger USA. A-3 Appendix B - Glossary of Special Terms -------------------------------------------------------------------------------- Most of the terms used throughout this prospectus are described within the text where they appear. Certain terms marked by italics when they first appear are defined below. Attained age: The age of the insured, whether living or not, increased by the number of policy years completed. Amount at risk: On a monthly calculation day it is the death benefit minus the policy value prior to the deduction of the cost of insurance charge. On any other day it is the death benefit minus the policy value. Cash surrender value: The cash surrender value is the policy value less any applicable surrender charge on the date of surrender and less any debt. Death benefit option: The type of death benefit described in effect. Due proof of death: A certified death certificate, or an order of a court of competent jurisdiction, or any other proof acceptable to us. Debt: Unpaid policy loans with accrued interest. In force: The policy has not terminated or otherwise lapsed in accordance with the grace period and lapse provision. In writing (written notice, written request): Is a written form signed by you, satisfactory to us and received by us. Monthly calculation day: The first monthly calculation day is the same day as the policy date. Subsequent monthly calculation days are the same days 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 a premium payment or loan repayment is received by us unless it is received after the close of the New York Stock Exchange in which case it will be the next valuation date. Policy anniversary: The anniversary of the policy date. Policy date: The policy date shown on the schedule pages from which policy years and policy anniversaries are measured. Policy month: The period from one monthly calculation day up to, but not including, the next monthly calculation day. Policy value: The sum of your policy's share in the value of each investment option plus the value of your policy allocated to the Guaranteed Interest Account. Policy year: The first policy year is the one-year period from the policy date up to, but not including, the first policy anniversary. Each succeeding policy year is the one-year period from the policy anniversary up to, but not including, the next policy anniversary. Investment Options: The accounts within our Separate Account to which non-loaned assets under the policy are allocated. Unit: A standard of measurement used to determine the share of this policy in the value of each investment option of the Separate Account. Valuation period: The period in days from the end of one valuation date through the next valuation date. We (our, us, company): PHL Variable Insurance Company. You (your): The owner of this policy at the time an owner's right is exercised. B-1 [LOGO] PHL Variable Insurance Company PO Box 22012 Albany, NY 12201-2012 -------------------------------------------------------------------------------- Additional information about The Phoenix Edge(R) - SVUL (the "Policy") and the PHLVIC Variable Universal Life Account (the "Separate Account") is contained in the Policy's Statement of Additional Information ("SAI") dated May 1, 2008, which has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this prospectus. The SAI and personalized illustrations of death benefits and net surrender values are available, without charge, upon request. Inquiries and requests for the SAI and other requests should be directed in writing to Phoenix Variable Products Mail Operations, P.O. Box 8027, Boston, Massachusetts 02266-8027, or by telephone (800) 541-0171 or, you can download copies from The Phoenix Companies, Inc. web site: phoenixwm.com. Information about the Separate Account, including the SAI, can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. Reports and other information about the Separate Account are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of the information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC Public Reference Section, 100 F Street, NE, Room 1580, Washington, D.C. 20549. PHL Variable Insurance Company A member of The Phoenix Companies, Inc. phoenixwm.com V612 Investment Company Act File No. 811-09065 L0691PR (C) 2008 The Phoenix Companies, Inc. 5-08 PART B The Phoenix Edge(R) - SVUL PHLVIC Variable Universal Life Account Issued by: PHL Variable Insurance Company STATEMENT OF ADDITIONAL INFORMATION May 1, 2008 ----------------- Flexible Premium Fixed and Variable Universal Life Insurance Policy This Statement of Additional Information ("SAI") is not a prospectus and should be read in conjunction with the prospectus, dated May 1, 2008. You may obtain a copy of the prospectus without charge by contacting PHL Variable Insurance Company ("PHL Variable") at the address or telephone number below. Defined terms used in the current prospectus are incorporated in this SAI. ----------------- TABLE OF CONTENTS
Page ------------------------------------------------- PHL Variable Insurance Company.............. 2 The Separate Account........................ 2 The Policy.................................. 2 Services.................................... 3 Underwriter................................. 4 Performance History......................... 4 Additional Information about Charges........ 5 Safekeeping of the Separate Account's Assets 6 State Regulation............................ 6 Reports..................................... 6 Experts..................................... 6 Separate Account Financial Statements....... SA-1 Company Financial Statements................ F-1
----------------- If you have any questions, please contact us at: [GRAPHIC] Phoenix Variable Products Mail Operations ("VPMO") PO Box 8027 Boston, Massachusetts 02266-8027
Variable and Universal [GRAPHIC] Life Administration Phoenix Variable Products Mail Operations ("VPMO") ("VULA") PO Box 8027 Tel. (800)541-0171 Boston, Massachusetts 02266-8027
1 PHL Variable Insurance Company -------------------------------------------------------------------------------- PHL Variable Insurance Company ("PHL Variable") is a Connecticut stock life insurance company incorporated on July 15, 1981. We sell life insurance policies and annuity contracts through our affiliated distribution companies and through brokers. Our executive and administrative office is at One American Row in Hartford, Connecticut 06103-2899. PHL Variable is a wholly owned subsidiary of Phoenix Life Insurance Company ("Phoenix") through its holding company, PM Holdings, Inc. Phoenix is a life insurance company, which is wholly owned by The Phoenix Companies, Inc. ("PNX"), which is a manufacturer of insurance, annuity and asset management products. The Separate Account -------------------------------------------------------------------------------- PHL Variable established the Separate Account as a separate account under Connecticut insurance law on September 10, 1998. The Separate 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." Connecticut law requires all income, gains or losses of the Separate Account be credited to or charged against amounts placed in the Separate Account without regard to the other income, gains and losses of PHL Variable. The assets of the Separate 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 Separate Account is divided into investment options, each of which is available for allocation of policy value. Each investment option will invest solely in a single investment portfolio of a fund. Each portfolio has its own specified investment objective. The policy value allocated to the Separate Account depends on the investment performance of the underlying funds. The policy owner bears the full investment risk for all monies invested in the Separate Account. 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 Separate 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 Separate 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 investment option to another investment option without penalty. Determination of Investment Option Values We establish the unit value of each investment option on the first valuation date of that investment option. The unit value of an investment option on any other valuation date is determined by multiplying the unit value of that investment option on the previous valuation date by the net investment factor for that investment option for the then current valuation period. The unit value of each investment option on a day other than a valuation date is the unit value on the next valuation date. Unit values are carried to six decimal places. The unit value of each investment option on a valuation date is determined at the end of that day. The net investment factor for each investment option is determined by the investment performance of the assets held by the investment option 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 investment option 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 investment option if the "ex-dividend" date for shares of the fund occurs during the current valuation period. (C) =The value of the assets in the investment option as of the just prior valuation date, including accrued net investment income and realized and unrealized capital gains and losses, and including the net 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, per $1 of assets in the investment option. These charges will only be deducted if, in the future, the Separate Account becomes liable for them. The Policy -------------------------------------------------------------------------------- The number of units credited to an investment option of the Separate Account will be determined by dividing the portion of the net premium applied to that investment option by the unit value of the investment option on the payment date. You may increase or decrease the planned premium amount (within limits) or payment frequency at any time by writing to VPMO. We reserve the right to limit increases to such maximums 2 as may be established from time to time. Additional premium payments may be made at any time. Each premium payment must at least equal $25 or, if made during a grace period, the payment must equal the amount needed to prevent lapse of the policy. You also may elect a Waiver of Premium Rider. This rider provides for the waiver of certain premium payments under certain conditions during a period of total disability of the Insured. Under its terms, the specified premium will be waived upon our receipt of proof that the Insured is totally disabled and that the disability occurred while the rider was in force. Policies sold to officers, directors and employees of PHL Variable (and their spouses and children) will be credited with an amount equal to the first-year commission that would apply on the amount of premium contributed. This option is also available to career agents of PHL Variable (and their spouses and children). 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 either insured person commits suicide within two years of the policy 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 two years during which at least one of the insured people is alive. Change of Owner or Beneficiary The beneficiary you name in the policy application or subsequently change, will receive the policy benefits upon death of the last surviving insured person. If your named beneficiary dies before then, the named contingent beneficiary, if any, will become the beneficiary. If there is no surviving or named beneficiary, we will pay the death benefit to you or to your estate. You may change the policy owner and the beneficiary as long as the policy 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 last surviving insured person is living when we receive the notice. However, we will not be liable for any payment made or action taken before we receive your written notice. Misstatements If you incorrectly state the age or gender of either 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 persons' correct personal information. Surplus This nonparticipating policy does not pay dividends. You will not share in PHL Variable's surplus earnings. Services -------------------------------------------------------------------------------- Servicing Agent The Phoenix Edge Series Fund reimburses Phoenix Life Insurance Company for various shareholder services provided by the Variable Product Operations area located at 31 Tech Valley Drive, East Greenbush, NY 12061. The functions performed include investor inquiry support, shareholder trading, confirmation of investment activity, quarterly statement processing and Web/Interactive Voice Response trading. The rate of reimbursement for 2008 is 0.058% of the fund's average daily net assets. The total administrative service fees paid by the fund for the last three fiscal years follows: ----------------------------------------------------------------------------- Year Ended December 31, Fee Paid ----------------------------------------------------------------------------- 2005 $1.9 Million ----------------------------------------------------------------------------- 2006 $1.5 Million ----------------------------------------------------------------------------- 2007 $1.7 Million ----------------------------------------------------------------------------- Other Service Providers Under a contract with Phoenix Life Insurance Company ("PLIC"), Ibbotson Associates provides certain asset allocation services, including a risk tolerance questionnaire to assist the policy owner, for use in conjunction with the policy. For these services, PLIC pays Ibbotson an annual flat fee. The fees paid for the last three fiscal years follow: ----------------------------------------------------------------------------- Year Ended December 31, Fee Paid ----------------------------------------------------------------------------- 2005 $ 86,000 ----------------------------------------------------------------------------- 2006 $101,000 ----------------------------------------------------------------------------- 2007 $ 95,000 ----------------------------------------------------------------------------- Under a contract with PLIC, Tata Consulting Services augments PLIC's U.S. based staff with processing premium payments, investment option transfers, asset allocation changes, changes of address, and issuance of new variable annuity business. The fees paid for these services for the last three fiscal years follow: ----------------------------------------------------------------------------- Year Ended December 31, Fee Paid ----------------------------------------------------------------------------- 2005 $159,779.94 ----------------------------------------------------------------------------- 2006 $177,316.43 ----------------------------------------------------------------------------- 2007 $352,306.86 ----------------------------------------------------------------------------- Under an Administrative and Accounting Services Agreement between PFPC, INC. (PFPC) and the Company, PFPC provides certain services related to the Separate Account. These services include computing investment option unit value for each investment option of the Separate Account on each valuation date, preparing annual financial statements for the Separate Account, filing the Separate Account annual reports on Form N-SAR with the SEC, and maintaining certain books and records required by law on behalf of the Separate Account. The Company pays PFPC fees for these services. The total fee includes a flat annual charge per investment option, an annual base fee for the 3 company and its affiliates utilizing the services, and license and service fees for certain software used in providing the services. During the last three fiscal years, the Company and insurance company affiliates of the Company have paid PFPC the fees listed below for services provided to the Separate Account, other investment options of the Company, and investment options of insurance company affiliates of the Company. ----------------------------------------------------------------------------- Year Ended December 31, Fee Paid ----------------------------------------------------------------------------- 2005 $548,916.200 ----------------------------------------------------------------------------- 2006 $537,086.622 ----------------------------------------------------------------------------- 2007 $560,416.07 ----------------------------------------------------------------------------- Underwriter -------------------------------------------------------------------------------- Phoenix Equity Planning Corporation ("PEPCO") is the principal underwriter and national distributor for the policies pursuant to an underwriting agreement dated November 1, 2000. Its principal business address is One American Row, Hartford, CT 06103-2899. PEPCO is a directly wholly owned subsidiary of Phoenix Investment Partners, Inc. ("PXP"). PXP is an indirectly owned subsidiary of PNX. PEPCO is an affiliated subsidiary of both the Separate Account and Phoenix. PEPCO, an affiliate of PHL Variable, as underwriter, offers these policies on a continuous basis. PEPCO is not compensated for any underwriting commissions. All underwriting commission costs are borne directly by PHL Variable. The basis of the mortality rates guaranteed in the policy is the 1980 Commissioners' Standard Ordinary Mortality Table, adjusted for risk classifications. Performance History -------------------------------------------------------------------------------- Yield of the Phoenix Money Market Series. We calculate the yield of the Phoenix 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 investment option. We carry results to the nearest hundredth of one percent. Example Calculation: The following example of a return/yield calculation for the Phoenix Money Market Series is based on the 7-day period ending December 31, 2007: 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:.......... $1.000792 Calculation: Ending account value............................... $1.000792 Less beginning account value....................... $1.000000 Net change in account value........................ $0.000792 Base period return: (adjusted change/beginning account value)......... $0.000791 Current annual yield = return x (365/7) =........... 4.12% Effective annual yield = [(1 + return)/365/7/] - 1 = 4.21%
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 Separate Account level. Total Return: We will usually advertise the average annual total return for an investment option 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. Non-standardized 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. Non-standardized 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 investment option 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 from your registered representative. We may include information about a series' or an 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. 4 A series may compare its returns to any of a number of well-known benchmarks of market performance; including, but not limited to: The Dow Jones Industrial Average/SM/ ("DJIA") CS First Boston High Yield Index Citigroup Corporate Index Citigroup Government Bond Index Standard & Poor's 500 Index(R) ("S&P 500") Each investment option may include its yield and total return in advertisements or communications with current or prospective contract owners. Each investment option 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: Barron's Business Week Changing Times Consumer Reports Financial Planning Financial Services Weekly Forbes Fortune Investor's Business Daily Money The New York Times Personal Investor Registered Representative U.S. News and World Report The Wall Street Journal The DJIA 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 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. The S&P 500 is a free-float market capitalization-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 DJIA 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 your registered representative or VPMO at the address or VULA at the telephone number on the first page of the prospectus. Additional Information about Charges -------------------------------------------------------------------------------- Reduction in Charges Each policy is available for purchase by individuals and groups. We may reduce or eliminate the mortality and expense risk charge, monthly administrative charge, monthly cost of insurance charges, surrender charges or other charges normally assessed where we expect that the factors below will result in savings of sales, underwriting, administrative or other costs. Eligibility for the amount of these reductions will be determined by a number of factors including: . the number of insureds, . total premiums expected to be paid, . total assets under management for the policyowner, . the nature of the relationship among individual insureds, . the purpose for which the policies are being purchased, . where there is a preexisting relationship with us, such as being an employee of PHL Variable or its affiliates and their spouses; or employees or agents who retire from PHL Variable or its affiliates or Phoenix Equity Planning Corporation ("PEPCO"), or its affiliates or registered representatives of the principal underwriter and registered representatives of broker-dealers with whom PEPCO has selling agreements, . internal transfers from other policies or contracts issued by the company or an affiliate, or making transfers of amounts held under qualified plans sponsored by the company or an affiliate, and . other circumstances which in our opinion are rationally related to the expected reduction in expenses. Any variations in the charge structure will be determined in a uniform manner, reflecting differences in costs of services and not unfairly discriminatory to policyholders. Surrender Charge. During the first few policy years, depending on the Policy option you choose, there is a difference between the amount of policy value and the amount of cash surrender value of the policy. This difference is the surrender charge, which is a contingent deferred sales charge. The surrender charge is designed to recover the expense of distributing policies that are terminated before distribution expenses have been recouped from revenue generated by these policies. These are contingent charges because they are paid only if the policy is surrendered 5 (or the face amount is reduced or the policy lapses) during this period. They are deferred charges because they are not deducted from premiums. The surrender charge we asses for each policy option is given in your prospectus and in your policy. Policy Option A has a 15-year surrender charge schedule, Policy Option B a 10-year schedule, and Policy Option C, a 5-year schedule. The surrender charge will apply if you either surrender the policy for its cash surrender value. Partial Surrender Charge. If less than all of the policy is surrendered, the amount withdrawn is a "partial surrender." A charge as described below is deducted from the policy value upon a partial surrender of the policy. The charge is a pro rata portion of the applicable surrender charge that would apply to a full surrender, determined by multiplying the applicable surrender charge by a fraction which is equal to the partial surrender amount payable divided by the result of subtracting the applicable surrender charge from the policy value. This amount is assessed against the investment options and the Guaranteed Interest Account in the same proportion as the withdrawal is allocated. A partial surrender charge also is deducted from policy value upon a decrease in face amount. The charge is equal to the applicable surrender charge multiplied by a fraction equal to the decrease in face amount divided by the face amount of the policy prior to the decrease. Partial Surrender Fee. In the case of a partial surrender, an additional fee of $25 is imposed. It is intended to recover the actual costs of processing the partial surrender request and will be deducted from each investment option and Guaranteed Interest Account in the same proportion as the withdrawal is allocated. If no allocation is made at the time of the request for the partial surrender, withdrawal allocations will be made in the same manner as monthly deductions. Underwriting Procedures. We generally base our rates on the insured person's gender, attained age, and risk class. We are not permitted to consider gender as a factor in some states and under certain qualified plans. Partial Surrender and Decreases in Face Amount: Effect on Death Benefit. A partial surrender or a decrease in face amount generally decreases the death benefit. Upon a decrease in face amount or partial surrender, we will deduct a partial surrender charge from your policy value based on the amount of the decrease or partial surrender. If the change is a decrease in face amount, the death benefit under a policy would be reduced on the next monthly calculation day. If the change is a partial surrender, the death benefit under a policy would be reduced immediately. A decrease in the death benefit may have certain 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 equal to $10,000 and the face amount remaining after the decrease must be at least $25,000. You must request a face amount decrease in writing and it will become effective on the first monthly calculation day following the date we approve your request. We will deduct a partial surrender charge from the 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 (which is equal to the decrease in face amount divided by the face amount of the policy before the decrease). Requests for Increase in Face Amount. Face amount increases are not available with this policy. Safekeeping of the Separate Account's Assets -------------------------------------------------------------------------------- We hold the assets of the Separate Account separate and apart from our General Account. We maintain records of all purchases and redemptions of fund shares. State Regulation -------------------------------------------------------------------------------- We are subject to the provisions of the Connecticut insurance laws applicable to life insurance companies and to regulation and supervision by the Connecticut Superintendent of Insurance. We also are subject to the applicable insurance laws of all the other states and jurisdictions in which we do insurance business. State regulation of PHL Variable includes certain limitations on investments we may make, including investments for the Separate Account and the Guaranteed Interest Account. State regulation does not include any supervision over the Separate Account's investment policies. Reports -------------------------------------------------------------------------------- We will provide all policy owners with all reports required by the 1940 Act and related regulations or by any other applicable law or regulation. Experts -------------------------------------------------------------------------------- The financial statements of PHLVIC Variable Universal Life Account as of December 31, 2007 and the results of its operations and the changes in its net assets for each of the periods indicated and the financial statements of PHL Variable Insurance Company as of December 31, 2007 and 2006, and for each of the three years in the period ended December 31, 2007 included in this Prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. Michele Drummey, Counsel, PHL Variable Insurance Company, has provided advice on certain matters relating to the federal securities and state regulations laws, respectively, in connection with the policies described in the prospectus. 6 [LOGO] -------------------------------------------------------------------------------- ANNUAL REPORT PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT December 31, 2007 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007
AIM V.I. Capital AIM V.I. Mid Cap Alger American Appreciation Fund - AIM V.I. Core Equity Core Equity Fund - Leveraged AllCap Class I Fund - Class I Class I Portfolio - Class O ------------------- -------------------- ------------------- ------------------- Assets: Investments at fair value.... $2,008,634 $ 542,794 $128,477 $ 390,611 ---------- ---------- -------- ---------- Total Assets................. $2,008,634 $ 542,794 $128,477 $ 390,611 Liabilities: Payable to PHL Variable Insurance Company.......... $ -- $ -- $ -- $ -- ---------- ---------- -------- ---------- Total Net Assets........... $2,008,634 $ 542,794 $128,477 $ 390,611 ========== ========== ======== ========== Units Outstanding.......... 664,310 458,080 96,278 103,042 ========== ========== ======== ========== Investment shares held....... 68,391 18,646 8,818 7,053 Investments at cost.......... $1,649,176 $ 473,908 $119,509 $ 212,820 Unit Value Phoenix Benefit Choice VUL/SM/................ $ -- $ -- $ -- $ -- Phoenix Express VUL(R)... $ 1.37 $ -- $ -- $ 1.88 The Phoenix Edge(R)-- SVUL................... $ 3.15 $ 1.18 $ -- $ 4.32 The Phoenix Edge(R)-- VUL.................... $ 3.15 $ 1.18 $ 1.33 $ 4.32 Fidelity VIP DWS Equity 500 Federated Fund for Federated High Contrafund(R) Index Fund VIP - U.S. Government Income Bond Fund Portfolio - Service Class A Securities II II - Primary Shares Class ------------------- -------------------- ------------------- ------------------- Assets: Investments at fair value.... $2,935,072 $4,135,521 $277,895 $2,761,085 ---------- ---------- -------- ---------- Total Assets................. $2,935,072 $4,135,521 $277,895 $2,761,085 Liabilities: Payable to PHL Variable Insurance Company.......... $ -- $ -- $ -- $ -- ---------- ---------- -------- ---------- Total Net Assets........... $2,935,072 $4,135,521 $277,895 $2,761,085 ========== ========== ======== ========== Units Outstanding.......... 939,652 1,733,475 92,837 694,529 ========== ========== ======== ========== Investment shares held........ 188,994 358,675 37,103 99,319 Investments at cost........... $2,524,573 $4,029,571 $282,819 $2,859,979 Unit Value Phoenix Benefit Choice VUL/SM/................ $ 1.01 $ -- $ -- $ 1.02 Phoenix Express VUL(R)... $ 1.32 $ 1.11 $ 1.18 $ 1.55 The Phoenix Edge(R)-- SVUL................... $ 3.23 $ 2.52 $ 3.18 $ 4.14 The Phoenix Edge(R)-- VUL.................... $ 3.23 $ 2.52 $ 3.18 $ 4.14
See Notes to Financial Statements SA - 1 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Fidelity VIP Growth Fidelity VIP Opportunities Fidelity VIP Growth Investment Grade Franklin Income Portfolio - Service Portfolio - Service Bond Portfolio - Securities Fund- Class Class Service Class Class 2 --------------------- --------------------- -------------------- --------------------- Assets: Investments at fair value.... $2,350,397 $1,409,898 $ 366,983 $521,225 ---------- ---------- ---------- -------- Total Assets................. $2,350,397 $1,409,898 $ 366,983 $521,225 Liabilities: Payable to PHL Variable Insurance Company.......... $ -- $ -- $ -- $ -- ---------- ---------- ---------- -------- Total Net Assets........... $2,350,397 $1,409,898 $ 366,983 $521,225 ========== ========== ========== ======== Units Outstanding.......... 708,794 423,926 351,169 450,905 ========== ========== ========== ======== Investment shares held....... 105,305 31,338 28,965 30,111 Investments at cost.......... $1,967,955 $ 997,789 $ 359,382 $534,701 Unit Value Phoenix Benefit Choice VUL/SM/................ $ -- $ -- $ -- $ 1.01 Phoenix Express VUL(R)................. $ 1.47 $ 1.51 $ 1.04 $ 1.15 The Phoenix Edge(R)-- SVUL................... $ 3.51 $ 3.35 $ 1.05 $ 1.16 The Phoenix Edge(R)-- VUL.................... $ 3.51 $ 3.35 $ 1.05 $ 1.16 Lazard Retirement Lord Abbett Bond- Lord Abbett Growth Lord Abbett Mid- Small Cap Portfolio - Debenture Portfolio - and Income Cap Value Portfolio - Service Shares Class VC Portfolio - Class VC Class VC --------------------- --------------------- -------------------- --------------------- Assets: Investments at fair value.... $ 220,788 $ 205,349 $4,133,281 $442,758 ---------- ---------- ---------- -------- Total Assets................. $ 220,788 $ 205,349 $4,133,281 $442,758 Liabilities: Payable to PHL Variable Insurance Company.......... $ -- $ -- $ -- $ -- ---------- ---------- ---------- -------- Total Net Assets........... $ 220,788 $ 205,349 $4,133,281 $442,758 ========== ========== ========== ======== Units Outstanding.......... 185,906 171,560 3,218,188 358,711 ========== ========== ========== ======== Investment shares held....... 22,123 17,447 148,093 23,426 Investments at cost.......... $ 315,199 $ 204,919 $4,163,548 $481,987 Unit Value Phoenix Benefit Choice VUL/SM/................ $ -- $ -- $ -- $ -- Phoenix Express VUL(R)................. $ -- $ -- $ 1.29 $ 1.26 The Phoenix Edge(R)-- SVUL................... $ 1.19 $ 1.20 $ 1.28 $ 1.23 The Phoenix Edge(R)-- VUL.................... $ 1.19 $ 1.20 $ 1.28 $ 1.23
See Notes to Financial Statements SA - 2 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Oppenheimer Mutual Shares Neuberger Berman Neuberger Berman Capital Appreciation Securities Fund - AMT Fasciano AMT Guardian Fund/VA - Service Class 2 Portfolio - S Class Portfolio - S Class Shares ----------------- ------------------- ------------------- -------------------- Assets: Investments at fair value........ $1,795,898 $ 5,859 $ 490,866 $ 25,210 ---------- -------- ---------- ---------- Total Assets..................... $1,795,898 $ 5,859 $ 490,866 $ 25,210 Liabilities: Payable to PHL Variable Insurance Company........................ $ -- $ -- $ -- $ -- ---------- -------- ---------- ---------- Total Net Assets............... $1,795,898 $ 5,859 $ 490,866 $ 25,210 ========== ======== ========== ========== Units Outstanding.............. 660,605 5,998 430,269 21,621 ========== ======== ========== ========== Investment shares held........... 88,950 404 23,352 539 Investments at cost.............. $1,678,762 $ 6,239 $ 489,214 $ 23,405 Unit Value Phoenix Benefit Choice VUL/SM/.................... $ 1.00 $ -- $ -- $ 1.02 Phoenix Express VUL(R)....... $ 1.35 $ 0.97 $ 1.13 $ -- The Phoenix Edge(R)-- SVUL....................... $ 3.48 $ 0.98 $ 1.14 $ -- The Phoenix Edge(R)-- VUL........................ $ 3.48 $ 0.98 $ 1.14 $ 1.17 Oppenheimer Oppenheimer Main Global Securities Street Small Cap Fund/VA - Service Fund/VA - Service Phoenix Capital Phoenix Growth and Shares Shares Growth Series Income Series ----------------- ------------------- ------------------- -------------------- Assets: Investments at fair value........ $ 40,360 $370,098 $1,067,304 $3,163,919 ---------- -------- ---------- ---------- Total Assets..................... $ 40,360 $370,098 $1,067,304 $3,163,919 Liabilities: Payable to PHL Variable Insurance Company........................ $ -- $ -- $ -- $ -- ---------- -------- ---------- ---------- Total Net Assets............... $ 40,360 $370,098 $1,067,304 $3,163,919 ========== ======== ========== ========== Units Outstanding.............. 35,515 372,869 362,924 1,008,791 ========== ======== ========== ========== Investment shares held........... 1,113 20,527 63,509 211,774 Investments at cost.............. $ 39,776 $390,935 $ 923,482 $2,736,718 Unit Value Phoenix Benefit Choice VUL/SM/.................... $ 0.99 $ -- $ -- $ -- Phoenix Express VUL(R)....... $ 1.13 $ 0.98 $ -- $ 1.34 The Phoenix Edge(R)-- SVUL....................... $ 1.14 $ 0.99 $ 2.94 $ 3.27 The Phoenix Edge(R)-- VUL........................ $ 1.14 $ 0.99 $ 2.94 $ 3.27
See Notes to Financial Statements SA - 3 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Phoenix Multi- Phoenix Multi- Phoenix Mid-Cap Phoenix Money Sector Fixed Income Sector Short Term Growth Series Market Series Series Bond Series ----------------- -------------------- -------------------- ------------------ Assets: Investments at fair value........... $234,470 $2,952,115 $1,574,563 $ 333,197 -------- ---------- ---------- ---------- Total Assets........................ $234,470 $2,952,115 $1,574,563 $ 333,197 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- -------- ---------- ---------- ---------- Total Net Assets................... $234,470 $2,952,115 $1,574,563 $ 333,197 ======== ========== ========== ========== Units Outstanding.................. 81,609 1,301,308 564,429 282,352 ======== ========== ========== ========== Investment shares held.............. 14,299 295,212 173,310 33,772 Investments at cost................. $180,461 $2,952,115 $1,603,880 $ 339,588 Unit Value......................... Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.37 $ 1.10 $ 1.12 $ 1.11 The Phoenix Edge(R)-- SVUL....... $ 2.88 $ 2.30 $ 2.95 $ 1.21 The Phoenix Edge(R)-- VUL........ $ 2.88 $ 2.30 $ 2.95 $ 1.21 Phoenix-Duff & Phoenix Strategic Phoenix-Aberdeen Phoenix-Alger Small- Phelps Real Estate Allocation Series International Series Cap Growth Series Securities Series ----------------- -------------------- -------------------- ------------------ Assets: Investments at fair value........... $725,005 $8,012,689 $1,552,603 $2,137,067 -------- ---------- ---------- ---------- Total Assets........................ $725,005 $8,012,689 $1,552,603 $2,137,067 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- -------- ---------- ---------- ---------- Total Net Assets................... $725,005 $8,012,689 $1,552,603 $2,137,067 ======== ========== ========== ========== Units Outstanding.................. 241,819 1,699,020 313,858 459,192 ======== ========== ========== ========== Investment shares held.............. 55,968 418,575 86,975 79,673 Investments at cost................. $776,120 $7,132,069 $1,502,861 $2,158,184 Unit Value......................... Phoenix Benefit Choice VUL/SM/... $ -- $ 1.02 $ -- $ -- Phoenix Express VUL(R)........... $ -- $ 1.75 $ 1.71 $ 1.38 The PhoenixEdge(R)-- SVUL........ $ 3.00 $ 4.91 $ 5.07 $ 4.84 The Phoenix Edge(R)-- VUL........ $ 3.00 $ 4.91 $ 5.07 $ 4.84
See Notes to Financial Statements SA - 4 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Phoenix-S&P Phoenix-S&P Phoenix-S&P Phoenix-S&P Dynamic Asset Dynamic Asset Dynamic Asset Dynamic Asset Allocation Series: Allocation Series: Allocation Series: Allocation Series: Aggressive Growth Growth Moderate Moderate Growth ------------------ ------------------ ------------------ ------------------ Assets: Investments at fair value........... $1,815,511 $1,289,561 $ 452 $532,975 ---------- ---------- -------- -------- Total Assets........................ $1,815,511 $1,289,561 $ 452 $532,975 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- ---------- ---------- -------- -------- Total Net Assets................... $1,815,511 $1,289,561 $ 452 $532,975 ========== ========== ======== ======== Units Outstanding.................. 1,487,423 1,084,128 396 453,764 ========== ========== ======== ======== Investment shares held.............. 153,063 111,747 42 47,181 Investments at cost................. $1,719,616 $1,259,463 $ 461 $519,012 Unit Value Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.21 $ 1.18 $ -- $ 1.17 The Phoenix Edge(R)--SVUL........ $ 1.22 $ 1.19 $ -- $ 1.18 The Phoenix Edge(R)--VUL......... $ 1.22 $ 1.19 $ 1.14 $ 1.18 Phoenix-Sanford Phoenix-Sanford Phoenix-Van Phoenix-Van Bernstein Mid-Cap Bernstein Small- Kampen Comstock Kampen Equity 500 Value Series Cap Value Series Series Index Series ------------------ ------------------ ------------------ ------------------ Assets: Investments at fair value........... $1,664,267 $1,135,283 $473,990 $750,159 ---------- ---------- -------- -------- Total Assets........................ $1,664,267 $1,135,283 $473,990 $750,159 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- ---------- ---------- -------- -------- Total Net Assets................... $1,664,267 $1,135,283 $473,990 $750,159 ========== ========== ======== ======== Units Outstanding.................. 470,161 318,845 163,019 252,656 ========== ========== ======== ======== Investment shares held.............. 131,200 78,501 37,940 56,800 Investments at cost................. $1,882,725 $1,337,403 $491,279 $682,891 Unit Value Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.33 $ 1.31 $ -- $ 1.30 The Phoenix Edge(R)-- SVUL....... $ 3.70 $ 3.66 $ 2.91 $ 3.07 The Phoenix Edge(R)--VUL......... $ 3.70 $ 3.66 $ 2.91 $ 3.07
See Notes to Financial Statements SA - 5 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
PIMCO VIT CommodityReal Rydex Variable Return Strategy PIMCO VIT Real PIMCO VIT Total Trust Inverse Portfolio - Advisor Return Portfolio - Return Portfolio - Government Long Class Advisor Class Advisor Class Bond Strategy Fund ------------------- ------------------ ------------------ ------------------ Assets: Investments at fair value........... $305,221 $34,373 $101,711 $ 35,093 -------- ------- -------- -------- Total Assets........................ $305,221 $34,373 $101,711 $ 35,093 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- -------- ------- -------- -------- Total Net Assets................... $305,221 $34,373 $101,711 $ 35,093 ======== ======= ======== ======== Units Outstanding.................. 258,254 30,422 89,913 37,910 ======== ======= ======== ======== Investment shares held.............. 22,864 2,734 9,697 1,793 Investments at cost................. $278,088 $33,625 $ 98,331 $ 41,061 Unit Value Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.17 $ 1.12 $ 1.12 $ -- The Phoenix Edge(R)--SVUL........ $ 1.18 $ 1.13 $ 1.13 $ 0.93 The Phoenix Edge(R)--VUL......... $ 1.18 $ 1.13 $ 1.13 $ 0.93 Rydex Variable Sentinel Variable Sentinel Variable Rydex Variable Trust Sector Products Bond Products Common Trust Nova Fund Rotation Fund Fund Stock Fund ------------------- ------------------ ------------------ ------------------ Assets: Investments at fair value........... $ 34,568 $30,601 $ 28,727 $150,322 -------- ------- -------- -------- Total Assets........................ $ 34,568 $30,601 $ 28,727 $150,322 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- -------- ------- -------- -------- Total Net Assets................... $ 34,568 $30,601 $ 28,727 $150,322 ======== ======= ======== ======== Units Outstanding.................. 20,008 15,310 28,050 146,383 ======== ======= ======== ======== Investment shares held.............. 3,436 1,996 2,876 10,498 Investments at cost................. $ 27,195 $22,678 $ 29,502 $153,559 Unit Value Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.34 $ -- $ -- $ -- The Phoenix Edge(R)--SVUL........ $ -- $ -- $ 1.02 $ 1.03 The Phoenix Edge(R)--VUL......... $ 1.76 $ 2.00 $ 1.02 $ 1.03
See Notes to Financial Statements SA - 6 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Templeton Sentinel Variable Sentinel Variable Developing Markets Templeton Foreign Products Mid Cap Products Small Securities Fund - Securities Fund - Growth Fund Company Fund Class 2 Class 2 ----------------- -------------------- -------------------- ------------------- Assets: Investments at fair value........... $ 7,544 $22,521 $ 468,648 $1,239,510 ---------- ------- ---------- ---------- Total Assets........................ $ 7,544 $22,521 $ 468,648 $1,239,510 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- ---------- ------- ---------- ---------- Total Net Assets................... $ 7,544 $22,521 $ 468,648 $1,239,510 ========== ======= ========== ========== Units Outstanding.................. 6,973 22,314 337,797 327,307 ========== ======= ========== ========== Investment shares held.............. 607 1,611 29,290 61,210 Investments at cost................. $ 7,601 $24,739 $ 414,833 $ 947,614 Unit Value Phoenix Benefit Choice VUL/SM/... $ -- $ -- $ -- $ -- Phoenix Express VUL(R)........... $ -- $ -- $ 1.38 $ 1.55 The Phoenix Edge(R)-- SVUL....... $ -- $ 1.01 $ 1.39 $ 4.08 The Phoenix Edge(R)--VUL......... $ 1.08 $ 1.01 $ 1.39 $ 4.08 Templeton Growth Van Kampen UIF Wanger Securities Fund - Equity and Income Wanger International Small Class 2 Portfolio - Class II International Select Cap ----------------- -------------------- -------------------- ------------------- Assets: Investments at fair value........... $1,331,198 $11,187 $1,001,441 $3,458,541 ---------- ------- ---------- ---------- Total Assets........................ $1,331,198 $11,187 $1,001,441 $3,458,541 Liabilities: Payable to PHL Variable Insurance Company.................. $ -- $ -- $ -- $ -- ---------- ------- ---------- ---------- Total Net Assets................... $1,331,198 $11,187 $1,001,441 $3,458,541 ========== ======= ========== ========== Units Outstanding.................. 501,194 10,007 181,489 571,628 ========== ======= ========== ========== Investment shares held.............. 86,218 759 35,676 78,532 Investments at cost................. $1,222,223 $11,187 $ 830,587 $2,405,128 Unit Value Phoenix Benefit Choice VUL/SM/... $ 1.00 $ -- $ -- $ -- Phoenix Express VUL(R)........... $ 1.35 $ -- $ 1.90 $ 1.84 The Phoenix Edge(R)-- SVUL....... $ 3.56 $ -- $ 6.08 $ 6.28 The Phoenix Edge(R)-- VUL........ $ 3.56 $ 1.12 $ 6.08 $ 6.28
See Notes to Financial Statements SA - 7 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2007 (Continued)
Wanger U.S. Wanger Select Smaller Companies ------------- ----------------- Assets: Investments at fair value................ $1,439,115 $1,029,715 ---------- ---------- Total Assets............................. $1,439,115 $1,029,715 Liabilities: Payable to PHL Variable Insurance Company $ -- $ -- ---------- ---------- Total Net Assets....................... $1,439,115 $1,029,715 ========== ========== Units Outstanding...................... 327,787 270,537 ========== ========== Investment shares held................... 51,250 28,398 Investments at cost...................... $1,393,002 $ 913,201 Unit Value Phoenix Benefit Choice VUL/SM/....... $ -- $ -- Phoenix Express VUL(R)............... $ 1.56 $ 1.30 The Phoenix Edge(R)--SVUL............ $ 4.43 $ 3.82 The Phoenix Edge(R)--VUL............. $ 4.43 $ 3.82
See Notes to Financial Statements SA - 8 STATEMENTS OF OPERATIONS For the period ended December 31, 2007
AIM V.I. Capital AIM V.I. Mid Cap Alger American Appreciation Fund - AIM V.I. Core Equity Core Equity Fund - Leveraged AllCap Class I Fund - Class I Class I Portfolio - Class O ------------------- -------------------- ------------------- ------------------- Income: Dividends....................... $ -- $ 6,033 $ 282 $ -- Expenses: Mortality and expense fees...... 262 -- -- 166 Administrative fees............. -- -- -- -- -------- -------- -------- --------- Net investment income (loss)....... (262) 6,033 282 (166) -------- -------- -------- --------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares................... 582 113 501 4,882 Realized gain distributions..... -- -- 1,841 -- -------- -------- -------- --------- Realized gain (loss)............ 582 113 2,342 4,882 -------- -------- -------- --------- Change in unrealized appreciation (depreciation) during the year... 199,306 32,382 8,973 94,144 -------- -------- -------- --------- Net increase (decrease) in net assets from operations........... $199,626 $ 38,528 $ 11,597 $ 98,860 ======== ======== ======== ========= Fidelity VIP DWS Equity 500 Federated Fund for Federated High Contrafund(R) Index Fund VIP - U.S. Government Income Bond Fund Portfolio - Service Class A Securities II II - Primary Shares Class ------------------- -------------------- ------------------- ------------------- Income: Dividends....................... $ 39,849 $147,163 $ 17,958 $ 22,170 Expenses: Mortality and expense fees...... 301 720 24 194 Administrative fees............. -- -- -- -- -------- -------- -------- --------- Net investment income (loss)....... 39,548 146,443 17,934 21,976 -------- -------- -------- --------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares................... 88 903 (1,414) 5,471 Realized gain distributions..... -- -- -- 660,858 -------- -------- -------- --------- Realized gain (loss)............ 88 903 (1,414) 666,329 -------- -------- -------- --------- Change in unrealized appreciation (depreciation) during the year... 90,790 79,321 (10,666) (315,705) -------- -------- -------- --------- Net increase (decrease) in net assets from operations........... $130,426 $226,667 $ 5,854 $ 372,600 ======== ======== ======== =========
See Notes to Financial Statements SA - 9 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Fidelity VIP Growth Fidelity VIP Opportunities Fidelity VIP Growth Investment Grade Franklin Income Portfolio - Service Portfolio - Service Bond Portfolio - Securities Fund - Class Class Service Class Class 2 ------------------- ------------------- -------------------- ------------------- Income: Dividends....................... $ -- $ 7,263 $ 267 $ 7,346 Expenses: Mortality and expense fees...... 346 36 65 406 Administrative fees............. -- -- -- -- --------- -------- --------- -------- Net investment income (loss)....... (346) 7,227 202 6,940 --------- -------- --------- -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares................... 347 4,211 5 (82) Realized gain distributions..... -- 1,167 -- 1,362 --------- -------- --------- -------- Realized gain (loss)............ 347 5,378 5 1,280 --------- -------- --------- -------- Change in unrealized appreciation (depreciation) during the year... 307,702 280,918 7,601 (14,387) --------- -------- --------- -------- Net increase (decrease) in net assets from operations........... $ 307,703 $293,523 $ 7,808 $ (6,167) ========= ======== ========= ======== Lazard Retirement Lord Abbett Bond- Lord Abbett Growth Lord Abbett Mid- Small Cap Portfolio Debenture Portfolio and Income Cap Value Portfolio - Service Shares - Class VC Portfolio - Class VC - Class VC ------------------- ------------------- -------------------- ------------------- Income: Dividends....................... $ -- $ 12,421 $ 51,487 $ 1,928 Expenses: Mortality and expense fees...... -- -- 418 52 Administrative fees............. -- -- -- -- --------- -------- --------- -------- Net investment income (loss)....... -- 12,421 51,069 1,876 --------- -------- --------- -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares................... (482) 490 (277) 2,995 Realized gain distributions..... 90,878 672 283,921 56,664 --------- -------- --------- -------- Realized gain (loss)............ 90,396 1,162 283,644 59,659 --------- -------- --------- -------- Change in unrealized appreciation (depreciation) during the year... (108,214) (1,561) (237,127) (58,803) --------- -------- --------- -------- Net increase (decrease) in net assets from operations........... $ (17,818) $ 12,022 $ 97,586 $ 2,732 ========= ======== ========= ========
See Notes to Financial Statements SA - 10 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Neuberger Neuberger Oppenheimer Mutual Berman Berman Capital Shares AMT AMT Appreciation Securities Fasciano Guardian Fund/VA - Fund - Portfolio - Portfolio - Service Class 2 S Class S Class Shares ----------- ----------- ----------- ------------ Income: Dividends...................................... $ 22,488 $ -- $ 827 $ 1 Expenses: Mortality and expense fees..................... 662 -- 48 -- Administrative fees............................ -- -- -- -- -------- -------- -------- -------- Net investment income (loss)...................... 21,826 -- 779 1 -------- -------- -------- -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 14,412 17 (39) 7 Realized gain distributions.................... 55,057 50 -- -- -------- -------- -------- -------- Realized gain (loss)........................... 69,469 67 (39) 7 -------- -------- -------- -------- Change in unrealized appreciation (depreciation) during the year................................. (64,939) (366) 1,651 1,656 -------- -------- -------- -------- Net increase (decrease) in net assets from operations...................................... $ 26,356 $ (299) $ 2,391 $ 1,664 ======== ======== ======== ======== Oppenheimer Oppenheimer Global Main Street Securities Small Cap Phoenix Phoenix Fund/VA - Fund/VA - Capital Growth and Service Service Growth Income Shares Shares Series Series ----------- ----------- ----------- ------------ Income: Dividends...................................... $ 244 $ 34 $ 2,780 $ 29,755 Expenses: Mortality and expense fees..................... 10 39 -- 377 Administrative fees............................ -- -- -- -- -------- -------- -------- -------- Net investment income (loss)...................... 234 (5) 2,780 29,378 -------- -------- -------- -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... (124) (103) 1,524 16,178 Realized gain distributions.................... 1,018 735 -- 78,701 -------- -------- -------- -------- Realized gain (loss)........................... 894 632 1,524 94,879 -------- -------- -------- -------- Change in unrealized appreciation (depreciation) during the year................................. 48 (21,111) 98,563 46,393 -------- -------- -------- -------- Net increase (decrease) in net assets from operations...................................... $ 1,176 $(20,484) $102,867 $170,650 ======== ======== ======== ========
See Notes to Financial Statements SA - 11 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Phoenix Multi- Phoenix Phoenix Sector Phoenix Mid-Cap Money Fixed Multi-Sector Growth Market Income Short Term Series Series Series Bond Series ---------- ------------- --------- ------------ Income: Dividends...................................... $ -- $134,993 $ 75,305 $ 17,197 Expenses: Mortality and expense fees..................... -- 436 186 348 Administrative fees............................ -- -- -- -- --------- -------- --------- ---------- Net investment income (loss)...................... -- 134,557 75,119 16,849 --------- -------- --------- ---------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 4,388 -- (102) (11) Realized gain distributions.................... -- -- -- -- --------- -------- --------- ---------- Realized gain (loss)........................... 4,388 -- (102) (11) --------- -------- --------- ---------- Change in unrealized appreciation (depreciation) during the year................................. 39,267 -- (30,629) (5,612) --------- -------- --------- ---------- Net increase (decrease) in net assets from operations...................................... $ 43,655 $134,557 $ 44,388 $ 11,226 ========= ======== ========= ========== Phoenix- Phoenix- Duff & Phoenix Phoenix- Alger Phelps Real Strategic Aberdeen Small-Cap Estate Allocation International Growth Securities Series Series Series Series ---------- ------------- --------- ------------ Income: Dividends...................................... $ 19,120 $113,079 $ -- $ 33,450 Expenses: Mortality and expense fees..................... -- 733 78 141 Administrative fees............................ -- -- -- -- --------- -------- --------- ---------- Net investment income (loss)...................... 19,120 112,346 (78) 33,309 --------- -------- --------- ---------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 2,886 2 9,336 (65,012) Realized gain distributions.................... 39,765 398,855 271,204 213,638 --------- -------- --------- ---------- Realized gain (loss)........................... 42,651 398,857 280,540 148,626 --------- -------- --------- ---------- Change in unrealized appreciation (depreciation) during the year................................. (19,477) 392,868 (81,076) (616,985) --------- -------- --------- ---------- Net increase (decrease) in net assets from operations...................................... $ 42,294 $904,071 $ 199,386 $ (435,050) ========= ======== ========= ==========
See Notes to Financial Statements SA - 12 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Phoenix- S&P Phoenix- Phoenix- Dynamic S&P S&P Asset Dynamic Dynamic Phoenix-S&P Allocation Asset Asset Dynamic Asset Series: Allocation Allocation Allocation Series: Aggressive Series: Series: Moderate Growth Growth Moderate Growth ------------ ------------ ---------- ------------------ Income: Dividends...................................... $ 19,048 $ 16,369 $ 8 $ 8,987 Expenses: Mortality and expense fees..................... 238 313 -- 867 Administrative fees............................ -- -- -- -- ---------- ---------- --------- ------- Net investment income (loss)...................... 18,810 16,056 8 8,120 ---------- ---------- --------- ------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 1,714 509 3 1,363 Realized gain distributions.................... 15,404 8,199 6 6,073 ---------- ---------- --------- ------- Realized gain (loss)........................... 17,118 8,708 9 7,436 ---------- ---------- --------- ------- Change in unrealized appreciation (depreciation) during the year................................. 47,031 19,502 (9) 11,085 ---------- ---------- --------- ------- Net increase (decrease) in net assets from operations...................................... $ 82,959 $ 44,266 $ 8 $26,641 ========== ========== ========= ======= Phoenix- Phoenix- Phoenix- Sanford Sanford Van Bernstein Bernstein Kampen Phoenix-Van Mid-Cap Small-Cap Comstock Kampen Equity Value Series Value Series Series 500 Index Series ------------ ------------ ---------- ------------------ Income: Dividends...................................... $ 1,829 $ -- $ 8,201 $11,185 Expenses: Mortality and expense fees..................... 166 83 -- 75 Administrative fees............................ -- -- -- -- ---------- ---------- --------- ------- Net investment income (loss)...................... 1,663 (83) 8,201 11,110 ---------- ---------- --------- ------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... (535) (489) 2,958 17,567 Realized gain distributions.................... 198,463 154,005 25,355 -- ---------- ---------- --------- ------- Realized gain (loss)........................... 197,928 153,516 28,313 17,567 ---------- ---------- --------- ------- Change in unrealized appreciation (depreciation) during the year................................. (211,504) (194,353) (45,440) 17,898 ---------- ---------- --------- ------- Net increase (decrease) in net assets from operations...................................... $ (11,913) $ (40,920) $ (8,926) $46,575 ========== ========== ========= =======
See Notes to Financial Statements SA - 13 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Rydex Variable PIMCO PIMCO Trust PIMCO VIT VIT Real VIT Total Inverse CommodityReal Return Return Government Return Strategy Portfolio - Portfolio - Long Bond Portfolio -Advisor Advisor Advisor Strategy Class Class Class Fund ------------------ ----------- ----------- ---------- Income: Dividends...................................... $ 7,615 $ 704 $3,726 $ 1,686 Expenses: Mortality and expense fees..................... 29 4 19 -- Administrative fees............................ -- -- -- -- -------- ------ ------ -------- Net investment income (loss)...................... 7,586 700 3,707 1,686 -------- ------ ------ -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... (175) 4 138 110 Realized gain distributions.................... -- 75 -- -- -------- ------ ------ -------- Realized gain (loss)........................... (175) 79 138 110 -------- ------ ------ -------- Change in unrealized appreciation (depreciation) during the year................................. 27,828 1,131 3,749 (3,664) -------- ------ ------ -------- Net increase (decrease) in net assets from operations...................................... $ 35,239 $1,910 $7,594 $ (1,868) ======== ====== ====== ======== Rydex Variable Sentinel Sentinel Trust Variable Variable Sector Products Products Rydex Variable Rotation Bond Common Trust Nova Fund Fund Fund Stock Fund ------------------ ----------- ----------- ---------- Income: Dividends...................................... $ 489 $ -- $1,097 $ 1,547 Expenses: Mortality and expense fees..................... 8 -- -- -- Administrative fees............................ -- -- -- -- -------- ------ ------ -------- Net investment income (loss)...................... 481 -- 1,097 1,547 -------- ------ ------ -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 2,460 1,497 -- -- Realized gain distributions.................... -- 2,254 -- 2,619 -------- ------ ------ -------- Realized gain (loss)........................... 2,460 3,751 -- 2,619 -------- ------ ------ -------- Change in unrealized appreciation (depreciation) during the year................................. (3,030) 2,221 (775) (3,237) -------- ------ ------ -------- Net increase (decrease) in net assets from operations...................................... $ (89) $5,972 $ 322 $ 929 ======== ====== ====== ========
See Notes to Financial Statements SA - 14 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Sentinel Sentinel Templeton Variable Variable Developing Templeton Products Products Markets Foreign Mid Cap Small Securities Securities Growth Company Fund - Fund - Fund Fund Class 2 Class 2 ---------- ----------- ------------- ------------- Income: Dividends...................................... $ -- $ 125 $ 5,300 $ 21,704 Expenses: Mortality and expense fees..................... -- -- 2 201 Administrative fees............................ -- -- -- -- --------- ------- -------- -------- Net investment income (loss)...................... -- 125 5,298 21,503 --------- ------- -------- -------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares.... 1 -- 5 8,219 Realized gain distributions.................... -- 2,012 18,212 49,504 --------- ------- -------- -------- Realized gain (loss)........................... 1 2,012 18,217 57,723 --------- ------- -------- -------- Change in unrealized appreciation (depreciation) during the year................................. (57) (2,218) 42,062 70,029 --------- ------- -------- -------- Net increase (decrease) in net assets from operations...................................... $ (56) $ (81) $ 65,577 $149,255 ========= ======= ======== ======== Van Kampen Templeton UIF Growth Equity and Securities Income Wanger Wanger Fund - Portfolio - International International Class 2 Class II Select Small Cap ---------- ----------- ------------- ------------- Income: Dividends...................................... $ 12,997 $ 107 $ 3,011 $ 25,618 Expenses: Mortality and expense fees..................... 503 -- 179 213 Administrative fees............................ -- -- -- -- --------- ------- -------- -------- Net investment income (loss)...................... 12,494 107 2,832 25,405 --------- ------- -------- -------- Realized gains (losses) on investments............ Realized gain (loss) on sale of fund shares.... (278) 40 95 41,026 Realized gain distributions.................... 41,471 151 48,358 230,683 --------- ------- -------- -------- Realized gain (loss)........................... 41,193 191 48,453 271,709 --------- ------- -------- -------- Change in unrealized appreciation (depreciation) during the year................................. (45,760) (157) 71,690 190,736 --------- ------- -------- -------- Net increase (decrease) in net assets from operations...................................... $ 7,927 $ 141 $122,975 $487,850 ========= ======= ======== ========
See Notes to Financial Statements SA - 15 STATEMENTS OF OPERATIONS For the period ended December 31, 2007 (Continued)
Wanger U.S. Wanger Smaller Select Companies -------- ----------- Income: Dividends............................................................... $ -- $ -- Expenses: Mortality and expense fees.............................................. 12 4 Administrative fees..................................................... -- -- -------- ------- Net investment income (loss)............................................... (12) (4) -------- ------- Realized gains (losses) on investments Realized gain (loss) on sale of fund shares............................. 1,062 4,825 Realized gain distributions............................................. 7,085 43,255 -------- ------- Realized gain (loss).................................................... 8,147 48,080 -------- ------- Change in unrealized appreciation (depreciation) during the year........... (23,168) 159 -------- ------- Net increase (decrease) in net assets from operations...................... $(15,033) $48,235 ======== =======
See Notes to Financial Statements SA - 16 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
AIM V.I. Capital AIM V.I. Core Equity Appreciation Fund - Class I Fund - Class I -------------------------- ------------------ 2007 2006 2007 2006 ---------- ---------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)............. $ (262) $ 682 $ 6,033 $ 2,479 Realized gains (losses).................. 582 (248) 113 (171) Unrealized appreciation (depreciation) during the year......... 199,306 72,527 32,382 36,504 ---------- ---------- -------- -------- Net increase (decrease) in net assets from operations........................... 199,626 72,961 38,528 38,812 ---------- ---------- -------- -------- Contract transactions: Payments received from contract owners................................. 575,478 528,718 102,126 81,240 Transfers between Investment Options (including Guaranteed Interest Account), net.......................... 11,756 208,607 (20,168) 381,913 Transfers for contract benefits and terminations........................... (55,891) (46,057) (6,780) (10,522) Contract maintenance charges............. (182,002) (126,480) (36,939) (25,416) ---------- ---------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions...... 349,341 564,788 38,239 427,215 ---------- ---------- -------- -------- Total increase (decrease) in net assets............................. 548,967 637,749 76,767 466,027 Net assets at beginning of period........... 1,459,667 821,918 466,027 -- ---------- ---------- -------- -------- Net assets at end of period................. $2,008,634 $1,459,667 $542,794 $466,027 ========== ========== ======== ========
See Notes to Financial Statements SA - 17 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Alger American AIM V.I. Mid Cap Core Leveraged AllCap Equity Fund - Class I Portfolio - Class O -------------------- ------------------ 2007 2006 2007 2006 -------- -------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 282 $ 1,059 $ (166) $ (86) Realized gains (losses)......................... 2,342 11,197 4,882 1,006 Unrealized appreciation (depreciation) during the year...................................... 8,973 (1,337) 94,144 46,409 -------- -------- -------- -------- Net increase (decrease) in net assets from operations....................................... 11,597 10,919 98,860 47,329 -------- -------- -------- -------- Contract transactions: Payments received from contract owners.......... 29,845 44,003 38,092 44,419 Transfers between Investment Options (including Guaranteed Interest Account), net.. (11,388) (9,742) (3,331) 1,958 Transfers for contract benefits and terminations.................................. (3,021) (1,080) (15,938) (1,010) Contract maintenance charges.................... (15,221) (15,256) (28,082) (16,488) -------- -------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... 215 17,925 (9,259) 28,879 -------- -------- -------- -------- Total increase (decrease) in net assets..... 11,812 28,844 89,601 76,208 Net assets at beginning of period.................. 116,665 87,821 301,010 224,802 -------- -------- -------- -------- Net assets at end of period........................ $128,477 $116,665 $390,611 $301,010 ======== ======== ======== ========
See Notes to Financial Statements SA - 18 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
DWS Equity 500 Index Fund Federated Fund for U.S. VIP - Class A Government Securities II ------------------------ ---------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 39,548 $ 16,977 $ 146,443 $ 67,348 Realized gains (losses)......................... 88 (1,136) 903 1,203 Unrealized appreciation (depreciation) during the year...................................... 90,790 232,242 79,321 28,689 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 130,426 248,083 226,667 97,240 ---------- ---------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 866,857 754,506 1,331,043 1,233,930 Transfers between Investment Options (including Guaranteed Interest Account), net.. 51,881 327,112 100,121 327,250 Transfers for contract benefits and terminations.................................. (87,778) (85,279) (100,604) (143,403) Contract maintenance charges.................... (255,013) (157,191) (314,722) (225,571) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 575,947 839,148 1,015,838 1,192,206 ---------- ---------- ---------- ---------- Total increase (decrease) in net assets..... 706,373 1,087,231 1,242,505 1,289,446 Net assets at beginning of period.................. 2,228,699 1,141,468 2,893,016 1,603,570 ---------- ---------- ---------- ---------- Net assets at end of period........................ $2,935,072 $2,228,699 $4,135,521 $2,893,016 ========== ========== ========== ==========
See Notes to Financial Statements SA - 19 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Federated High Income Bond Fund II - Primary Fidelity VIP Contrafund Shares Portfolio - Service Class --------------------- ------------------------ 2007 2006 2007 2006 -------- -------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 17,934 $ 12,312 $ 21,976 $ 17,970 Realized gains (losses)......................... (1,414) (1,759) 666,329 147,368 Unrealized appreciation (depreciation) during the year...................................... (10,666) 4,693 (315,705) 10,655 -------- -------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 5,854 15,246 372,600 175,993 -------- -------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 75,421 66,689 607,688 456,638 Transfers between Investment Options (including Guaranteed Interest Account), net.. 23,482 4,762 71,464 297,858 Transfers for contract benefits and terminations.................................. (5,076) (6,276) (53,740) (17,407) Contract maintenance charges.................... (24,050) (16,523) (192,098) (107,722) -------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 69,777 48,652 433,314 629,367 -------- -------- ---------- ---------- Total increase (decrease) in net assets..... 75,631 63,898 805,914 805,360 Net assets at beginning of period.................. 202,264 138,366 1,955,171 1,149,811 -------- -------- ---------- ---------- Net assets at end of period........................ $277,895 $202,264 $2,761,085 $1,955,171 ======== ======== ========== ==========
See Notes to Financial Statements SA - 20 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Fidelity VIP Growth Opportunities Portfolio - Fidelity VIP Growth Service Class Portfolio - Service Class ------------------------ ------------------------ 2007 2006 2007 2006 ---------- -------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ (346) $ 1,538 $ 7,227 $ 2,396 Realized gains (losses)........ 347 414 5,378 468 Unrealized appreciation (depreciation) during the year..................... 307,702 51,184 280,918 59,135 ---------- -------- ---------- ---------- Net increase (decrease) in net assets from operations...... 307,703 53,136 293,523 61,999 ---------- -------- ---------- ---------- Contract transactions: Payments received from contract owners.............. 861,716 423,505 246,359 283,948 Transfers between Investment Options (including Guaranteed Interest Account), net....... 573,859 257,646 (1,416) (29,129) Transfers for contract benefits and terminations.... (45,941) (45,075) (79,171) (14,022) Contract maintenance charges...................... (214,952) (77,103) (96,296) (79,968) ---------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions........... 1,174,682 558,973 69,476 160,829 ---------- -------- ---------- ---------- Total increase (decrease) in net assets................... 1,482,385 612,109 362,999 222,828 Net assets at beginning of period.......................... 868,012 255,903 1,046,899 824,071 ---------- -------- ---------- ---------- Net assets at end of period....... $2,350,397 $868,012 $1,409,898 $1,046,899 ========== ======== ========== ==========
See Notes to Financial Statements SA - 21 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Fidelity VIP Investment Grade Franklin Income Bond Portfolio - Securities Fund - Service Class Class 2 ---------------- ----------------- 2007 2006 2007 2006 -------- ---- -------- ------- Increase (decrease) in net assets from operations: Net investment income (loss)............. $ 202 $-- $ 6,940 $ (2) Realized gains (losses).................. 5 -- 1,280 3,884 Unrealized appreciation (depreciation) during the year......... 7,601 -- (14,387) 911 -------- --- -------- ------- Net increase (decrease) in net assets from operations........................... 7,808 -- (6,167) 4,793 -------- --- -------- ------- Contract transactions: Payments received from contract owners................................. 152,135 -- 361,962 1,939 Transfers between Investment Options (including Guaranteed Interest Account), net.......................... 242,848 -- 167,079 16,489 Transfers for contract benefits and terminations........................... (4,227) -- (1,930) -- Contract maintenance charges............. (31,581) -- (21,897) (1,043) -------- --- -------- ------- Net increase (decrease) in net assets resulting from contract transactions...... 359,175 -- 505,214 17,385 -------- --- -------- ------- Total increase (decrease) in net assets............................. 366,983 -- 499,047 22,178 Net assets at beginning of period........... -- -- 22,178 -- -------- --- -------- ------- Net assets at end of period................. $366,983 $-- $521,225 $22,178 ======== === ======== =======
See Notes to Financial Statements SA - 22 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Lazard Retirement Lord Abbett Bond- Small Cap Portfolio - Debenture Portfolio - Service Shares Class VC ------------------- -------------------- 2007 2006 2007 2006 --------- -------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ -- $ -- $ 12,421 $ 11,324 Realized gains (losses)........ 90,396 17,366 1,162 443 Unrealized appreciation (depreciation) during the year..................... (108,214) 10,481 (1,561) 4,788 --------- -------- -------- -------- Net increase (decrease) in net assets from operations...... (17,818) 27,847 12,022 16,555 --------- -------- -------- -------- Contract transactions: Payments received from contract owners.............. 52,570 61,635 48,584 53,580 Transfers between Investment Options (including Guaranteed Interest Account), net....... (8,686) (4,943) 5,718 (21,700) Transfers for contract benefits and terminations.... (2,755) (171) (34,512) (2,584) Contract maintenance charges...................... (16,965) (15,749) (23,787) (12,757) --------- -------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions........... 24,164 40,772 (3,997) 16,539 --------- -------- -------- -------- Total increase (decrease) in net assets................... 6,346 68,619 8,025 33,094 Net assets at beginning of period.......................... 214,442 145,823 197,324 164,230 --------- -------- -------- -------- Net assets at end of period....... $ 220,788 $214,442 $205,349 $197,324 ========= ======== ======== ========
See Notes to Financial Statements SA - 23 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Lord Abbett Mid-Cap Lord Abbett Growth and Value Portfolio - Income Portfolio - Class VC Class VC -------------------------- ------------------ 2007 2006 2007 2006 ---------- ---------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ 51,069 $ 32,017 $ 1,876 $ 1,747 Realized gains (losses)........ 283,644 86,645 59,659 28,983 Unrealized appreciation (depreciation) during the year..................... (237,127) 215,274 (58,803) 9,734 ---------- ---------- -------- -------- Net increase (decrease) in net assets from operations...... 97,586 333,936 2,732 40,464 ---------- ---------- -------- -------- Contract transactions: Payments received from contract owners.............. 1,236,903 891,946 144,322 121,938 Transfers between Investment Options (including Guaranteed Interest Account), net....... 535,139 338,575 8,841 (35,964) Transfers for contract benefits and terminations.... (123,715) (80,745) (18,846) (8,405) Contract maintenance charges...................... (341,345) (204,219) (56,199) (46,117) ---------- ---------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions........... 1,306,982 945,557 78,118 31,452 ---------- ---------- -------- -------- Total increase (decrease) in net assets................... 1,404,568 1,279,493 80,850 71,916 Net assets at beginning of period.......................... 2,728,713 1,449,220 361,908 289,992 ---------- ---------- -------- -------- Net assets at end of period....... $4,133,281 $2,728,713 $442,758 $361,908 ========== ========== ======== ========
See Notes to Financial Statements SA - 24 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Neuberger Berman Mutual Shares Securities AMT Fasciano Fund - Class 2 Portfolio - S Class ---------------------- ------------------ 2007 2006 2007 2006 ---------- ---------- ------ ------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ 21,826 $ 9,054 $ -- $ -- Realized gains (losses)........ 69,469 23,491 67 38 Unrealized appreciation (depreciation) during the year..................... (64,939) 110,761 (366) (14) ---------- ---------- ------ ------- Net increase (decrease) in net assets from operations...... 26,356 143,306 (299) 24 ---------- ---------- ------ ------- Contract transactions: Payments received from contract owners.............. 598,888 135,313 1,317 2,445 Transfers between Investment Options (including Guaranteed Interest Account), net....... 8,877 475,048 3,456 613 Transfers for contract benefits and terminations.... (4,833) (15) (17) (1,229) Contract maintenance charges...................... (94,220) (42,176) (407) (44) ---------- ---------- ------ ------- Net increase (decrease) in net assets resulting from contract transactions........... 508,712 568,170 4,349 1,785 ---------- ---------- ------ ------- Total increase (decrease) in net assets................... 535,068 711,476 4,050 1,809 Net assets at beginning of period.......................... 1,260,830 549,354 1,809 -- ---------- ---------- ------ ------- Net assets at end of period....... $1,795,898 $1,260,830 $5,859 $ 1,809 ========== ========== ====== =======
See Notes to Financial Statements SA - 25 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued) Oppenheimer Neuberger Berman Capital AMT Guardian Appreciation Fund/ Portfolio - S Class VA - Service Shares ------------------- ------------------ 2007 2006 2007 2006 -------- ---- ------- ------ Increase (decrease) in net assets from operations: Net investment income (loss)........ $ 779 $-- $ 1 $ -- Realized gains (losses)............. (39) -- 7 -- Unrealized appreciation (depreciation) during the year.... 1,651 -- 1,656 148 -------- --- ------- ------ Net increase (decrease) in net assets from operations............... 2,391 -- 1,664 148 -------- --- ------- ------ Contract transactions: Payments received from contract owners............................ 212,500 -- 5,136 45 Transfers between Investment Options (including Guaranteed Interest Account), net............ 322,038 -- 14,043 5,817 Transfers for contract benefits and terminations.................. (9,462) -- (40) -- Contract maintenance charges........ (36,601) -- (1,534) (69) -------- --- ------- ------ Net increase (decrease) in net assets resulting from contract transactions......................... 488,475 -- 17,605 5,793 -------- --- ------- ------ Total increase (decrease) in net assets................. 490,866 -- 19,269 5,941 Net assets at beginning of period...... -- -- 5,941 -- -------- --- ------- ------ Net assets at end of period............ $490,866 $-- $25,210 $5,941 ======== === ======= ====== See Notes to Financial Statements SA - 26 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Oppenheimer Oppenheimer Main Global Securities Street Small Cap Fund/VA - Fund/VA - Service Shares Service Shares --------------- ----------------- 2007 2006 2007 2006 ------- ------ -------- ------- Increase (decrease) in net assets from operations: Net investment income (loss)............. $ 234 $ (1) $ (5) $ -- Realized gains (losses).................. 894 4 632 32 Unrealized appreciation (depreciation) during the year......... 48 535 (21,111) 274 ------- ------ -------- ------- Net increase (decrease) in net assets from operations........................... 1,176 538 (20,484) 306 ------- ------ -------- ------- Contract transactions: Payments received from contract owners................................. 27,879 923 167,926 3,305 Transfers between Investment Options (including Guaranteed Interest Account), net.......................... 10,112 5,642 253,953 3,978 Transfers for contract benefits and terminations........................... (1,460) -- (7,096) (1,353) Contract maintenance charges............. (4,114) (336) (30,239) (198) ------- ------ -------- ------- Net increase (decrease) in net assets resulting from contract transactions...... 32,417 6,229 384,544 5,732 ------- ------ -------- ------- Total increase (decrease) in net assets............................. 33,593 6,767 364,060 6,038 Net assets at beginning of period........... 6,767 -- 6,038 -- ------- ------ -------- ------- Net assets at end of period................. $40,360 $6,767 $370,098 $ 6,038 ======= ====== ======== =======
See Notes to Financial Statements SA - 27 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix Capital Growth Phoenix Growth and Income Series Series -------------------- ------------------------ 2007 2006 2007 2006 ---------- -------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ 2,780 $ 1,849 $ 29,378 $ 24,202 Realized gains (losses)........ 1,524 (579) 94,879 (33) Unrealized appreciation (depreciation) during the year..................... 98,563 14,905 46,393 287,609 ---------- -------- ---------- ---------- Net increase (decrease) in net assets from operations...... 102,867 16,175 170,650 311,778 ---------- -------- ---------- ---------- Contract transactions: Payments received from contract owners.............. 143,649 99,981 737,703 628,206 Transfers between Investment Options (including Guaranteed Interest Account), net....... (23,877) 380,824 (111,393) 501,158 Transfers for contract benefits and terminations.... (22,127) (2,396) (61,161) (49,949) Contract maintenance charges...................... (71,582) (46,551) (212,427) (155,171) ---------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions........... 26,063 431,858 352,722 924,244 ---------- -------- ---------- ---------- Total increase (decrease) in net assets................... 128,930 448,033 523,372 1,236,022 Net assets at beginning of period.......................... 938,374 490,341 2,640,547 1,404,525 ---------- -------- ---------- ---------- Net assets at end of period....... $1,067,304 $938,374 $3,163,919 $2,640,547 ========== ======== ========== ==========
See Notes to Financial Statements SA - 28 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix Mid-Cap Growth Series Phoenix Money Market Series ------------------ -------------------------- 2007 2006 2007 2006 -------- -------- ----------- ----------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ -- $ -- $ 134,557 $ 80,142 Realized gains (losses)........ 4,388 (1,249) -- -- Unrealized appreciation (depreciation) during the year..................... 39,267 5,523 -- -- -------- -------- ----------- ----------- Net increase (decrease) in net assets from operations...... 43,655 4,274 134,557 80,142 -------- -------- ----------- ----------- Contract transactions: Payments received from contract owners.............. 55,260 45,627 8,725,691 6,200,933 Transfers between Investment Options (including Guaranteed Interest Account), net....... (47,901) 21,773 (6,224,624) (4,934,827) Transfers for contract benefits and terminations.... (933) (1,159) (1,590,348) (770,833) Contract maintenance charges...................... (16,672) (14,192) (439,750) (330,017) -------- -------- ----------- ----------- Net increase (decrease) in net assets resulting from contract transactions........... (10,246) 52,049 470,969 165,256 -------- -------- ----------- ----------- Total increase (decrease) in net assets................... 33,409 56,323 605,526 245,398 Net assets at beginning of period.......................... 201,061 144,738 2,346,589 2,101,191 -------- -------- ----------- ----------- Net assets at end of period....... $234,470 $201,061 $ 2,952,115 $ 2,346,589 ======== ======== =========== ===========
See Notes to Financial Statements SA - 29 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix Multi-Sector Fixed Phoenix Multi-Sector Income Series Short Term Bond Series ------------------------- --------------------- 2007 2006 2007 2006 ---------- ---------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss)....................... $ 75,119 $ 53,499 $ 16,849 $ 10,356 Realized gains (losses)........ (102) 1,018 (11) 65 Unrealized appreciation (depreciation) during the year..................... (30,629) 9,841 (5,612) 1,508 ---------- ---------- -------- -------- Net increase (decrease) in net assets from operations...... 44,388 64,358 11,226 11,929 ---------- ---------- -------- -------- Contract transactions: Payments received from contract owners.............. 364,066 269,495 78,477 85,142 Transfers between Investment Options (including Guaranteed Interest Account), net....... 273,379 12,854 4,524 21,476 Transfers for contract benefits and terminations.... (60,324) (72,733) (4,799) (2,916) Contract maintenance charges...................... (103,610) (58,589) (11,692) (9,675) ---------- ---------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions........... 473,511 151,027 66,510 94,027 ---------- ---------- -------- -------- Total increase (decrease) in net assets................... 517,899 215,385 77,736 105,956 Net assets at beginning of period.......................... 1,056,664 841,279 255,461 149,505 ---------- ---------- -------- -------- Net assets at end of period....... $1,574,563 $1,056,664 $333,197 $255,461 ========== ========== ======== ========
See Notes to Financial Statements SA - 30 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix Strategic Phoenix-Aberdeen Allocation Series International Series ------------------- ---------------------- 2007 2006 2007 2006 -------- --------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 19,120 $ 14,733 $ 112,346 $ 45,235 Realized gains (losses)......................... 42,651 71,236 398,857 1,746 Unrealized appreciation (depreciation) during the year...................................... (19,477) (22,356) 392,868 396,464 -------- --------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 42,294 63,613 904,071 443,445 -------- --------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 118,562 301,464 2,251,303 587,621 Transfers between Investment Options (including Guaranteed Interest Account, net... 68,377 6,106 742,842 3,446,644 Transfers for contract benefits and terminations.................................. (50,604) (151,655) (179,166) (81,491) Contract maintenance charges.................... (62,468) (40,878) (599,883) (143,445) -------- --------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 73,867 115,037 2,215,096 3,809,329 -------- --------- ---------- ---------- Total increase (decrease) in net assets..... 116,161 178,650 3,119,167 4,252,774 Net assets at beginning of period.................. 608,844 430,194 4,893,522 640,748 -------- --------- ---------- ---------- Net assets at end of period........................ $725,005 $ 608,844 $8,012,689 $4,893,522 ======== ========= ========== ==========
See Notes to Financial Statements SA - 31 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix-Alger Small-Cap Phoenix-Duff & Phelps Growth Series Real Estate Securities Series ---------------------- ---------------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ (78) $ 86 $ 33,309 $ 29,744 Realized gains (losses)......................... 280,540 14,677 148,626 209,515 Unrealized appreciation (depreciation) during the year...................................... (81,076) 106,039 (616,985) 424,978 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 199,386 120,802 (435,050) 664,237 ---------- ---------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 366,583 224,780 703,292 704,699 Transfers between Investment Options (including Guaranteed Interest Account), net.. (64,294) 545,826 (432,616) (23,276) Transfers for contract benefits and terminations.................................. (32,016) (12,451) (93,028) (75,086) Contract maintenance charges.................... (118,324) (64,623) (228,572) (147,991) ---------- ---------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 151,949 693,532 (50,924) 458,346 ---------- ---------- ---------- ---------- Total increase (decrease) in net assets..... 351,335 814,334 (485,974) 1,122,583 Net assets at beginning of period.................. 1,201,268 386,934 2,623,041 1,500,458 ---------- ---------- ---------- ---------- Net assets at end of period........................ $1,552,603 $1,201,268 $2,137,067 $2,623,041 ========== ========== ========== ==========
See Notes to Financial Statements SA - 32 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix-S&P Dynamic Phoenix-S&P Dynamic Asset Allocation Series: Asset Allocation Series: Aggressive Growth Growth ----------------------- ----------------------- 2007 2006 2007 2006 ---------- --------- ---------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 18,810 $ 7,859 $ 16,056 $ 3,038 Realized gains (losses)......................... 17,118 332 8,708 49 Unrealized appreciation (depreciation) during the year...................................... 47,031 48,864 19,502 10,596 ---------- --------- ---------- -------- Net increase (decrease) in net assets from operations....................................... 82,959 57,055 44,266 13,683 ---------- --------- ---------- -------- Contract transactions: Payments received from contract owners.......... 553,819 317,269 537,177 120,006 Transfers between Investment Options (including Guaranteed Interest Account), net.. 514,556 570,128 623,977 145,931 Transfers for contract benefits and terminations.................................. (1,335) (135,110) (95,607) (8,956) Contract maintenance charges.................... (124,981) (18,849) (78,260) (12,656) ---------- --------- ---------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... 942,059 733,438 987,287 244,325 ---------- --------- ---------- -------- Total increase (decrease) in net assets..... 1,025,018 790,493 1,031,553 258,008 Net assets at beginning of period.................. 790,493 -- 258,008 -- ---------- --------- ---------- -------- Net assets at end of period........................ $1,815,511 $ 790,493 $1,289,561 $258,008 ========== ========= ========== ========
See Notes to Financial Statements SA - 33 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix-S&P Dynamic Asset Allocation Phoenix-S&P Dynamic Series: Asset Allocation Series: Moderate Moderate Growth ------------- ----------------------- 2007 2006 2007 2006 ----- ---- --------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 8 $-- $ 8,120 $ 2,900 Realized gains (losses)......................... 9 -- 7,436 1,059 Unrealized appreciation (depreciation) during the year...................................... (9) -- 11,085 2,878 ----- --- --------- -------- Net increase (decrease) in net assets from operations....................................... 8 -- 26,641 6,837 ----- --- --------- -------- Contract transactions: Payments received from contract owners.......... 815 -- 338,376 171,878 Transfers between Investment Options (including Guaranteed Interest Account), net.. 126 -- 120,476 136,832 Transfers for contract benefits and terminations.................................. -- -- (68,698) (429) Contract maintenance charges.................... (497) -- (117,431) (81,507) ----- --- --------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... 444 -- 272,723 226,774 ----- --- --------- -------- Total increase (decrease) in net assets..... 452 -- 299,364 233,611 Net assets at beginning of period.................. -- -- 233,611 -- ----- --- --------- -------- Net assets at end of period........................ $ 452 $-- $ 532,975 $233,611 ===== === ========= ========
See Notes to Financial Statements SA - 34 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix-Sanford Phoenix-Sanford Bernstein Bernstein Small-Cap Mid-Cap Value Series Value Series ------------------------ -------------------- 2007 2006 2007 2006 ---------- ---------- ---------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 1,663 $ 3,721 $ (83) $ 1,704 Realized gains (losses)......................... 197,928 115,014 153,516 114,806 Unrealized appreciation (depreciation) during the year...................................... (211,504) (16,555) (194,353) (22,815) ---------- ---------- ---------- -------- Net increase (decrease) in net assets from operations....................................... (11,913) 102,180 (40,920) 93,695 ---------- ---------- ---------- -------- Contract transactions: Payments received from contract owners.......... 559,607 387,493 333,994 281,881 Transfers between Investment Options (including Guaranteed Interest Account), net.. 256,120 130,568 113,197 116,731 Transfers for contract benefits and terminations.................................. (25,866) (26,604) (28,326) (20,323) Contract maintenance charges.................... (126,546) (66,894) (88,608) (51,663) ---------- ---------- ---------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... 663,315 424,563 330,257 326,626 ---------- ---------- ---------- -------- Total increase (decrease) in net assets..... 651,402 526,743 289,337 420,321 Net assets at beginning of period.................. 1,012,865 486,122 845,946 425,625 ---------- ---------- ---------- -------- Net assets at end of period........................ $1,664,267 $1,012,865 $1,135,283 $845,946 ========== ========== ========== ========
See Notes to Financial Statements SA - 35 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Phoenix-Van Kampen Phoenix-Van Kampen Comstock Series Equity 500 Index Series ------------------ ---------------------- 2007 2006 2007 2006 -------- -------- --------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 8,201 $ 7,854 $ 11,110 $ 6,076 Realized gains (losses)......................... 28,313 82,415 17,567 415 Unrealized appreciation (depreciation) during the year...................................... (45,440) (4,772) 17,898 42,081 -------- -------- --------- -------- Net increase (decrease) in net assets from operations....................................... (8,926) 85,497 46,575 48,572 -------- -------- --------- -------- Contract transactions: Payments received from contract owners.......... 135,745 149,638 146,008 60,639 Transfers between Investment Options (including Guaranteed Interest Account), net.. (91,634) (74,647) (193,515) 639,765 Transfers for contract benefits and terminations.................................. (18,303) (9,272) (17,238) (18,818) Contract maintenance charges.................... (38,155) (32,403) (101,187) (22,424) -------- -------- --------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... (12,347) 33,316 (165,932) 659,162 -------- -------- --------- -------- Total increase (decrease) in net assets..... (21,273) 118,813 (119,357) 707,734 Net assets at beginning of period.................. 495,263 376,450 869,516 161,782 -------- -------- --------- -------- Net assets at end of period........................ $473,990 $495,263 $ 750,159 $869,516 ======== ======== ========= ========
See Notes to Financial Statements SA - 36 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
PIMCO VIT CommodityRealReturn PIMCO VIT Real Strategy Portfolio - Return Portfolio - Advisor Class Advisor Class ------------------- ---------------- 2007 2006 2007 2006 -------- ------- ------- ------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 7,586 $ 308 $ 700 $ 126 Realized gains (losses)......................... (175) 47 79 241 Unrealized appreciation (depreciation) during the year...................................... 27,828 (695) 1,131 (382) -------- ------- ------- ------- Net increase (decrease) in net assets from operations....................................... 35,239 (340) 1,910 (15) -------- ------- ------- ------- Contract transactions: Payments received from contract owners.......... 116,220 3,760 13,965 1,301 Transfers between Investment Options (including Guaranteed Interest Account), net.. 169,900 8,480 11,780 9,000 Transfers for contract benefits and terminations.................................. (6,375) (2) (175) (1,199) Contract maintenance charges.................... (21,260) (401) (2,028) (166) -------- ------- ------- ------- Net increase (decrease) in net assets resulting from contract transactions....................... 258,485 11,837 23,542 8,936 -------- ------- ------- ------- Total increase (decrease) in net assets..... 293,724 11,497 25,452 8,921 Net assets at beginning of period.................. 11,497 -- 8,921 -- -------- ------- ------- ------- Net assets at end of period........................ $305,221 $11,497 $34,373 $ 8,921 ======== ======= ======= =======
See Notes to Financial Statements SA - 37 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Rydex Variable Trust PIMCO VIT Total Inverse Government Return Portfolio - Long Bond Strategy Advisor Class Fund ----------------- ------------------- 2007 2006 2007 2006 -------- ------- ------- ------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 3,707 $ 645 $ 1,686 $ 1,410 Realized gains (losses)......................... 138 359 110 (106) Unrealized appreciation (depreciation) during the year...................................... 3,749 (368) (3,664) 1,163 -------- ------- ------- ------- Net increase (decrease) in net assets from operations....................................... 7,594 636 (1,868) 2,467 -------- ------- ------- ------- Contract transactions: Payments received from contract owners.......... 12,898 11,010 11,628 11,959 Transfers between Investment Options (including Guaranteed Interest Account), net.. 26,080 53,908 (6,044) (6,174) Transfers for contract benefits and terminations.................................. (14) (2,395) -- -- Contract maintenance charges.................... (7,468) (538) (3,738) (4,303) -------- ------- ------- ------- Net increase (decrease) in net assets resulting from contract transactions....................... 31,496 61,985 1,846 1,482 -------- ------- ------- ------- Total increase (decrease) in net assets..... 39,090 62,621 (22) 3,949 Net assets at beginning of period.................. 62,621 -- 35,115 31,166 -------- ------- ------- ------- Net assets at end of period........................ $101,711 $62,621 $35,093 $35,115 ======== ======= ======= =======
See Notes to Financial Statements SA - 38 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Rydex Variable Trust Rydex Variable Trust Nova Fund Sector Rotation Fund ------------------- ------------------ 2007 2006 2007 2006 ------- -------- -------- -------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 481 $ 431 $ -- $ -- Realized gains (losses)......................... 2,460 2,223 3,751 1,762 Unrealized appreciation (depreciation) during the year...................................... (3,030) 4,703 2,221 1,526 ------- -------- -------- -------- Net increase (decrease) in net assets from operations....................................... (89) 7,357 5,972 3,288 ------- -------- -------- -------- Contract transactions: Payments received from contract owners.......... 9,007 8,880 7,811 9,858 Transfers between Investment Options (including Guaranteed Interest Account), net.. (8,812) (12,302) -- (15,973) Transfers for contract benefits and terminations.................................. -- -- (798) (1,404) Contract maintenance charges.................... (2,882) (3,570) (13,516) (4,918) ------- -------- -------- -------- Net increase (decrease) in net assets resulting from contract transactions....................... (2,687) (6,992) (6,503) (12,437) ------- -------- -------- -------- Total increase (decrease) in net assets..... (2,776) 365 (531) (9,149) Net assets at beginning of period.................. 37,344 36,979 31,132 40,281 ------- -------- -------- -------- Net assets at end of period........................ $34,568 $ 37,344 $ 30,601 $ 31,132 ======= ======== ======== ========
See Notes to Financial Statements SA - 39 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Sentinel Variable Sentinel Variable Products Bond Products Common Fund Stock Fund ----------------- ----------------- 2007 2006 2007 2006 ------- ---- -------- ---- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 1,097 $-- $ 1,547 $-- Realized gains (losses)......................... -- -- 2,619 -- Unrealized appreciation (depreciation) during the year...................................... (775) -- (3,237) -- ------- --- -------- --- Net increase (decrease) in net assets from operations....................................... 322 -- 929 -- ------- --- -------- --- Contract transactions: Payments received from contract owners.......... 10,851 -- 69,298 -- Transfers between Investment Options (including Guaranteed Interest Account), net.. 18,589 -- 84,224 -- Transfers for contract benefits and terminations.................................. (394) -- (442) -- Contract maintenance charges.................... (641) -- (3,687) -- ------- --- -------- --- Net increase (decrease) in net assets resulting from contract transactions....................... 28,405 -- 149,393 -- ------- --- -------- --- Total increase (decrease) in net assets..... 28,727 -- 150,322 -- Net assets at beginning of period.................. -- -- -- -- ------- --- -------- --- Net assets at end of period........................ $28,727 $-- $150,322 $-- ======= === ======== ===
See Notes to Financial Statements SA - 40 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Sentinel Variable Products Sentinel Variable Mid Cap Products Small Growth Fund Company Fund ----------------- ----------------- 2007 2006 2007 2006 ------ ---- ------- ---- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ -- $-- $ 125 $-- Realized gains (losses)......................... 1 -- 2,012 -- Unrealized appreciation (depreciation) during the year...................................... (57) -- (2,218) -- ------ --- ------- --- Net increase (decrease) in net assets from operations....................................... (56) -- (81) -- ------ --- ------- --- Contract transactions: Payments received from contract owners.......... 76 -- 10,779 -- Transfers between Investment Options (including Guaranteed Interest Account), net.. 7,584 -- 12,443 -- Transfers for contract benefits and terminations.................................. -- -- (60) -- Contract maintenance charges.................... (60) -- (560) -- ------ --- ------- --- Net increase (decrease) in net assets resulting from contract transactions....................... 7,600 -- 22,602 -- ------ --- ------- --- Total increase (decrease) in net assets..... 7,544 -- 22,521 -- Net assets at beginning of period.................. -- -- -- -- ------ --- ------- --- Net assets at end of period........................ $7,544 $-- $22,521 $-- ====== === ======= ===
See Notes to Financial Statements SA - 41 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Templeton Developing Markets Securities Templeton Foreign Fund - Class 2 Securities Fund - Class 2 ------------------- ------------------------ 2007 2006 2007 2006 -------- ------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 5,298 $ 508 $ 21,503 $ 9,071 Realized gains (losses)......................... 18,217 317 57,723 291 Unrealized appreciation (depreciation) during the year...................................... 42,062 11,753 70,029 151,267 -------- ------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 65,577 12,578 149,255 160,629 -------- ------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 121,100 23,956 281,649 260,137 Transfers between Investment Options (including Guaranteed Interest Account), net.. 214,875 52,967 (188,746) 225,592 Transfers for contract benefits and terminations.................................. (2,792) (882) (45,287) (29,851) Contract maintenance charges.................... (16,394) (2,337) (95,227) (62,926) -------- ------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 316,789 73,704 (47,611) 392,952 -------- ------- ---------- ---------- Total increase (decrease) in net assets..... 382,366 86,282 101,644 553,581 Net assets at beginning of period.................. 86,282 -- 1,137,866 584,285 -------- ------- ---------- ---------- Net assets at end of period........................ $468,648 $86,282 $1,239,510 $1,137,866 ======== ======= ========== ==========
See Notes to Financial Statements SA - 42 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Van Kampen UIF Templeton Growth Equity and Income Securities Fund - Class 2 Portfolio - Class II ------------------------ ------------------- 2007 2006 2007 2006 ---------- -------- ------- ------ Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 12,494 $ 7,900 $ 107 $ -- Realized gains (losses)......................... 41,193 22,722 191 2 Unrealized appreciation (depreciation) during the year...................................... (45,760) 88,016 (157) 157 ---------- -------- ------- ------ Net increase (decrease) in net assets from operations....................................... 7,927 118,638 141 159 ---------- -------- ------- ------ Contract transactions: Payments received from contract owners.......... 507,720 139,896 4,561 522 Transfers between Investment Options (including Guaranteed Interest Account), net.. 148,441 80,026 2,579 4,780 Transfers for contract benefits and terminations.................................. (20,120) (10,346) (133) (217) Contract maintenance charges.................... (80,003) (38,666) (1,066) (139) ---------- -------- ------- ------ Net increase (decrease) in net assets resulting from contract transactions....................... 556,038 170,910 5,941 4,946 ---------- -------- ------- ------ Total increase (decrease) in net assets..... 563,965 289,548 6,082 5,105 Net assets at beginning of period.................. 767,233 477,685 5,105 -- ---------- -------- ------- ------ Net assets at end of period........................ $1,331,198 $767,233 $11,187 $5,105 ========== ======== ======= ======
See Notes to Financial Statements SA - 43 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Wanger International Wanger International Select Small Cap -------------------- ---------------------- 2007 2006 2007 2006 ---------- -------- ---------- ---------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ 2,832 $ 425 $ 25,405 $ 9,267 Realized gains (losses)......................... 48,453 1,092 271,709 (1,533) Unrealized appreciation (depreciation) during the year...................................... 71,690 77,471 190,736 591,866 ---------- -------- ---------- ---------- Net increase (decrease) in net assets from operations....................................... 122,975 78,988 487,850 599,600 ---------- -------- ---------- ---------- Contract transactions: Payments received from contract owners.......... 196,364 88,387 665,518 595,055 Transfers between Investment Options (including Guaranteed Interest Account), net.. 366,366 58,448 (146,504) 401,092 Transfers for contract benefits and terminations.................................. (2,176) (9,655) (92,155) (43,685) Contract maintenance charges.................... (44,429) (19,889) (228,370) (125,946) ---------- -------- ---------- ---------- Net increase (decrease) in net assets resulting from contract transactions....................... 516,125 117,291 198,489 826,516 ---------- -------- ---------- ---------- Total increase (decrease) in net assets..... 639,100 196,279 686,339 1,426,116 Net assets at beginning of period.................. 362,341 166,062 2,772,202 1,346,086 ---------- -------- ---------- ---------- Net assets at end of period........................ $1,001,441 $362,341 $3,458,541 $2,772,202 ========== ======== ========== ==========
See Notes to Financial Statements SA - 44 STATEMENTS OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006 (Continued)
Wanger U.S. Smaller Wanger Select Companies -------------------- --------------------- 2007 2006 2007 2006 ---------- -------- ---------- --------- Increase (decrease) in net assets from operations: Net investment income (loss).................... $ (12) $ 966 $ (4) $ 1,522 Realized gains (losses)......................... 8,147 8,112 48,080 18,601 Unrealized appreciation (depreciation) during the year...................................... (23,168) 43,929 159 30,046 ---------- -------- ---------- --------- Net increase (decrease) in net assets from operations....................................... (15,033) 53,007 48,235 50,169 ---------- -------- ---------- --------- Contract transactions: Payments received from contract owners.......... 101,160 65,951 219,844 318,314 Transfers between Investment Options (including Guaranteed Interest Account), net.. 1,026,576 60,979 129,268 1,837 Transfers for contract benefits and terminations.................................. (6,230) (1,930) (79,826) (137,961) Contract maintenance charges.................... (31,805) (21,786) (75,240) (60,852) ---------- -------- ---------- --------- Net increase (decrease) in net assets resulting from contract transactions....................... 1,089,701 103,214 194,046 121,338 ---------- -------- ---------- --------- Total increase (decrease) in net assets..... 1,074,668 156,221 242,281 171,507 Net assets at beginning of period.................. 364,447 208,226 787,434 615,927 ---------- -------- ---------- --------- Net assets at end of period........................ $1,439,115 $364,447 $1,029,715 $ 787,434 ========== ======== ========== =========
See Notes to Financial Statements SA - 45 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS Note 1--Organization The PHLVIC Variable Universal Life Account (the "Separate Account") is a separate investment account of PHL Variable Insurance Company ("PHL Variable"). PHL Variable is a Connecticut stock life insurance company and is an indirect wholly owned subsidiary of Phoenix Life Insurance Company ("Phoenix"). Phoenix is a wholly-owned subsidiary of The Phoenix Companies, Inc. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and was established September 10, 1998. The Separate Account currently consists of 59 investment options that invest in shares of underlying funds. The underlying funds include The Phoenix Edge Series Fund, AIM Variable Insurance Funds, The Alger American Fund, DWS Investments VIT Funds (formerly Scudder Investments VIT Funds), Federated Insurance Series, Fidelity(R) Variable Insurance Products, Franklin Templeton Variable Insurance Products Trust, Lazard Retirement Series, Lord Abbett Series Fund, Inc., Neuberger Berman Advisers Management Trust, Oppenheimer Variable Account Funds, PIMCO Variable Insurance Trust, The Rydex Variable Trust, The Sentinel Variable Products Trust, The Universal Institutional Funds, Inc. and Wanger Advisors Trust (collectively, the "Funds"). The Separate Account invests in the following investment options: AIM V.I. Capital Appreciation Fund - Class I AIM V.I. Core Equity Fund - Class I AIM V.I. Mid Cap Core Equity Fund - Class I Alger American Leveraged AllCap Portfolio - Class O DWS Equity 500 Index Fund VIP - Class A Federated Fund for U.S. Government Securities II Federated High Income Bond Fund II - Primary Shares Fidelity VIP Contrafund(R) Portfolio - Service Class Fidelity VIP Growth Opportunities Portfolio - Service Class Fidelity VIP Growth Portfolio - Service Class Fidelity VIP Investment Grade Bond Portfolio - Service Class Franklin Income Securities Fund - Class 2 Lazard Retirement Small Cap Portfolio - Service Shares Lord Abbett Bond-Debenture Portfolio - Class VC Lord Abbett Growth and Income Portfolio - Class VC Lord Abbett Mid-Cap Value Portfolio - Class VC Mutual Shares Securities Fund - Class 2 (included in Franklin Templeton Variable Insurance Products Trust) Neuberger Berman AMT Fasciano Portfolio - Class S Neuberger Berman AMT Guardian Portfolio - Class S Oppenheimer Capital Appreciation Fund/VA - Service Shares Oppenheimer Global Securities Fund/VA - Service Shares Oppenheimer Main Street Small Cap Fund/VA - Service Shares Phoenix Capital Growth Series Phoenix Growth and Income Series Phoenix Mid-Cap Growth Series Phoenix Money Market Series Phoenix Multi-Sector Fixed Income Series Phoenix Multi-Sector Short Term Bond Series Phoenix Strategic Allocation Series Phoenix-Aberdeen International Series Phoenix-Alger Small-Cap Growth Series SA - 46 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 1--Organization (Continued) Phoenix-Duff & Phelps Real Estate Securities Series Phoenix-S&P Dynamic Asset Allocation Series: Aggressive Growth Phoenix-S&P Dynamic Asset Allocation Series: Growth Phoenix-S&P Dynamic Asset Allocation Series: Moderate Phoenix-S&P Dynamic Asset Allocation Series: Moderate Growth Phoenix-Sanford Bernstein Mid-Cap Value Series Phoenix-Sanford Bernstein Small-Cap Value Series Phoenix-Van Kampen Comstock Series Phoenix-Van Kampen Equity 500 Index Series PIMCO VIT CommodityRealReturn Strategy Portfolio - Advisor Class PIMCO VIT Real Return Portfolio - Advisor Class PIMCO VIT Total Return Portfolio - Advisor Class Rydex Variable Trust Inverse Government Long Bond Strategy Fund Rydex Variable Trust Nova Fund Rydex Variable Trust Sector Rotation Fund Sentinel Variable Products Balanced Fund Sentinel Variable Products Bond Fund Sentinel Variable Products Common Stock Fund Sentinel Variable Products Mid Cap Growth Fund Sentinel Variable Products Small Company Fund Templeton Developing Markets Securities Fund - Class 2 Templeton Foreign Securities Fund - Class 2 Templeton Growth Securities Fund - Class 2 Van Kampen UIF Equity and Income Portfolio - Class II Wanger International Select Wanger International Small Cap Wanger Select Wanger U.S. Smaller Companies Additionally, policy owners also may direct the allocation of their investments between the Separate Account and the Guaranteed Interest Account. Comparative year information for the year ended December 31, 2004 and prior year financial highlight data (December 31, 2003 through December 31, 2004) have been reformatted to be consistent with the 2005, 2006 and 2007 disclosures. Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from PHL Variable's other asset and liabilities. The portion of the Separate Account's assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business PHL Variable may conduct. SA - 47 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 2--Significant Accounting Policies The following is a summary of significant accounting policies of the Separate Account, which are in accordance with accounting principles generally accepted in the United States of America in the investment company industry: A. Valuation of investments: Investments are made exclusively in the Funds and are valued at the reported net asset values per share of the respective investment options. B. Investment transactions and related income: Investment transactions are recorded on the trade date. Realized gains and losses on the sales of shares of the Funds are computed on the basis of the identified cost of the share sold. Dividend income and gains from investments are recorded on the ex-distribution date. C. Income taxes: The Separate Account is not a separate entity from Phoenix, and under current federal income tax law, income arising from the Separate Account is not taxed since reserves are established equivalent to such income. Therefore, no provision for related federal taxes is required. D. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities, revenues and expenses. Actual results could differ from those estimates. E. Distributions: Distributions from the Funds are recorded by each investment option on the ex-dividend date. F. Fair Value Measurements: In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels ("Level 1, 2 and 3"). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability. Level 3 inputs are unobservable inputs reflecting our estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). We have adopted SFAS 157 effective January 1, 2008. Adoption of this statement did not have a material impact on our financial statements. Note 3--Purchases and Proceeds from Sales of Investments The cost of purchases and proceeds from sales of investments for the period ended December 31, 2007 were as follows:
Investment Option Purchases Sales ----------------- ---------- -------- AIM V.I. Capital Appreciation Fund - Class I.................. $ 658,590 $309,511 AIM V.I. Core Equity Fund - Class I........................... 108,483 64,211 AIM V.I. Mid Cap Core Equity Fund - Class I................... 32,025 29,687 Alger American Leveraged AllCap Portfolio - Class O........... 38,092 47,517 DWS Equity 500 Index Fund VIP - Class A....................... 1,068,924 453,429 Federated Fund for U.S. Government Securities II.............. 1,669,180 506,899 Federated High Income Bond Fund II - Primary Shares........... 351,429 263,720 Fidelity VIP Contrafund(R) Portfolio - Service Class.......... 1,541,104 424,956 Fidelity VIP Growth Opportunities Portfolio - Service Class... 1,501,016 326,680 Fidelity VIP Growth Portfolio - Service Class................. 281,085 203,215
SA - 48 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 3--Purchases and Proceeds from Sales of Investments (Continued)
Investment Option Purchases Sales ----------------- ----------- ----------- Fidelity VIP Investment Grade Bond Portfolio - Service Class....... $ 404,288 $ 44,910 Franklin Income Securities Fund - Class 2.......................... 578,205 64,689 Lazard Retirement Small Cap Portfolio - Service Shares............. 143,489 28,447 Lord Abbett Bond-Debenture Portfolio - Class VC.................... 305,193 296,098 Lord Abbett Growth and Income Portfolio - Class VC................. 2,183,532 541,560 Lord Abbett Mid-Cap Value Portfolio - Class VC..................... 245,482 108,824 Mutual Shares Securities Fund - Class 2............................ 1,220,209 634,613 Neuberger Berman AMT Fasciano Portfolio - S Class.................. 6,773 2,374 Neuberger Berman AMT Guardian Portfolio - S Class.................. 551,749 62,497 Oppenheimer Capital Appreciation Fund/VA - Service Shares.......... 19,181 1,576 Oppenheimer Global Securities Fund/VA - Service Shares............. 41,390 7,722 Oppenheimer Main Street Small Cap Fund/VA - Service Shares......... 435,389 50,116 Phoenix Capital Growth Series...................................... 152,976 124,133 Phoenix Growth and Income Series................................... 1,054,196 593,395 Phoenix Mid-Cap Growth Series...................................... 62,218 72,463 Phoenix Money Market Series........................................ 10,857,780 10,252,254 Phoenix Multi-Sector Fixed Income Series........................... 741,024 192,394 Phoenix Multi-Sector Short Term Bond Series........................ 109,570 26,210 Phoenix Strategic Allocation Series................................ 322,086 189,334 Phoenix-Aberdeen International Series.............................. 3,710,149 983,854 Phoenix-Alger Small-Cap Growth Series.............................. 676,268 253,193 Phoenix-Duff & Phelps Real Estate Securities Series................ 1,560,959 1,364,936 Phoenix-S&P Dynamic Asset Allocation Series: Aggressive Growth..... 1,205,399 229,126 Phoenix-S&P Dynamic Asset Allocation Series: Growth................ 1,194,488 182,946 Phoenix-S&P Dynamic Asset Allocation Series: Moderate.............. 955 497 Phoenix-S&P Dynamic Asset Allocation Series: Moderate Growth....... 483,898 196,982 Phoenix-Sanford Bernstein Mid-Cap Value Series..................... 1,059,148 195,707 Phoenix-Sanford Bernstein Small-Cap Value Series................... 753,814 269,635 Phoenix-Van Kampen Comstock Series................................. 177,698 156,488 Phoenix-Van Kampen Equity 500 Index Series......................... 168,729 323,551 PIMCO VIT CommodityRealReturn Strategy Portfolio - Advisor Class... 309,745 43,674 PIMCO VIT Real Return Portfolio - Advisor Class.................... 26,523 2,207 PIMCO VIT Total Return Portfolio - Advisor Class................... 65,039 29,834 Rydex Variable Trust Inverse Government Long Bond Strategy Fund.... 13,314 9,782 Rydex Variable Trust Nova Fund..................................... 9,495 11,702 Rydex Variable Trust Sector Rotation Fund.......................... 10,064 14,314 Sentinel Variable Products Bond Fund............................... 30,536 1,034 Sentinel Variable Products Common Stock Fund....................... 157,688 4,129 Sentinel Variable Products Mid Cap Growth Fund..................... 7,660 60 Sentinel Variable Products Small Company Fund...................... 25,359 620 Templeton Developing Markets Securities Fund - Class 2............. 373,757 33,458 Templeton Foreign Securities Fund - Class 2........................ 424,725 401,330 Templeton Growth Securities Fund - Class 2......................... 775,769 165,764 Van Kampen UIF Equity and Income Portfolio - Class II.............. 8,541 2,342 Wanger International Select........................................ 661,629 94,314 Wanger International Small Cap..................................... 1,306,289 851,712 Wanger Select...................................................... 1,169,075 72,302 Wanger U.S. Smaller Companies...................................... 535,225 297,929 ----------- ----------- $43,586,596 $22,116,856 =========== ===========
SA - 49 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 4--Changes in Units Outstanding The changes in units outstanding were as follows:
For period ended For period ended December 31, 2007 December 31, 2006 ------------------------------- -------------------------------- Net Net Units Units Increase Units Units Increase Investment Option Issued Redeemed (Decrease) Issued Redeemed (Decrease) ----------------- --------- ---------- ---------- --------- ---------- ---------- AIM V.I. Capital Appreciation Fund - Class I.. 233,116 (108,241) 124,875 301,734 (79,620) 222,114 AIM V.I. Core Equity Fund - Class I........... 88,214 (55,349) 32,865 476,191 (50,976) 425,215 AIM V.I. Mid Cap Core Equity Fund - Class I... 23,145 (22,643) 502 40,002 (24,426) 15,576 Alger American Leveraged AllCap Portfolio - Class O...................................... 14,217 (14,196) 21 24,623 (9,745) 14,878 DWS Equity 500 Index Fund VIP - Class A....... 340,699 (152,202) 188,497 439,599 (123,693) 315,906 Federated Fund for U.S. Government Securities II................................ 685,081 (233,497) 451,584 856,495 (304,887) 551,608 Federated High Income Bond Fund II - Primary Shares............................... 110,549 (83,477) 27,072 98,069 (82,154) 15,915 Fidelity VIP Contrafund(R)/ /Portfolio - Service Class................................ 241,909 (111,209) 130,700 274,620 (78,815) 195,805 Fidelity VIP Growth Opportunities Portfolio - Service Class................................ 499,452 (114,375) 385,077 288,910 (64,050) 224,860 Fidelity VIP Growth Portfolio - Service Class. 94,134 (68,338) 25,796 138,343 (73,837) 64,506 Fidelity VIP Investment Grade Bond Portfolio - Service Class................................ 394,877 (43,708) 351,169 -- -- -- Franklin Income Securities Fund - Class 2..... 486,644 (55,542) 431,102 208,392 (188,589) 19,803 Lazard Retirement Small Cap Portfolio - Service Shares............................... 40,750 (22,408) 18,342 65,038 (29,729) 35,309 Lord Abbett Bond-Debenture Portfolio - Class VC..................................... 249,558 (253,051) (3,493) 70,934 (55,166) 15,768 Lord Abbett Growth and Income Portfolio - Class VC..................................... 1,440,515 (419,948) 1,020,567 1,174,973 (346,219) 828,754 Lord Abbett Mid-Cap Value Portfolio - Class VC..................................... 145,917 (82,443) 63,474 136,203 (106,479) 29,724 Mutual Shares Securities Fund - Class 2....... 453,066 (182,803) 270,263 206,400 (15,606) 190,794 Neuberger Berman AMT Fasciano Portfolio - S Class...................................... 6,447 (2,310) 4,137 3,187 (1,326) 1,861 Neuberger Berman AMT Guardian Portfolio - S Class...................................... 484,830 (54,561) 430,269 -- -- -- Oppenheimer Capital Appreciation Fund/VA - Service Shares............................... 17,217 (1,392) 15,825 5,863 (67) 5,796 Oppenheimer Global Securities Fund/VA - Service Shares............................... 36,036 (6,832) 29,204 6,644 (333) 6,311 Oppenheimer Main Street Small Cap Fund/VA - Service Shares............................... 414,697 (47,825) 366,872 7,856 (1,859) 5,997 Phoenix Capital Growth Series................. 53,045 (43,504) 9,541 191,433 (28,651) 162,782 Phoenix Growth and Income Series.............. 310,580 (193,565) 117,015 457,945 (106,909) 351,036 Phoenix Mid-Cap Growth Series................. 23,863 (27,327) (3,464) 52,824 (31,522) 21,302 Phoenix Money Market Series................... 5,179,988 (5,002,361) 177,627 3,366,445 (3,285,660) 80,785 Phoenix Multi-Sector Fixed Income Series...... 248,694 (68,485) 180,209 135,274 (77,445) 57,829 Phoenix Multi-Sector Short Term Bond Series... 80,368 (21,968) 58,400 98,983 (13,023) 85,960 Phoenix Strategic Allocation Series........... 91,301 (64,709) 26,592 113,848 (69,989) 43,859 Phoenix-Aberdeen International Series......... 747,692 (237,734) 509,958 1,128,227 (130,573) 997,654
SA - 50 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 4--Changes in Units Outstanding (Continued)
For period ended For period ended December 31, 2007 December 31, 2006 ----------------------------- --------------------------- Net Net Units Units Increase Units Units Increase Investment Option Issued Redeemed (Decrease) Issued Redeemed (Decrease) ----------------- --------- -------- ---------- ------- -------- ---------- Phoenix-Alger Small-Cap Growth Series............ 86,212 (53,159) 33,053 322,833 (150,912) 171,921 Phoenix-Duff & Phelps Real Estate Securities Series.......................................... 247,213 (253,066) (5,853) 237,877 (132,747) 105,130 Phoenix-S&P Dynamic Asset Allocation Series: Aggressive Growth............................... 977,622 (192,154) 785,468 926,799 (224,844) 701,955 Phoenix-S&P Dynamic Asset Allocation Series: Growth.......................................... 1,006,673 (157,155) 849,518 260,276 (25,666) 234,610 Phoenix-S&P Dynamic Asset Allocation Series: Moderate........................................ 837 (441) 396 -- -- -- Phoenix-S&P Dynamic Asset Allocation Series: Moderate Growth................................. 412,335 (173,916) 238,419 295,958 (80,613) 215,345 Phoenix-Sanford Bernstein Mid-Cap Value Series... 238,026 (57,137) 180,889 198,419 (65,611) 132,808 Phoenix-Sanford Bernstein Small-Cap Value Series. 159,670 (73,465) 86,205 150,105 (50,745) 99,360 Phoenix-Van Kampen Comstock Series............... 46,396 (49,936) (3,540) 60,465 (46,966) 13,499 Phoenix-Van Kampen Equity 500 Index Series....... 54,247 (104,576) (50,329) 255,928 (16,127) 239,801 PIMCO VIT CommodityRealReturn Strategy Portfolio - Advisor Class....................... 287,510 (41,232) 246,278 12,428 (452) 11,976 PIMCO VIT Real Return Portfolio - Advisor Class.. 23,761 (2,054) 21,707 10,030 (1,315) 8,715 PIMCO VIT Total Return Portfolio - Advisor Class. 58,140 (28,324) 29,816 62,921 (2,824) 60,097 Rydex Variable Trust Inverse Government Long Bond Strategy Fund................................... 11,685 (9,997) 1,688 12,647 (11,179) 1,468 Rydex Variable Trust Nova Fund................... 4,981 (6,613) (1,632) 6,181 (9,936) (3,755) Rydex Variable Trust Sector Rotation Fund........ 4,357 (8,165) (3,808) 10,097 (18,532) (8,435) Sentinel Variable Products Bond Fund............. 29,070 (1,020) 28,050 -- -- -- Sentinel Variable Products Common Stock Fund..... 150,415 (4,032) 146,383 -- -- -- Sentinel Variable Products Mid Cap Growth Fund... 7,029 (56) 6,973 -- -- -- Sentinel Variable Products Small Company Fund.... 22,927 (613) 22,314 -- -- -- Templeton Developing Markets Securities Fund - Class 2......................................... 284,314 (26,608) 257,706 101,169 (21,078) 80,091 Templeton Foreign Securities Fund - Class 2...... 105,905 (112,332) (6,427) 175,655 (49,009) 126,646 Templeton Growth Securities Fund - Class 2....... 325,461 (49,618) 275,843 83,052 (25,102) 57,950 Van Kampen UIF Equity and Income Portfolio - Class II........................................ 7,371 (2,084) 5,287 5,061 (341) 4,720 Wanger International Select...................... 114,559 (17,775) 96,784 45,013 (12,229) 32,784 Wanger International Small Cap................... 187,068 (141,844) 45,224 265,741 (86,362) 179,379 Wanger Select.................................... 253,952 (16,187) 237,765 37,062 (8,607) 28,455 Wanger U.S. Smaller Companies.................... 130,310 (77,192) 53,118 104,253 (70,289) 33,964
SA - 51 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights A summary of units outstanding, unit values, net assets, investment income ratios, expense ratios (excluding expenses of the underlying fund) and total return ratios for each of the five years in the periods ended December 31, 2007, 2006, 2005, 2004, and 2003 follows:
At December 31, For the periods ended December 31, ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ---------------- AIM V.I. Capital Appreciation Fund - Class I 2007............. 664 1.37 to 3.15 2,009 -- -- to 0.48% 11.47% to 12.01% 2006............. 539 1.23 to 2.81 1,460 0.07% -- to 0.48% 5.79% to 6.30% 2005............. 317 1.16 to 2.65 822 0.08% -- to 0.48% 8.84% to 10.64% 2004............. 165 2.43 to 2.43 402 -- -- to -- 6.63% to 6.63% 2003/6/.......... 24 2.28 to 2.28 54 -- -- to -- 2.46% to 32.26% AIM V.I. Core Equity Fund - Class I 2007............. 458 1.18 to 1.18 543 1.17% -- to -- 8.12% to 8.12% 2006/23/......... 425 1.10 to 1.10 466 0.87% -- to -- 9.16% to 9.16% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- AIM V.I. Mid Cap Core Equity Fund - Class I 2007............. 96 1.33 to 1.33 128 0.22% -- to -- 9.55% to 9.55% 2006............. 96 1.22 to 1.22 117 1.01% -- to -- 11.24% to 11.24% 2005............. 80 1.10 to 1.10 88 0.66% -- to -- 7.62% to 7.62% 2004/19/......... 31 1.02 to 1.02 32 1.79% -- to -- 1.98% to 1.98% 2003............. -- -- to -- -- -- -- to -- -- to -- Alger American Leveraged AllCap Portfolio - Class O 2007............. 103 1.88 to 4.32 391 -- -- to 0.48% 32.89% to 33.53% 2006............. 103 1.42 to 3.24 301 -- -- to 0.48% 18.69% to 19.26% 2005............. 88 1.19 to 2.71 225 -- -- to 0.48% 13.23% to 14.45% 2004............. 28 2.37 to 2.37 67 -- -- to -- 8.19% to 8.19% 2003............. 4 2.19 to 2.19 9 -- -- to -- 1.59% to 34.72% DWS Equity 500 Index Fund VIP - Class A 2007............. 940 1.01 to 3.23 2,935 1.46% -- to 0.48% (0.64%) to 5.30% 2006............. 751 1.26 to 3.06 2,229 1.08% -- to 0.48% 14.97% to 15.52% 2005............. 435 1.09 to 2.65 1,141 1.35% -- to 0.48% 4.68% to 4.85% 2004............. 250 2.53 to 2.53 634 1.17% -- to -- 10.59% to 10.59% 2003............. 45 2.29 to 2.29 103 0.11% -- to -- 28.16% to 31.00% Federated Fund for U.S. Government Securities II 2007............. 1,733 1.11 to 2.52 4,136 4.10% -- to 0.48% 5.77% to 6.29% 2006............. 1,282 1.05 to 2.37 2,893 3.26% -- to 0.48% 3.64% to 4.14% 2005............. 730 1.01 to 2.27 1,604 2.97% -- to 0.48% 0.17% to 2.03% 2004............. 278 2.23 to 2.23 618 2.24% -- to -- 3.61% to 3.61% 2003............. 57 2.15 to 2.15 121 0.74% -- to -- 2.37% to 2.37% Federated High Income Bond Fund II - Primary Shares 2007............. 93 1.18 to 3.18 278 6.00% -- to 0.48% 1.93% to 3.43% 2006............. 66 3.08 to 3.08 202 6.72% -- to -- 10.80% to 10.80% 2005............. 50 2.78 to 2.78 138 6.75% -- to -- 2.66% to 2.66% 2004............. 54 2.70 to 2.70 146 2.77% -- to -- 10.46% to 10.46% 2003/4/.......... 8 2.45 to 2.45 22 1.42% -- to -- 12.22% to 19.68%
SA - 52 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ---------------- Fidelity VIP Contrafund(R) Portfolio - Service Class 2007............. 695 1.02 to 4.14 2,761 0.94% -- to 0.48% (0.54%) to 17.51% 2006............. 564 1.32 to 3.52 1,955 1.16% -- to 0.48% 11.06% to 11.59% 2005............. 368 1.19 to 3.16 1,150 0.14% -- to 0.48% (0.48%) to 16.85% 2004............. 211 2.70 to 2.70 571 0.14% -- to -- 15.34% to 15.34% 2003............. 44 2.34 to 2.34 103 0.01% -- to -- 1.72% to 32.46% Fidelity VIP Growth Opportunities Portfolio - Service Class 2007............. 709 1.47 to 3.51 2,350 -- -- to 0.48% 22.45% to 23.04% 2006............. 324 1.20 to 2.85 868 0.34% -- to 0.48% 4.80% to 5.30% 2005............. 99 1.15 to 2.71 256 0.60% -- to 0.48% 8.84% to 8.86% 2004............. 48 2.49 to 2.49 119 0.35% -- to -- 7.06% to 7.06% 2003............. 18 2.32 to 2.32 41 0.04% -- to -- 29.66% to 33.54% Fidelity VIP Growth Portfolio - Service Class 2007............. 424 1.51 to 3.35 1,410 0.59% -- to 0.48% 26.26% to 26.87% 2006............. 398 1.20 to 2.64 1,047 0.25% -- to 0.48% 6.22% to 6.73% 2005............. 334 1.13 to 2.48 824 0.29% -- to 0.48% 5.67% to 5.96% 2004............. 193 2.34 to 2.34 452 0.05% -- to -- 3.26% to 3.26% 2003............. 24 2.27 to 2.27 54 0.01% -- to -- 32.78% to 40.55% Fidelity VIP Investment Grade Bond Portfolio - Service Class 2007/32/......... 351 1.04 to 1.05 367 0.20% -- to 0.48% 2.11% to 4.21% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Franklin Income Securities Fund - Class 2 2007............. 451 1.01 to 1.16 521 3.51% -- to 0.48% (0.23%) to 3.76% 2006/28/......... 20 1.12 to 1.12 22 -- -- to 0.48% 1.97% to 8.36% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Lazard Retirement Small Cap Portfolio - Service Shares 2007............. 186 1.19 to 1.19 221 -- -- to -- (7.20%) to (7.20%) 2006............. 168 1.28 to 1.28 214 -- -- to -- 16.07% to 16.07% 2005/20/......... 132 1.10 to 1.10 146 -- -- to -- 12.59% to 12.59% 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Lord Abbett Bond-Debenture Portfolio - Class VC 2007............. 172 1.20 to 1.20 205 4.87% -- to -- 6.19% to 6.19% 2006............. 175 1.13 to 1.13 197 6.27% -- to -- 9.33% to 9.33% 2005/20/......... 159 1.03 to 1.03 164 8.22% -- to -- 5.33% to 5.33% 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to --
SA - 53 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ---------------- Lord Abbett Growth and Income Portfolio - Class VC 2007............. 3,218 1.28 to 1.29 4,133 1.47% -- to 0.48% 2.94% to 3.44% 2006............. 2,198 1.24 to 1.26 2,729 1.54% -- to 0.48% 16.71% to 17.27% 2005/20/......... 1,369 1.06 to 1.08 1,449 1.72% -- to 0.48% 5.53% to 7.89% 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Lord Abbett Mid-Cap Value Portfolio - Class VC 2007............. 359 1.23 to 1.26 443 0.46% -- to 0.48% 0.09% to 0.58% 2006............. 295 1.23 to 1.26 362 0.52% -- to 0.48% 6.96% to 12.23% 2005/20/......... 266 1.09 to 1.09 290 0.76% -- to -- 13.98% to 13.98% 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Mutual Shares Securities Fund - Class 2 2007............. 661 1.00 to 3.48 1,796 1.57% -- to 0.48% (0.74%) to 3.48% 2006............. 390 1.31 to 3.36 1,261 1.17% -- to 0.48% 17.81% to 18.38% 2005............. 200 1.11 to 2.84 549 0.94% -- to 0.48% 8.28% to 10.55% 2004............. 99 2.57 to 2.57 255 0.60% -- to -- 12.63% to 12.63% 2003/11/......... 37 2.28 to 2.28 84 0.08% -- to -- 2.97% to 27.81% Neuberger Berman AMT Fasciano Portfolio - S Class 2007............. 6 0.97 to 0.98 6 -- -- to 0.48% (5.35%) to 0.52% 2006/26/......... 2 0.97 to 0.97 2 -- -- to -- 8.31% to 8.31% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Neuberger Berman AMT Guardian Portfolio - S Class 2007/31/......... 430 1.13 to 1.14 491 0.46% -- to 0.48% 4.90% to 8.57% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Oppenheimer Capital Appreciation Fund/VA - Service Shares 2007............. 22 1.02 to 1.17 25 0.00%* -- to -- (0.66%) to 13.86% 2006/30/......... 6 1.02 to 1.02 6 -- -- to -- 9.31% to 9.31% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Oppenheimer Global Securities Fund/VA - Service Shares 2007............. 36 0.99 to 1.14 40 0.84% -- to 0.48% (0.60%) to 6.08% 2006/27/......... 6 1.07 to 1.07 7 -- -- to 0.48% 6.40% to 17.94% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to --
SA - 54 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- ---------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ----------------- Oppenheimer Main Street Small Cap Fund/VA - Service Shares 2007............. 373 0.98 to 0.99 370 0.02% -- to 0.48% (2.49%) to (1.39%) 2006/26/......... 6 1.01 to 1.01 6 -- -- to -- 13.18% to 13.18% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Phoenix Capital Growth Series 2007............. 363 2.94 to 2.94 1,067 0.27% -- to -- 10.75% to 10.75% 2006............. 353 2.66 to 2.66 938 0.32% -- to -- 3.22% to 3.22% 2005............. 191 2.57 to 2.57 490 0.09% -- to -- 3.71% to 3.71% 2004............. 130 2.48 to 2.48 321 1.32% -- to -- 4.97% to 4.97% 2003............. 20 2.36 to 2.36 49 0.01% -- to -- 20.55% to 26.49% Phoenix Growth and Income Series 2007............. 1,009 1.34 to 3.27 3,164 1.04% -- to 0.48% 6.14% to 6.66% 2006............. 892 1.27 to 3.06 2,641 1.31% -- to 0.48% 16.62% to 17.18% 2005............. 541 1.09 to 2.61 1,405 1.24% -- to 0.48% 4.06% to 4.80% 2004............. 273 2.49 to 2.49 681 1.99% -- to -- 10.48% to 10.48% 2003............. 30 2.26 to 2.26 67 1.94% -- to -- 27.46% to 31.16% Phoenix Mid-Cap Growth Series 2007............. 82 1.37 to 2.88 234 -- -- to 0.48% 7.89% to 21.80% 2006............. 85 2.36 to 2.36 201 -- -- to -- 4.13% to 4.13% 2005............. 64 2.27 to 2.27 145 -- -- to -- 4.18% to 4.18% 2004............. 31 2.18 to 2.18 67 -- -- to -- 6.72% to 6.72% 2003............. 3 2.04 to 2.04 5 -- -- to -- 28.83% to 0.2883 Phoenix Money Market Series 2007............. 1,301 1.10 to 2.30 2,952 4.76% -- to 0.48% 0.14% to 4.88% 2006............. 1,124 1.06 to 2.19 2,347 4.30% -- to 0.48% 3.91% to 4.41% 2005............. 1,043 1.02 to 2.10 2,101 2.44% -- to 0.48% 1.64% to 2.58% 2004............. 1,208 2.04 to 2.04 2,468 0.87% -- to -- 0.79% to 0.79% 2003............. 389 2.03 to 2.03 789 0.62% -- to -- 0.68% to 0.68% Phoenix Multi-Sector Fixed Income Series 2007............. 564 1.12 to 2.95 1,575 6.01% -- to 0.48% 3.21% to 3.71% 2006............. 384 1.09 to 2.85 1,057 5.64% -- to 0.48% 6.33% to 6.84% 2005............. 326 1.02 to 2.66 841 5.14% -- to 0.48% 1.57% to 1.78% 2004............. 150 2.62 to 2.62 392 7.48% -- to -- 6.84% to 6.84% 2003............. 12 2.45 to 2.45 30 8.70% -- to -- 14.58% to 14.58% Phoenix Multi-Sector Short Term Bond Series 2007............. 282 1.11 to 1.21 333 5.70% -- to 0.48% 3.48% to 3.98% 2006............. 224 1.07 to 1.16 255 5.19% -- to 0.48% 5.21% to 5.71% 2005............. 138 1.02 to 1.10 150 4.26% -- to 0.48% 0.40% to 1.36% 2004............. 46 1.08 to 1.08 49 4.98% -- to -- 5.33% to 5.33% 2003/16/......... 9 1.03 to 1.03 9 14.90% -- to -- 2.25% to 4.94%
SA - 55 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------ ----------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ------------------ Phoenix Strategic Allocation Series 2007............. 242 3.00 to 3.00 725 2.72% -- to -- 5.98% to 5.98% 2006............. 215 2.83 to 2.83 609 2.81% -- to -- 12.69% to 12.69% 2005............. 171 2.51 to 2.51 430 2.51% -- to -- 1.79% to 1.79% 2004............. 77 2.47 to 2.47 190 3.56% -- to -- -- to -- 2003/7/.......... 13 2.30 to 2.30 29 6.91% -- to -- 2.68% to 21.36% Phoenix-Aberdeen International Series 2007............. 1,699 1.02 to 4.91 8,013 1.75% -- to 0.48% (0.49%) to 14.94% 2006............. 1,189 1.53 to 4.27 4,894 2.84% -- to 0.48% 26.77% to 27.37% 2005............. 191 1.21 to 3.36 641 5.47% -- to 0.48% 18.57% to 19.04% 2004............. 103 2.83 to 2.83 292 5.12% -- to -- 20.78% to 20.78% 2003............. 8 2.34 to 2.34 19 2.67% -- to -- 31.86% to 31.86% Phoenix-Alger Small-Cap Growth Series 2007............. 314 1.71 to 5.07 1,553 -- -- to 0.48% 15.54% to 16.09% 2006............. 281 1.48 to 4.36 1,201 0.02% -- to 0.48% 18.88% to 19.45% 2005............. 109 1.25 to 3.65 387 -- -- to 0.48% 15.20% to 15.64% 2004............. 52 3.16 to 3.16 164 -- -- to -- 2.12% to 2.12% 2003/10/......... 5 3.09 to 3.09 17 -- -- to -- (1.28%) to 61.38% Phoenix-Duff & Phelps Real Estate Securities Series 2007............. 459 1.38 to 4.84 2,137 1.24% -- to 0.48% (16.12%) to (15.71%) 2006............. 465 1.65 to 5.74 2,623 1.41% -- to 0.48% 36.41% to 37.07% 2005............. 360 1.21 to 4.19 1,500 1.85% -- to 0.48% 10.45% to 15.10% 2004............. 139 3.64 to 3.64 505 2.81% -- to -- 34.69% to 35.08% 2003............. 15 2.70 to 2.70 41 4.22% -- to -- 38.27% to 38.27% Phoenix-S&P Dynamic Asset Allocation Series: Aggressive Growth 2007............. 1,487 1.21 to 1.22 1,816 1.43% -- to 0.48% 6.50% to 8.45% 2006/19/......... 702 1.13 to 1.13 790 3.05% -- to -- 9.36% to 9.59% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Phoenix-S&P Dynamic Asset Allocation Series: Growth 2007............. 1,084 1.18 to 1.19 1,290 2.42% -- to 0.48% 1.54% to 8.33% 2006/22/......... 235 1.10 to 1.10 258 4.00% -- to -- 7.84% to 11.04% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Phoenix-S&P Dynamic Asset Allocation Series: Moderate 2007/33/......... 0+ 1.14 to 1.14 0++ 12.20% -- to -- 2.97% to 2.97% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to --
SA - 56 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ---------------- Phoenix-S&P Dynamic Asset Allocation Series: Moderate Growth 2007............. 454 1.17 to 1.18 533 2.51% -- to 0.48% 7.98% to 8.50% 2006/21/......... 215 1.08 to 1.09 234 9.98% -- to 0.48% 2.18% to 9.23% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Phoenix-Sanford Bernstein Mid-Cap Value Series 2007............. 470 1.33 to 3.70 1,664 0.13% -- to 0.48% 1.51% to 2.00% 2006............. 289 1.31 to 3.63 1,013 0.54% -- to 0.48% 14.36% to 14.91% 2005............. 156 1.14 to 3.16 486 0.11% -- to 0.48% 6.98% to 7.73% 2004............. 76 2.93 to 2.93 225 0.28% -- to -- 20.41% to 20.41% 2003............. 10 2.44 to 2.44 26 0.05% -- to -- 40.97% to 40.97% Phoenix-Sanford Bernstein Small-Cap Value Series 2007............. 319 1.31 to 3.66 1,135 -- -- to 0.48% (2.57%) to (2.10%) 2006............. 233 1.34 to 3.74 846 0.31% -- to 0.48% 16.19% to 16.75% 2005............. 133 1.16 to 3.20 426 -- -- to 0.48% 5.09% to 7.46% 2004............. 60 2.98 to 2.98 179 -- -- to -- 22.67% to 22.67% 2003............. 9 2.43 to 2.43 22 -- -- to -- 11.33% to 43.86% Phoenix-Van Kampen Comstock Series 2007............. 163 2.91 to 2.91 474 1.62% -- to -- (2.22%) to (2.22%) 2006............. 167 2.97 to 2.97 495 1.78% -- to -- 20.90% to 20.90% 2005............. 153 2.46 to 2.46 376 1.39% -- to -- 5.43% to 5.43% 2004............. 97 2.33 to 2.33 226 1.49% -- to -- 12.91% to 12.91% 2003............. 14 2.07 to 2.07 27 1.01% -- to -- 23.87% to 23.87% Phoenix-Van Kampen Equity 500 Index Series 2007............. 253 1.30 to 3.07 750 1.31% -- to 0.48% 4.37% to 4.87% 2006............. 303 1.24 to 2.92 870 1.98% -- to 0.48% 3.30% to 14.21% 2005............. 63 2.56 to 2.56 162 1.54% -- to -- 3.69% to 10.73% 2004............. 20 2.47 to 2.47 49 3.44% -- to -- 9.84% to 9.84% 2003/18/......... 1 2.25 to 2.25 1 4.74% -- to -- 6.06% to 6.06% PIMCO VIT CommodityRealReturn Strategy Portfolio - Advisor Class 2007............. 258 1.17 to 1.18 305 6.66% -- to 0.48% 20.33% to 23.14% 2006/29/......... 12 0.96 to 0.96 11 10.17% -- to -- (3.85%) to (3.85%) 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- PIMCO VIT Real Return Portfolio - Advisor Class 2007............. 30 1.12 to 1.13 34 4.57% -- to 0.48% 6.89% to 10.53% 2006/26/......... 9 1.02 to 1.02 9 4.54% -- to -- 2.72% to 2.72% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to --
SA - 57 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- ----------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ------------------ PIMCO VIT Total Return Portfolio - Advisor Class 2007............. 90 1.12 to 1.13 102 4.72% -- to 0.48% 6.62% to 8.63% 2006/26/......... 60 1.04 to 1.04 63 4.60% -- to -- 4.83% to 4.83% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Rydex Variable Trust Inverse Government Long Bond Strategy Fund 2007............. 38 0.93 to 0.93 35 5.03% -- to -- (4.51%) to (4.51%) 2006............. 36 0.97 to 0.97 35 3.92% -- to -- 8.11% to 8.11% 2005............. 35 0.90 to 0.90 31 -- -- to -- (5.24%) to (5.24%) 2004............. 23 0.95 to 0.95 22 -- -- to -- (10.67%) to (10.67%) 2003/15/......... 9 1.06 to 1.06 10 -- -- to -- (4.54%) to 5.08% Rydex Variable Trust Nova Fund 2007............. 20 1.34 to 1.76 35 1.47% -- to 0.48% 0.64% to 1.13% 2006............. 22 1.33 to 1.74 37 1.05% -- to 0.48% 14.60% to 19.27% 2005............. 25 1.12 to 1.46 37 0.33% -- to 0.48% (1.98%) to 3.96% 2004............. 21 1.40 to 1.40 30 0.05% -- to -- 0.85% to 14.62% 2003/11/......... 11 1.22 to 1.22 13 -- -- to -- 18.98% to 18.98% Rydex Variable Trust Sector Rotation Fund 2007............. 15 2.00 to 2.00 31 -- -- to -- 22.75% to 22.75% 2006............. 19 1.63 to 1.63 31 -- -- to -- 9.46% to 11.39% 2005............. 28 1.46 to 1.46 40 -- -- to -- 13.71% to 13.71% 2004............. 10 1.29 to 1.29 12 -- -- to -- 1.00% to 10.71% 2003/17/......... 1 1.16 to 1.16 1 -- -- to -- 4.24% to 4.24% Sentinel Variable Products Bond Fund 2007/34/......... 28 1.02 to 1.02 29 36.04% -- to -- 1.02% to 3.43% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Sentinel Variable Products Common Stock Fund 2007/34/......... 146 1.03 to 1.03 150 9.61% -- to -- (2.08%) to 2.26% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Sentinel Variable Products Mid Cap Growth Fund 2007/35/......... 7 1.08 to 1.08 8 -- -- to -- (1.27%) to (1.27%) 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to --
SA - 58 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- --------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ---------------- Sentinel Variable Products Small Company Fund 2007/34/......... 22 1.01 to 1.01 23 5.16% -- to -- (2.85%) to 0.21% 2006............. -- -- to -- -- -- -- to -- -- to -- 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Templeton Developing Markets Securities Fund - Class 2 2007............. 338 1.38 to 1.39 469 2.12% -- to 0.48% 16.01% to 28.79% 2006/24/......... 80 1.08 to 1.08 86 1.57% -- to -- 7.56% to 7.56% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Templeton Foreign Securities Fund - Class 2 2007............. 327 1.55 to 4.08 1,240 2.00% -- to 0.48% 14.90% to 15.46% 2006............. 334 1.35 to 3.53 1,138 1.17% -- to 0.48% 20.86% to 21.44% 2005............. 207 1.12 to 2.91 584 1.14% -- to 0.48% 10.17% to 11.06% 2004............. 79 2.64 to 2.64 210 0.68% -- to -- 18.53% to 18.53% 2003............. 15 2.23 to 2.23 34 0.97% -- to -- 30.82% to 32.21% Templeton Growth Securities Fund - Class 2 2007............. 501 1.00 to 3.56 1,331 1.31% -- to 0.48% (0.45%) to 2.35% 2006............. 225 1.33 to 3.48 767 1.34% -- to 0.48% 10.25% to 21.81% 2005............. 167 2.85 to 2.85 478 1.09% -- to -- 8.86% to 8.86% 2004............. 90 2.62 to 2.62 236 1.13% -- to -- 13.19% to 16.03% 2003/10/......... 47 2.26 to 2.26 107 0.31% -- to -- 46.06% to 46.06% Van Kampen UIF Equity and Income Portfolio - Class II 2007............. 10 1.12 to 1.12 11 1.65% -- to -- 3.36% to 3.36% 2006/25/......... 5 1.08 to 1.08 5 0.04% -- to -- 11.36% to 11.36% 2005............. -- -- to -- -- -- -- to -- -- to -- 2004............. -- -- to -- -- -- -- to -- -- to -- 2003............. -- -- to -- -- -- -- to -- -- to -- Wanger International Select 2007............. 181 1.90 to 6.08 1,001 0.46% -- to 0.48% 21.20% to 21.78% 2006............. 85 1.57 to 4.99 362 0.21% -- to 0.48% 35.35% to 36.00% 2005............. 52 1.16 to 3.67 166 0.89% -- to 0.48% 15.60% to 16.43% 2004............. 10 3.15 to 3.16 32 0.18% -- to -- 21.36% to 24.34% 2003/13/......... 1 2.54 to 2.54 3 -- -- to -- 31.84% to 31.84% Wanger International Small Cap 2007............. 572 1.84 to 6.28 3,459 0.79% -- to 0.48% 15.75% to 16.31% 2006............. 526 1.59 to 5.40 2,772 0.47% -- to 0.48% 36.50% to 37.16% 2005............. 347 1.17 to 3.94 1,346 0.88% -- to 0.48% 17.63% to 21.53% 2004............. 129 3.24 to 3.24 417 0.31% -- to -- 30.27% to 30.27% 2003/6/.......... 17 2.49 to 2.49 42 0.01% -- to -- 9.21% to 49.77%
SA - 59 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued)
At December 31, For the periods ended December 31, ------------------------------- ----------------------------------------------- Unit Fair Value Net Investment Expense Ratio /2/ Units (Lowest to Assets Income (Lowest to Total Return /3/ (000's) Highest) (000's) Ratio /1/ Highest) (Lowest to Highest) ------- --------------- ------- ---------- ---------------- ------------------ Wanger Select 2007............. 328 1.56 to 4.43 1,439 -- -- to 0.48% 4.06% to 9.39% 2006............. 90 4.05 to 4.05 364 0.34% -- to -- 19.70% to 19.70% 2005............. 62 3.38 to 3.38 208 -- -- to -- 10.49% to 10.49% 2004............. 41 3.06 to 3.06 125 -- -- to -- 19.31% to 19.31% 2003............. 10 2.57 to 2.57 28 -- -- to -- 2.43% to 30.73% Wanger U.S. Smaller Companies 2007............. 271 1.30 to 3.82 1,030 -- -- to 0.48% 2.79% to 5.39% 2006............. 217 3.62 to 3.62 787 0.22% -- to -- 7.87% to 7.87% 2005............. 183 3.36 to 3.36 616 -- -- to -- 11.25% to 11.25% 2004............. 99 3.02 to 3.02 299 -- -- to -- 18.33% to 18.33% 2003............. 13 2.55 to 2.55 33 -- -- to -- 35.95% to 43.22%
-------- * Amount is less than 0.005%. + Amount is less than 500 units. ++ Amount is less than $500. /1/ The investment income ratios represent the annualized dividends, excluding distributions of capital gains, received by the Investment Option from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the daily average net assets. These ratios exclude those expenses, such as mortality and expense charges that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the Investment Option is affected by the timing of the declaration of dividends by the underlying fund in which the Investment Option invests. /2/ The expense ratios represent the annualized contract expenses of the Separate Account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction of unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded. /3/ The total returns are for the periods indicated, including changes in the value of the underlying fund, and the expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed throughout the redemption of units. Investment options with a date notation indicate the effective date of that investment option in the variable account. The total return is calculated for each period indicated or from the effective date through the end of the reporting period. Total return is presented as the minimum and maximum return for the units invested in the Investment Option. While the Investment Option may be active in a given year, certain units may be initiated during the year. The corresponding return on those units, which is for the partial year, may cause the minimum and maximum total return for all the units in that Investment Option to deviate outside the range of the expense ratios presented. /4/ From inception January 21, 2003 to December 31, 2003. /5/ From inception January 27, 2003 to December 31, 2003. /6/ From inception January 28, 2003 to December 31, 2003. SA - 60 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 5--Financial Highlights (Continued) /7/ From inception February 3, 2003 to December 31, 2003. /8/ From inception February 28, 2003 to December 31, 2003. /9/ From inception March 3, 2003 to December 31, 2003. /10/ From inception March 14, 2003 to December 31, 2003. /11/ From inception March 19, 2003 to December 31, 2003. /12/ From inception March 20, 2003 to December 31, 2003. /13/ From inception May 27, 2003 to December 31, 2003. /14/ From inception June 4, 2003 to December 31, 2003. /15/ From inception June 30, 2003 to December 31, 2003. /16/ From inception August 8, 2003 to December 31, 2003. /17/ From inception October 27, 2003 to December 31, 2003. /18/ From inception November 10, 2004 to December 31, 2004. /19/ From inception December 3, 2004 to December 31, 2004. /20/ From inception April 29, 2005 to December 31, 2005. /21/ From inception February 8, 2006 to December 31, 2006. /22/ From inception March 17, 2006 to December 31, 2006. /23/ From inception April 28, 2006 to December 31, 2006. /24/ From inception May 1, 2006 to December 31, 2006. /25/ From inception June 15, 2006 to December 31, 2006. /26/ From inception June 20, 2006 to December 31, 2006. /27/ From inception July 20, 2006 to December 31, 2006. /28/ From inception August 7, 2006 to December 31, 2006. /29/ From inception August 14, 2006 to December 31, 2006. /30/ From inception August 15, 2006 to December 31, 2006. /31/ From inception January 16, 2007 to December 31, 2007. /32/ From inception February 1, 2007 to December 31, 2007. /33/ From inception September 17, 2007 to December 31, 2007. /34/ From inception September 20, 2007 to December 31, 2007. /35/ From inception October 29, 2007 to December 31, 2007. SA - 61 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 6--Policy Loans Policy provisions generally allow policyowners to borrow up to 90% - 100% of the policy's cash surrender value, reduced by an amount equal to the surrender charge with loan interest payable on each policy anniversary. Loan interest rates vary by product. At the time the loan is granted, an amount equivalent to the amount of the loan is transferred from the Separate Account and the non-loaned portion of the Guaranteed Interest Account to the loaned portion of the Guaranteed Interest Account, part of Phoenix's general account as collateral for the outstanding loan. Transfers from the account are included as transfers for contract benefits and terminations in the accompanying financial statements. Amounts in the loaned portion of the Guaranteed Interest Account are credited with interest. Interest rates vary by product. Loan repayments result in a transfer of collateral back to the Separate Account and the non-loaned portion of the Guaranteed Interest Account. Note 7--Fees and Related Party Transactions Phoenix and its affiliate, Phoenix Equity Planning Corporation ("PEPCO"), a registered broker/dealer in securities, provide all services to the Separate Account. PEPCO is the principal underwriter and distributor for the Separate Account. Certain fees are deducted from the Contracts. To understand all of the charges that are assessed for your individual policy you should refer to your policy contract provided to you at issue or the most recent product prospectus provided to you annually. Those fees are described below: A) Contract Maintenance Charges The Separate Account is assessed periodic Contract Maintenance Charges which are designed to compensate PHL Variable for certain costs associated with maintenance. These expenses are included in a separate line item entitled "Contract Maintenance Charges" in the accompanying statements of changes in net assets. The total aggregate expense for the periods ended December 31, 2007 and 2006 were $5,187,283 and $2,814,388, respectively. The charges assessed the Separate Account for Contract Maintenance Charges are outlined as follows: Administration Charge - In accordance with terms of the contracts, Phoenix may make deductions for administrative charges. Because a policy's face amount and policy duration may vary, the administrative charge may also vary. Policy Surrender Charge - In accordance with terms of the contracts, Phoenix makes deductions for surrender charges. Because a policy's account value and policy duration may vary, the surrender charge may also vary. Cost of Insurance Charge - In accordance with terms of the contracts, Phoenix makes deductions for costs of insurance to cover Phoenix's anticipated mortality costs. Because a policy's account value and death benefit may vary from month to month, the cost of insurance charge may also vary. Other Charges - Phoenix may deduct other costs depending on the policy terms. All of the above expenses are taken out as a redemption of units. B) Optional Rider and Benefit Charges Phoenix may deduct other charges and fees based on the selection of Other Optional Policy Benefits and Riders. These expenses are included in a separate line item entitled "Transfers for contract benefits and terminations" in the accompanying statements of changes in net assets. This expense is taken out as a redemption of units. SA - 62 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 7--Fees and Related Party Transactions (Continued) C) Mortality and Expense Fee and Administration Fee charges Phoenix will make deductions at a maximum rate of 0.48% of the contracts value for the mortality and expense risks and 0% for administration fees, which the company undertakes. These expenses are included in separate line items "Mortality and Expense Fees" and "Administration Fees" in the accompanying statements of operations. The total aggregate expense for the periods ended December 31, 2007 and 2006 were $8,964 and $2,396, respectively. This expense is taken out as a reduction of unit values. In accordance with the terms of the contracts, other mortality and expense fee charges and administration fee charges may be taken out as transfers for contract benefits and terminations. Note 8--Distribution of Net Income The Separate Account does not declare distributions to participants from accumulated net income. The accumulated net income is distributed to participants as part of withdrawals of amounts in the form of surrenders, death benefits, transfers or annuity payments in excess of net purchase payments. Note 9--Diversification Requirements Under the provisions of Section 817(h) of the Internal Revenue Code of 1986 (the "Code") as amended, a variable contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a variable contract for federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. Each investment option is required to satisfy the requirements of Section 817(h). The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either the statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of the Treasury. PHL Variable intends that each of the investment options shall comply with the diversification requirements and, in the event of any failure to comply, will take immediate corrective action to assure compliance. Note 10--Liquidations and Mergers On October 20, 2006, the Growth and Income Series acquired all of the net assets of the Phoenix-Kayne Rising Dividends Series ("Kayne Rising Dividends") pursuant to an Agreement and Plan of Reorganization approved by the Kayne Rising Dividends shareholders on October 5, 2006. The acquisition was accomplished by a tax-free exchange of 835,783 shares of Growth and Income outstanding on October 20, 2006 and valued at $11,722,358 for 1,002,388 shares of Kayne Rising Dividends outstanding on October 20, 2006. Kayne Rising Dividend's net assets of $11,722,362, including $1,654,538 of net unrealized appreciation were combined with those of Growth and Income. The aggregate net assets of Growth and Income immediately after the merger were $163,685,403. On October 20, 2006, the Aberdeen International Series acquired all of the net assets of the Phoenix-Lazard International Equity Select Series ("Lazard International Equity Select") pursuant to an Agreement and Plan of Reorganization approved by the Lazard International Equity Select shareholders on October 5, 2006. The acquisition was accomplished by a tax-free exchange of 10,426,631 shares of Aberdeen International outstanding on October 20, 2006 and valued at $175,009,666 for 10,514,476 shares of Lazard International Equity Select outstanding on October 20, 2006. Lazard International Equity Select's net assets of $175,009,669, including $33,022,037 of net unrealized appreciation were combined with those of Aberdeen International. The aggregate net assets of Aberdeen International immediately after the merger were $389,209,267. SA - 63 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 10--Liquidations and Mergers (Continued) On October 27, 2006, the Capital Growth Series acquired all of the net assets of the Phoenix-AIM Growth Series ("AIM Growth") pursuant to an Agreement and Plan of Reorganization approved by the AIM Growth shareholders on October 5, 2006. The acquisition was accomplished by a tax-free exchange of 3,996,273 shares of Capital Growth outstanding on October 27, 2006 and valued at $61,016,844 for 8,399,603 shares of AIM Growth outstanding on October 27, 2006. AIM Growth's net assets of $61,016,844, including $8,256,215 of net unrealized appreciation were combined with those of Capital Growth. The aggregate net assets of Capital Growth immediately after the merger were $452,685,507. On October 27, 2006, the Mid-Cap Growth Series acquired all of the net assets of the Phoenix Strategic Theme Series ("Strategic Theme") pursuant to an Agreement and Plan of Reorganization approved by the Strategic Theme shareholders on October 5, 2006. The acquisition was accomplished by a tax-free exchange of 3,950,319 shares of Mid-Cap Growth outstanding on October 27, 2006 and valued at $53,113,639 for 4,883,118 shares of Strategic Theme outstanding on October 27, 2006. Strategic Theme's net assets of $53,113,639, including $7,454,917 of net unrealized appreciation were combined with those of Mid-Cap Growth. The aggregate net assets of Mid-Cap Growth immediately after the merger were $98,521,888. On October 27, 2006, the Alger Small-Cap Growth Series acquired all of the net assets of the Phoenix-Engemann Small-Cap Growth Series ("Engemann Small-Cap Growth") and the Phoenix-Kayne Small-Cap Quality Value Series ("Kayne Small-Cap Quality Value") pursuant to an Agreement and Plan of Reorganization approved by the Engemann Small-Cap Growth and Kayne Small-Cap Quality Value shareholders on October 26, 2006. The acquisition was accomplished by a tax-free exchange of 1,912,431 shares of Alger Small-Cap Growth outstanding on October 27, 2006 and valued at $34,546,959 for 2,108,424 shares of Engemann Small-Cap Growth valued at $16,831,325 and 1,054,130 shares of Kayne Small-Cap Quality Value valued at $17,715,634. Engemann Small-Cap Growth's net assets of $16,831,325, including $4,238,547 of net unrealized appreciation and Kayne Small-Cap Quality Value's net assets of $17,715,634, including $4,213,331 of net unrealized appreciation were combined with those of Alger Small-Cap Growth. The aggregate net assets of Alger Small-Cap Growth immediately after the merger were $59,092,472. On October 27, 2006, the Van Kampen Equity 500 Index Series acquired all of the net assets of the Phoenix-Northern Dow 30 Series ("Northern Dow 30") and the Phoenix-Northern Nasdaq-100 Index(R) Series ("Northern Nasdaq-100 Index(R)") pursuant to an Agreement and Plan of Reorganization approved by the Northern Dow 30 and Northern Nasdaq-100 Index(R) shareholders on October 26, 2006. The acquisition was accomplished by a tax-free exchange of 3,550,335 shares of Van Kampen Equity 500 Index outstanding on October 27, 2006 and valued at $44,067,409 for 2,100,979 shares of Northern Dow 30 valued at $21,817,938 and 4,901,410 shares of Northern Nasdaq-100 Index(R) valued at $22,249,471. Northern Dow 30's net assets of $21,817,938, including $4,937,365 of net unrealized appreciation and Northern Nasdaq-100 Index(R)'s net assets of $22,249,471, including $5,784,158 of net unrealized appreciation were combined with those of Van Kampen Equity 500 Index. The aggregate net assets of Van Kampen Equity 500 Index immediately after the merger were $145,082,755. Note 11--Manager of Managers Exemptive Order The Phoenix Edge Series Fund ("PESF") and Phoenix Variable Advisors, ("PVA") Inc have received an exemptive order from the Securities and Exchange Commission ("SEC") granting exemptions from certain provisions of the Investment Company Act of 1940, as amended, pursuant to which PVA will, subject to supervision and approval of the PESF's Board of Trustees, be permitted to enter into and materially amend SA - 64 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 11--Manager of Managers Exemptive Order (Continued) subadvisory agreements without such agreements being approved by the shareholders of the applicable series of the PESF. The PESF and PVA will therefore have the right to hire, terminate, or replace subadvisors without shareholder approval, including, without limitation, the replacement or reinstatement of any subadvisor with respect to which a subadvisory agreement has automatically terminated as a result of an assignment. PVA will continue to have the ultimate responsibility to oversee the subadvisors and recommend their hiring, termination and replacement. Note 12--Mixed and Shared Funding Shares of the PESF are not directly offered to the public. Shares of the PESF are currently offered through separate accounts to fund variable accumulation annuity contracts and variable universal life insurance policies issued by Phoenix Life Insurance Company, PHL Variable Insurance Company, and Phoenix Life and Annuity Company. Shares of the PESF may be offered to separate accounts of other insurance companies in the future. The interests of variable annuity contract owners and variable life policy owners could diverge based on differences in federal and state regulatory requirements, tax laws, investment management or other unanticipated developments. The PESF's Trustees currently do not foresee any such differences or disadvantages at this time. However, the PESF's Trustees intend to monitor for any material conflicts and will determine what action, if any, should be taken in response to such conflicts. If such a conflict should occur, one or more separate accounts may be required to withdraw its investment in the PESF or shares of another fund may be substituted. Note 13--Other On May 1, 2006, the Rydex Variable Trust Juno Fund changed its name to the Inverse Government Long Bond Fund, and the class identifier of "Service Shares" was added to the Lazard Retirement Series: Lazard Retirement Small Cap Portfolio. On June 26, 2006, Phoenix Investment Counsel, Inc. ("PIC") became the investment advisor to the Phoenix Capital Growth Series and Harris Investment Management, Inc ("HIM") is the new subadvisor. On September 1, 2006, the Board of Trustees of PESF approved a name and subadvisor change for the Phoenix-Alliance Bernstein Enhanced Index Series. The new series name is Phoenix-Van Kampen Equity 500 Index Series. Morgan Stanley Investment Management Inc. (dba, "Van Kampen") became the new subadvisor. On October 23, 2006, the Board of Trustees of PESF approved the following name changes: Phoenix-Engemann Growth and Income Series to Phoenix Growth and Income Series; Phoenix-Engemann Strategic Allocation Series to Phoenix Strategic Allocation Series; Phoenix-Goodwin Money Market Series to Phoenix Money Market Series; Phoenix-Goodwin Multi-Sector Fixed Income Series to Phoenix Multi-Sector Fixed Income Series; and Phoenix-Goodwin Multi-Sector Short Term Bond Series to Phoenix Multi-Sector Short Term Bond Series. On October 23, 2006, PIC replaced Engemann Asset Management as the subadvisor to the Phoenix Growth and Income Series. Engemann Asset Management was removed as subadvisor for the Phoenix Strategic Allocation Series, which will be managed by the advisor, PIC. The insurance company affiliates of the Fund distribute the Fund as investment options in variable annuity and life insurance products ("Variable Products") through non-affiliated advisors, broker-dealers and other financial intermediaries. There is substantial competition for business within most of these distributors. One of SA - 65 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS--(Continued) Note 13--Other (Continued) the most significant distributors of the Variable Products (and the Fund) includes a subsidiary of State Farm Mutual Automobile Insurance Company, or State Farm. The insurance company affiliates of the Fund have had distribution arrangements with State Farm since 2001. In 2007, the agreement with State Farm to provide life and annuity products and related services to State Farm's affluent and high-net-worth customers through qualified State Farm agents was extended until 2016. Due to an internal reorganization, effective August 1, 2007, Phoenix Variable Advisors, Inc. ("PVA") replaced Duff & Phelps Investment Management Company ("DPIM") as the advisor of the current Phoenix-Duff & Phelps Real Estate Securities Series. The Board approved the termination of the current investment advisory agreement for Phoenix-Duff & Phelps Real Estate Securities Series and approved a new investment advisory agreement at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, PVA replaced Phoenix Investment Counsel, Inc. ("PIC") as the advisor of the Phoenix-Aberdeen International Series, Phoenix Capital Growth Series, Phoenix Growth and Income Series, Phoenix Money Market Series, Phoenix Multi-Sector Fixed Income Series, Phoenix Multi-Sector Short Term Bond Series and Phoenix Strategic Allocation Series. The Board approved the termination of the current investment advisory agreements for Phoenix-Aberdeen International Series, Phoenix Capital Growth Series, Phoenix Growth and Income Series, Phoenix Money Market Series, Phoenix Multi-Sector Fixed Income Series, Phoenix Multi-Sector Short Term Bond Series and Phoenix Strategic Allocation Series and approved a new investment advisory agreement for each series at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, Aberdeen Asset Management Inc. ("AAM") remained the subadvisor to the Phoenix-Aberdeen International Series and the Board approved the termination of the current subadvisory agreement with PIC and approved a new subadvisory agreement between PVA and AAM at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, DPIM was appointed the subadvisor to the Phoenix-Duff & Phelps Real Estate Securities Series and the Board approved a new subadvisory agreement between PVA and DPIM at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, Harris Investment Management, Inc. ("HIM") remained the subadvisor to the Phoenix Capital Growth Series and the Board approved the termination of the current subadvisory agreement and approved a new subadvisory agreement between PVA and HIM at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, PIC was appointed the subadvisor to the Phoenix Growth and Income Series and the Board approved a new subadvisory agreement between PVA and PIC at a meeting held June 5, 2007; Due to an internal reorganization, effective August 1, 2007, PIC and Goodwin Capital Advisers, Inc. ("GCA") were appointed the subadvisor to the Phoenix Strategic Allocation Series and the Board approved a new subadvisory agreement for each subadvisor between (1) PVA and PIC and (2) PVA and GCA at a meeting held June 5, 2007; and Due to an internal reorganization, effective August 1, 2007, GCA was appointed the subadvisor to the Phoenix Money Market Series, Phoenix Multi-Sector Fixed Income Series and Phoenix Multi-Sector Short Term Bond Series and the Board approved a new subadvisory agreement for each series between PVA and GCA at a meeting held June 5, 2007; SA - 66 [LOGO] Report of Independent Registered Public Accounting Firm To the Board of Directors of PHL Variable Insurance Company and Participants of PHLVIC Variable Universal Life Account: In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the subaccounts constituting the PHLVIC Variable Universal Life Account at December 31, 2007, and the results of each of their operations and the changes in each of their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of PHL Variable Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, which included confirmation of securities at December 31, 2007 by correspondence with the mutual funds' advisors, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Hartford, CT March 21, 2008 PHLVIC VARIABLE UNIVERSAL LIFE ACCOUNT PHL Variable Insurance Company One American Row Hartford, Connecticut 06103-2899 Phoenix Equity Planning Corporation 56 Prospect Street Hartford, Connecticut 06115-0480 Underwriter Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP 185 Asylum Street Hartford, Connecticut 06103 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) FINANCIAL STATEMENTS DECEMBER 31, 2007 AND 2006 F-1 TABLE OF CONTENTS PAGE ---------- Report of Independent Registered Public Accounting Firm F-3 Balance Sheet as of December 31, 2007 and 2006 F-4 Statement of Income, Comprehensive Income and Changes in Stockholder's Equity for the years ended December 31, 2007, 2006 and 2005 F-5 Statement of Cash Flows for the years ended December 31, 2007, 2006 F-6 and 2005 Notes to Financial Statements F-7 - F-27 F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 changes in stockholder's equity and of cash flows present fairly, in all material respects, the financial position of PHL Variable Insurance Company (the Company) at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 March 7, 2008 F-3 PHL VARIABLE INSURANCE COMPANY BALANCE SHEET ($ in thousands, except share data) DECEMBER 31, 2007 AND 2006
2007 2006 ---------- ---------- ASSETS: Available-for-sale debt securities, at fair value........... $1,709,586 $2,050,989 Policy loans, at unpaid principal balances.................. 22,819 15,542 Other investments........................................... 1,251 1,612 ---------- ---------- Total investments........................................... 1,733,656 2,068,143 Cash and cash equivalents................................... 108,200 47,127 Accrued investment income................................... 17,518 19,882 Receivables................................................. 37,178 54,534 Deferred policy acquisition costs........................... 1,007,811 703,794 Receivable from related parties............................. 527 300 Other assets................................................ 20,214 2,356 Separate account assets..................................... 3,389,356 2,953,063 ---------- ---------- TOTAL ASSETS................................................ $6,314,460 $5,849,199 ========== ========== LIABILITIES: Policyholder deposit funds.................................. $1,134,635 $1,491,367 Policy liabilities and accruals............................. 966,945 706,198 Deferred income taxes....................................... 140,115 96,654 Payable to related parties.................................. 28,969 25,081 Other liabilities........................................... 48,304 26,576 Separate account liabilities................................ 3,389,356 2,953,063 ---------- ---------- TOTAL LIABILITIES 5,708,324 5,298,939 ---------- ---------- CONTINGENT LIABILITIES (NOTE 14) STOCKHOLDER'S EQUITY: Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued......................................... 2,500 2,500 Additional paid-in capital.................................. 553,218 503,234 Retained earnings........................................... 62,202 47,215 Accumulated other comprehensive loss........................ (11,784) (2,689) ---------- ---------- TOTAL STOCKHOLDER'S EQUITY.................................. 606,136 550,260 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $6,314,460 $5,849,199 ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 PHL VARIABLE INSURANCE COMPANY STATEMENT OF INCOME, COMPREHENSIVE INCOME AND CHANGES IN STOCKHOLDER'S EQUITY ($ in thousands) YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
2007 2006 2005 -------- -------- -------- REVENUES: Premiums................................................ $ 18,602 $ 13,575 $ 9,521 Insurance and investment product fees................... 263,696 180,498 109,270 Investment income, net of expenses...................... 109,607 129,325 154,374 Net realized investment losses.......................... (7,043) (2,460) (10,569) -------- -------- -------- TOTAL REVENUES.......................................... 384,862 320,938 262,596 -------- -------- -------- BENEFITS AND EXPENSES: Policy benefits......................................... 157,616 151,285 130,279 Policy acquisition cost amortization.................... 124,015 91,168 80,402 Other operating expenses................................ 83,601 65,388 50,493 -------- -------- -------- TOTAL BENEFITS AND EXPENSES............................. 365,232 307,841 261,174 -------- -------- -------- Income before income taxes.............................. 19,630 13,097 1,422 Applicable income tax (expense) benefit................. (3,643) (3,016) 2,801 -------- -------- -------- NET INCOME.............................................. $ 15,987 $ 10,081 $ 4,223 ======== ======== ======== FEES PAID TO RELATED PARTIES (NOTE 10) COMPREHENSIVE INCOME: NET INCOME.............................................. $ 15,987 $ 10,081 $ 4,223 -------- -------- -------- Net unrealized investment losses........................ (9,095) (1,277) (9,986) Net unrealized derivative instruments losses............ -- (807) (335) -------- -------- -------- OTHER COMPREHENSIVE LOSS................................ (9,095) (2,084) (10,321) -------- -------- -------- COMPREHENSIVE INCOME (LOSS)............................. $ 6,892 $ 7,997 $ (6,098) ======== ======== ======== ADDITIONAL PAID-IN CAPITAL: Capital contributions from parent....................... $ 49,984 $ -- $ -- RETAINED EARNINGS: Adjustment for initial application of FIN 48 (Note 2)... (1,000) -- -- Net income.............................................. 15,987 10,081 4,223 ACCUMULATED OTHER COMPREHENSIVE INCOME: Other comprehensive loss................................ (9,095) (2,084) (10,321) -------- -------- -------- CHANGE IN STOCKHOLDER'S EQUITY.......................... 55,876 7,997 (6,098) Stockholder's equity, beginning of year................. 550,260 542,263 548,361 -------- -------- -------- STOCKHOLDER'S EQUITY, END OF YEAR....................... $606,136 $550,260 $542,263 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 PHL VARIABLE INSURANCE COMPANY STATEMENT OF CASH FLOWS ($ in thousands) YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
2007 2006 2005 ---------- ----------- ----------- OPERATING ACTIVITIES: Net income........................................ $ 15,987 $ 10,081 $ 4,223 Net realized investment losses.................... 7,043 2,460 10,569 Investment (gains) losses......................... 1,473 4,206 (15,293) Deferred income taxes............................. 48,358 24,419 15,512 (Increase) decrease in receivables................ (4,520) (6,939) 4,091 Increase in deferred policy acquisition costs..... (276,592) (179,410) (56,634) Increase in policy liabilities and accruals....... 278,134 210,368 155,315 Other assets and other liabilities change......... 7,868 (1,224) 30,634 ---------- ----------- ----------- CASH FROM OPERATING ACTIVITIES.................... 77,751 63,961 148,417 ---------- ----------- ----------- INVESTING ACTIVITIES: Investment purchases.............................. (890,909) (1,007,973) (1,148,093) Investment sales, repayments and maturities....... 1,207,988 1,728,360 1,357,687 ---------- ----------- ----------- CASH FROM INVESTING ACTIVITIES.................... 317,079 720,387 209,594 ---------- ----------- ----------- FINANCING ACTIVITIES: Policyholder deposit fund deposits................ 266,750 223,309 236,099 Policyholder deposit fund withdrawals............. (625,507) (986,348) (607,890) Capital contributions from parent................. 25,000 -- -- ---------- ----------- ----------- CASH FOR FINANCING ACTIVITIES..................... (333,757) (763,039) (371,791) ---------- ----------- ----------- CHANGE IN CASH AND CASH EQUIVALENTS............... 61,073 21,309 (13,780) Cash and cash equivalents, beginning of year...... 47,127 25,818 39,598 ---------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 108,200 $ 47,127 $ 25,818 ========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 PHL VARIABLE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 1. ORGANIZATION AND OPERATIONS PHL Variable Insurance Company is a life insurance company offering variable and fixed annuity and non-participating life insurance products. It is a wholly-owned subsidiary of PM Holdings, Inc. PM Holdings, Inc. is a wholly-owned subsidiary of Phoenix Life Insurance Company (Phoenix Life), which is a wholly-owned subsidiary of The Phoenix Companies, Inc. (PNX), a New York Stock Exchange listed company. Phoenix Home Life Mutual Insurance Company demutualized on June 25, 2001 by converting from a mutual life insurance company to a stock life insurance company, became a wholly-owned subsidiary of PNX and changed its name to Phoenix Life Insurance Company. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP), which differ materially from the accounting practices prescribed by various insurance regulatory authorities. We have reclassified certain amounts for 2006 and 2005 to conform with the 2007 presentation. USE OF ESTIMATES In preparing these financial statements in conformity with GAAP, we are required 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 periods. Actual results could differ from these estimates. We employ significant estimates and assumptions in the determination of deferred policy acquisition costs; policyholder liabilities and accruals; the valuation of investments in debt and equity securities; and accruals for deferred income taxes and contingent liabilities. ADOPTION OF NEW ACCOUNTING STANDARDS We adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, we recognized an increase in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $1,000 thousand, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including the cumulative effect adjustment, we had $1,840 thousand of total gross unrecognized tax benefits as of January 1, 2007. The entire amount of unrecognized tax benefits would, if recognized, impact the annual effective tax rate upon recognition. See Note 9 to these financial statements for more information. In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 provides guidance for how errors should be evaluated to assess materiality from a quantitative perspective. SAB 108 permits companies to initially apply its provisions by either restating prior financial statements or recording the cumulative effect of initially applying the approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment to retained earnings. We adopted SAB 108 on December 31, 2006 with no effect on our financial statements. In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140" (SFAS 156). SFAS 156 provides guidance on recognition and disclosure of servicing assets and liabilities and was effective beginning January 1, 2007. We adopted this standard effective January 1, 2007 with no material impact on our financial position and results of operations. F-7 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Effective January 1, 2006, we adopted SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments" (SFAS 155). SFAS 155 resolves certain issues surrounding the accounting for beneficial interests in securitized financial assets. Our adoption of SFAS 155 did not have a material effect on our financial statements. Effective January 1, 2006, we adopted FASB Staff Position Nos. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" (FSP 115-1). FSP 115-1 provides guidance as to the determination of other-than-temporarily impaired securities and requires certain financial disclosures with respect to unrealized losses. These accounting and disclosure requirements largely codify our existing practices as to other-than-temporarily impaired securities and thus, our adoption did not have a material effect on our financial statements. In September 2005, the Accounting Standards Executive Committee (AcSEC) of the AICPA's issued Statement of Position 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts" (SOP 05-1). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. We adopted this standard effective January 1, 2007 with no material effect on our financial position and results of operations. ACCOUNTING STANDARDS NOT YET ADOPTED In December 2007, the FASB issued SFAS No. 141(R), "Accounting for Business Combinations" (SFAS 141(R)). SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose all information needed to evaluate and understand the nature and financial effect of the combination and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" (SFAS 160). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries in the same way--as equity in the consolidated financial statements and requires that associated transactions be treated as equity transactions--and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations. In June 2007, the AICPA issued Statement of Position 07-1, "Clarification of the Scope of the Audit and Accounting Guide "Investment Companies" and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" (SOP 07-1). SOP 07-1 broadens the definition of an investment company for application of this guidance. It provides that an entity that meets the definition of an investment company use fair value as a basis of accounting and reporting and that a parent retains the specialized fair value accounting of the entity if certain criteria are met. On February 14, 2008, the FASB deferred the effective date of SOP 07-1 indefinitely. On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. We adopted SFAS 159 as of January 1, 2008 with no material effect on our financial statements. F-8 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels ("Level 1, 2 and 3"). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability. Level 3 inputs are unobservable inputs reflecting our estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Quantitative and qualitative disclosures will focus on the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements. We adopted SFAS 157 effective January 1, 2008. We do not expect adoption of this statement to have a material impact on our financial position and results of operations. SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Debt and equity securities Our debt and equity securities classified as available-for-sale are reported on our balance sheet at fair value. Fair value is based on quoted market price, where available. When quoted market prices are not available, we estimate fair value by discounting debt security cash flows to reflect interest rates currently being offered on similar terms to borrowers of similar credit quality (private placement debt securities), by quoted market prices of comparable instruments (untraded public debt securities) and by independent pricing sources or internally developed pricing models (equity securities). We recognize unrealized investment gains and losses on investments in debt and equity securities that we classify as available-for-sale. We report these unrealized investment gains and losses as a component of other comprehensive income, net of applicable deferred policy acquisition costs and applicable deferred income taxes. For mortgage-backed and other asset-backed debt securities, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic lives of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and any resulting adjustment is included in net investment income. For certain asset-backed securities, changes in estimated yield are recorded on a prospective basis and specific valuation methods are applied to these securities to determine if there has been an other-than-temporary decline in value. Policy loans Policy loans are carried at their unpaid principal balances and are collateralized by the cash values of the related policies. We estimate the fair value of fixed rate policy loans by discounting loan interest and loan repayments. We base the discount rate on the 10-year U.S. Treasury rate. We assume that loan interest payments are made at the fixed rate less 17.5 basis points and that loan repayments only occur as a result of anticipated policy lapses. For variable rate policy loans, we consider the unpaid loan balance as fair value, as interest rates on these loans are reset annually based on market rates. Other investments Other investments primarily include other partnership interests in which we do not have control or a majority ownership interest and are recorded using the equity method of accounting. We record the net income from investments in partnerships in net investment income. F-9 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, amounts due from banks, money market instruments and other debt instruments with maturities of three months or less when purchased. 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 production of new business, are deferred. We amortize deferred policy acquisition costs based on the related policy's classification. For individual life insurance policies, deferred policy acquisition costs are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to estimated gross profits (EGPs). Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders. Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year's cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns and expenses. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future. To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns and expenses. Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be adjusted to reflect such change. This process is known as "unlocking". Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances. SEPARATE ACCOUNT ASSETS AND LIABILITIES Separate account assets and liabilities related to policyholder funds 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. Fees assessed to the contractholders for management services are included in revenues when services are rendered. F-10 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) POLICY LIABILITIES AND ACCRUALS Policy liabilities and accruals includes future benefit liabilities for certain life and annuity products. We establish liabilities in amounts adequate to meet the estimated future obligations of policies in force. Future benefit liabilities for traditional life insurance are computed using the net level premium method on the basis of actuarial assumptions as to contractual guaranteed rates of interest, mortality rates guaranteed in calculating the cash surrender values described in such contracts and morbidity. Future benefit liabilities for term and annuities in the payout phase that have significant mortality risk are computed using the net premium method on the basis of actuarial assumptions at the issue date of these contracts for rates of interest, contract administrative expenses, mortality and surrenders. We establish liabilities for outstanding claims, losses and loss adjustment expenses based on individual case estimates for reported losses and estimates of unreported losses based on past experience. Certain contracts may also include additional death or other insurance benefit features, such as guaranteed minimum death or income benefits offered with variable annuity contracts or no-lapse guarantees offered with universal life insurance contracts. An additional liability is established for these benefits by estimating the expected present value of the excess benefits and recognizing the excess ratably over the accumulation period based on total expected assessments. POLICYHOLDER DEPOSIT FUNDS Amounts received as payment for certain universal life contracts, deferred annuities and other contracts without life contingencies are reported as deposits to Policyholder deposit funds. The liability for universal life-type contracts is equal to the balance that accrues to the benefit of the policyholders as of the financial statement date, including interest credited, amounts that have been assessed to compensate us for services to be performed over future periods, and any amounts previously assessed against the policyholder that is refundable. The liability for deferred annuities and other contracts without life contingencies is equal to the balance that accrues to the benefit of the contract holder as of the financial statement date which includes the accumulation of deposits plus interest credited, less withdrawals and amounts assessed through the financial statement date. CONTINGENT LIABILITIES Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. REVENUE RECOGNITION We recognize premiums for long-duration life insurance products as revenue when due from policyholders. We recognize life insurance premiums for short-duration life insurance products as premium revenue pro rata over the related contract periods. We match benefits, losses and related expenses with premiums over the related contract periods. Amounts received as payment for interest sensitive life contracts, deferred annuities and other contracts without life contingencies are considered deposits and are not included in revenue. Revenues from these products consist primarily of fees assessed during the period against the policyholders' account balances for mortality charges, policy administration charges and surrender charges. Fees assessed that represent compensation for services to be provided in the future are deferred and amortized into revenue over the life of the related contracts. Related benefit expenses include universal life benefit claims in excess of fund values, net investment income credited to policyholders' account balances and amortization of deferred policy acquisition costs. F-11 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS (LOSSES) We recognize realized investment gains (losses) on asset dispositions on a first-in, first-out basis. We recognize realized investment losses when declines in fair value of debt and equity securities are considered to be other-than-temporarily impaired. We adjust the cost basis of these written down investments to fair value at the date the determination of impairment is made and do not change the new cost basis for subsequent recoveries in value. In evaluating whether a decline in value is other than temporary, we consider several factors including, but not limited to the following: . the extent and the duration of the decline; . the reasons for the decline in value (credit event, interest related or market fluctuations); . our ability and intent to hold the investment for a period of time to allow for a recovery of value; and . the financial condition of and near term prospects of the issuer. INCOME TAXES We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). Accordingly, income tax expense or benefit is recognized based upon amounts reported in the financial statements and the provisions of currently enacted tax laws. We allocate income taxes to income, other comprehensive income and additional paid-in capital, as applicable. We recognize current income tax assets and liabilities for estimated income taxes refundable or payable based on the current year's income tax returns. We recognize deferred income tax assets and liabilities for the estimated future income tax effects of temporary differences and carryovers. Temporary differences are the differences between the financial statement carrying amounts of assets and liabilities and their tax bases, as well as the timing of income or expense recognized for financial reporting and tax purposes of items not related to assets or liabilities. If necessary, we establish valuation allowances to reduce the carrying amount of deferred income tax assets to amounts that are more likely than not to be realized. We periodically review the adequacy of these valuation allowances and record any reduction in allowances in accordance with SFAS 109's intraperiod allocation rules. We recognize interest and penalties related to amounts accrued on uncertain tax positions and amounts paid or refunded from federal and state income tax authorities in tax expense. 3. REINSURANCE We use reinsurance agreements to provide for greater diversification of business, control exposure to potential losses arising from large risks and provide capacity for growth. We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to us; consequently, we establish reserves for amounts deemed or estimated to be uncollectible. To minimize our exposure to significant losses from reinsurance insolvencies, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers. F-12 3. REINSURANCE (CONTINUED) Our reinsurance program varies based on the type of risk, for example: . On direct policies, the maximum of individual life insurance retained by us on any one life is $10 million on single life and joint first-to-die policies and $12 million for joint last-to-die policies, with excess amounts ceded to reinsurers. . We cede 80% to 90% of the mortality risk on most new issues of term insurance. . In August 2006, we entered into an agreement to cede 50% of the risk on policies issued from July 1, 2002 through December 31, 2005, inclusive, with a net amount at risk of $2 million or greater. . On January 1, 1996, we entered into a reinsurance agreement that covers 100% of the excess death benefits and related reserves for most variable annuity policies issued from January 1, 1983 through December 31, 1999, including subsequent deposits. We retain the guaranteed minimum death benefit risks on the remaining variable deferred annuities in force that are not covered by this reinsurance arrangement. . We cede to Phoenix Life 100% of the guaranteed minimum accumulation and withdrawal benefits on our variable annuities. . Effective January 1, 2008, we entered into an agreement to cede 75% of the risk in excess of $6.0 million on universal life and variable universal life policies issued from January 1, 2006 through December 31, 2007.
DIRECT BUSINESS AND REINSURANCE: YEAR ENDED DECEMBER 31, ---------------------------------------- 2007 2006 2005 ($ in thousands) ------------ ------------ ------------ Direct premiums........................................... $ 87,132 $ 71,350 $ 55,277 Premiums ceded to reinsurers.............................. (68,530) (57,775) (45,756) ------------ ------------ ------------ PREMIUMS.................................................. $ 18,602 $ 13,575 $ 9,521 ============ ============ ============ Direct policy benefits incurred........................... $ 85,898 $ 54,055 $ 15,538 Policy benefits assumed from reinsureds................... 505 965 381 Policy benefits ceded to reinsurers....................... (44,707) (26,398) (9,572) ------------ ------------ ------------ POLICY BENEFITS........................................... $ 41,696 $ 28,622 $ 6,347 ============ ============ ============ Direct life insurance in-force............................ $ 70,502,325 $ 55,175,351 $ 41,566,483 Life insurance in-force assumed from reinsureds........... 121,673 104,826 135,447 Life insurance in-force ceded to reinsurers............... (48,687,754) (40,820,818) (30,459,568) ------------ ------------ ------------ LIFE INSURANCE IN-FORCE................................... $ 21,936,244 $ 14,459,359 $ 11,242,362 ============ ============ ============ Percentage of amount assumed to net insurance in-force.... 0.55% 0.72% 1.20% ============ ============ ============
The policy benefit amounts above exclude changes in reserves, interest credited to policyholders and withdrawals, which total $115,920 thousand, $122,663 thousand and $123,932 thousand, net of reinsurance, for the years ended December 31, 2007, 2006 and 2005, respectively. Irrevocable letters of credit aggregating $26,986 thousand at December 31, 2007 have been arranged with commercial banks in our favor to collateralize the ceded reserves. F-13 4. DEFERRED POLICY ACQUISITION COSTS
ACTIVITY IN DEFERRED POLICY ACQUISITION COSTS: YEAR ENDED DECEMBER 31, ------------------------------ 2007 2006 2005 ($ in thousands) ---------- -------- -------- Direct acquisition costs deferred................. $ 400,607 $270,577 $137,036 Recurring costs amortized to expense.............. (126,163) (92,255) (86,608) Credit related to investment gains or losses...... 2,148 1,087 6,206 Offsets to net unrealized investment gains or losses included in other comprehensive income (loss) (Note 12)................................ 27,425 (4,930) 39,223 ---------- -------- -------- Change in deferred policy acquisition costs....... 304,017 174,479 95,857 Deferred policy acquisition costs, beginning of year............................................ 703,794 529,315 433,458 ---------- -------- -------- DEFERRED POLICY ACQUISITION COSTS, END OF YEAR.... $1,007,811 $703,794 $529,315 ========== ======== ========
During 2007, we updated our system for calculating the SOP 03-1 reserves for guaranteed minimum death benefits, resulting in a release in the benefit reserve and a corresponding increase in deferred policy acquisition cost amortization for the quarter. The effects of these adjustments resulted in an overall $1,649 thousand pre-tax benefit to net income. During 2006, we benefited from an unlocking of assumptions primarily related to deferred policy acquisition costs. The unlocking was driven by revised assumptions for expected mortality, lapse experience, investment margins and expenses. The effects of the unlocking resulted in an overall $6.7 million pre-tax charge to net income, as well as increased unearned revenue liabilities by $1.3 million, increased benefit reserves by $4.5 million, increased reinsurance liability by $1.2 million and decreased amortization by $0.4 million. 5. POLICY LIABILITIES AND ACCRUALS Policyholder liabilities are primarily for universal life products and include deposits received from customers and investment earnings on their fund balances which range from 3.00% to 5.25% as of December 31, 2007, less administrative and mortality charges. POLICYHOLDER DEPOSIT FUNDS Policyholder deposit funds primarily consist of annuity deposits received from customers, dividend accumulations and investment earnings on their fund balances, which range from 2.9% to 14.0% as of December 31, 2007, less administrative charges. 6. INVESTING ACTIVITIES DEBT AND EQUITY SECURITIES
FAIR VALUE AND COST OF DEBT SECURITIES: AS OF DECEMBER 31, ------------------------------------------- 2007 2006 --------------------- --------------------- FAIR VALUE COST FAIR VALUE COST ($ in thousands) ---------- ---------- ---------- ---------- U.S. government and agency.............. $ 65,774 $ 64,884 $ 92,579 $ 93,425 State and political subdivision......... 11,029 11,134 15,900 16,281 Foreign government...................... 30,423 27,716 49,884 46,505 Corporate............................... 975,058 998,982 1,157,781 1,172,275 Mortgage-backed......................... 358,479 372,733 452,641 455,739 Other asset-backed...................... 268,823 288,927 282,204 280,086 ---------- ---------- ---------- ---------- AVAILABLE-FOR-SALE DEBT SECURITIES...... $1,709,586 $1,764,376 $2,050,989 $2,064,311 ========== ========== ========== ==========
F-14 6. INVESTING ACTIVITIES (CONTINUED)
UNREALIZED GAINS (LOSSES) FROM DEBT SECURITIES: AS OF DECEMBER 31, ---------------------------------- 2007 2006 ---------------- ---------------- GAINS LOSSES GAINS LOSSES ($ in thousands) ------- -------- ------- -------- U.S. government and agency................. $ 1,193 $ (303) $ 295 $ (1,141) State and political subdivision............ 11 (116) 17 (398) Foreign government......................... 2,732 (25) 3,590 (211) Corporate.................................. 8,774 (32,698) 6,523 (21,017) Mortgage-backed............................ 2,654 (16,908) 2,862 (5,960) Other asset-backed......................... 875 (20,979) 3,857 (1,739) ------- -------- ------- -------- DEBT SECURITIES GAINS AND LOSSES........... $16,239 $(71,029) $17,144 $(30,466) ======= ======== ======= ======== DEBT SECURITIES NET LOSSES................. $(54,790) $(13,322) ======== ========
AGING OF TEMPORARILY IMPAIRED DEBT SECURITIES: AS OF DECEMBER 31, 2007 --------------------------------------------------------------- LESS THAN 12 MONTHS GREATER THAN 12 MONTHS TOTAL ------------------ --------------------- -------------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE LOSSES VALUE LOSSES VALUE LOSSES ($ in thousands) -------- ---------- -------- ---------- ---------- ---------- Debt Securities U.S. government and agency... $ -- $ -- $ 15,629 $ (303) $ 15,629 $ (303) State and political subdivision................ -- -- 10,516 (116) 10,516 (116) Foreign government........... -- -- 2,464 (25) 2,464 (25) Corporate.................... 134,427 (9,598) 478,287 (23,100) 612,714 (32,698) Mortgage-backed.............. 105,599 (9,822) 162,554 (7,086) 268,153 (16,908) Other asset-backed........... 137,632 (15,661) 81,534 (5,318) 219,166 (20,979) -------- -------- -------- -------- ---------- -------- TOTAL TEMPORARILY IMPAIRED SECURITIES........ $377,658 $(35,081) $750,984 $(35,948) $1,128,642 $(71,029) ======== ======== ======== ======== ========== ======== BELOW INVESTMENT GRADE....... $ 39,024 $ (1,797) $ 67,088 $ (7,484) $ 106,112 $ (9,281) ======== ======== ======== ======== ========== ======== BELOW INVESTMENT GRADE AFTER OFFSETS FOR DEFERRED POLICY ACQUISITION COST ADJUSTMENT AND TAXES.................. $ (292) $ (1,306) $ (1,598) ======== ======== ======== NUMBER OF SECURITIES......... 243 411 654 ======== ======== ========
Below investment grade debt securities with a fair value of less than 80% of the security's amortized costs totaled $(3,933) thousand at December 31, 2007, of which none have been in a significant loss position for greater than 12 months. All of these securities are considered to be temporarily impaired at December 31, 2007 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value. F-15 6. INVESTING ACTIVITIES (CONTINUED)
AGING OF TEMPORARILY IMPAIRED DEBT AND EQUITY SECURITIES: AS OF DECEMBER 31, 2006 -------------------------------------------------------------- LESS THAN 12 MONTHS GREATER THAN 12 MONTHS TOTAL ------------------ -------------------- -------------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE LOSSES VALUE LOSSES VALUE LOSSES ($ in thousands) -------- ---------- ---------- ---------- ---------- ---------- Debt Securities U.S. government and agency... $ 5,643 $ (19) $ 50,878 $ (1,122) $ 56,521 $ (1,141) State and political subdivision................ 1,014 (3) 14,367 (395) 15,381 (398) Foreign government........... 4,024 (10) 9,323 (201) 13,347 (211) Corporate.................... 152,344 (1,595) 689,660 (19,422) 842,004 (21,017) Mortgage-backed.............. 78,465 (693) 257,905 (5,267) 336,370 (5,960) Other asset-backed........... 53,844 (171) 102,302 (1,568) 156,146 (1,739) -------- ------- ---------- -------- ---------- -------- TOTAL TEMPORARILY IMPAIRED SECURITIES........ $295,334 $(2,491) $1,124,435 $(27,975) $1,419,769 $(30,466) ======== ======= ========== ======== ========== ======== BELOW INVESTMENT GRADE....... $ 20,190 $ (377) $ 90,763 $ (3,859) $ 110,953 $ (4,236) ======== ======= ========== ======== ========== ======== BELOW INVESTMENT GRADE AFTER OFFSETS FOR DEFERRED POLICY ACQUISITION COST ADJUSTMENT AND TAXES.................. $ (45) $ (550) $ (595) ======= ======== ======== NUMBER OF SECURITIES......... 165 565 730 ======= ======== ========
There were no unrealized losses of below investment grade debt securities with a fair value less than 80% of the securities amortized cost at December 31, 2006. All of these securities are considered to be temporarily impaired at December 31, 2006 as each of these securities has performed, and is expected to continue to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value. STATUTORY DEPOSITS Pursuant to certain statutory requirements, as of December 31, 2007 and 2006, we had on deposit securities with a fair value of $7,370 thousand and $8,216 thousand, respectively, in insurance department special deposit accounts. We are not permitted to remove the securities from these accounts without approval of the regulatory authority. NET INVESTMENT INCOME
SOURCES OF NET INVESTMENT INCOME: YEAR ENDED DECEMBER 31, ---------------------------- 2007 2006 2005 ($ in thousands) -------- -------- -------- Debt securities.................................. $105,342 $127,977 $155,648 Equity securities................................ -- -- 2 Other investments................................ 162 148 183 Other income..................................... 421 -- -- Policy loans..................................... 1,472 581 479 Cash and cash equivalents........................ 4,395 3,089 1,061 -------- -------- -------- Total investment income.......................... 111,792 131,795 157,373 Investment expenses.............................. (2,185) (2,470) (2,999) -------- -------- -------- NET INVESTMENT INCOME............................ $109,607 $129,325 $154,374 ======== ======== ========
F-16 6. INVESTING ACTIVITIES (CONTINUED) NET REALIZED INVESTMENT GAINS (LOSSES)
TYPES OF REALIZED INVESTMENT GAINS (LOSSES): YEAR ENDED DECEMBER 31, ------------------------------------ 2007 2006 2005 ($ in thousands) ---------- ----------- ----------- DEBT SECURITY IMPAIRMENTS.......................... $ (3,287) $ (411) $ (2,651) ---------- ----------- ----------- Debt security transaction gains.................... 1,465 2,955 1,764 Debt security transaction losses................... (2,827) (7,253) (9,254) Equity security transaction gains.................. -- -- 26 Equity security transaction losses................. -- -- (13) Other investment transaction gains (losses)........ (2,394) 2,249 (441) ---------- ----------- ----------- NET TRANSACTION LOSSES............................. (3,756) (2,049) (7,918) ---------- ----------- ----------- NET REALIZED INVESTMENT LOSSES..................... $ (7,043) $ (2,460) $ (10,569) ========== =========== =========== UNREALIZED INVESTMENT GAINS (LOSSES) SOURCES OF CHANGES IN NET UNREALIZED INVESTMENT GAINS (LOSSES): YEAR ENDED DECEMBER 31, ------------------------------------ 2007 2006 2005 ($ in thousands) ---------- ----------- ----------- Debt securities.................................... $ (41,468) $ 2,956 $ (54,591) Equity securities.................................. -- -- 5 Other investments.................................. 50 10 -- ---------- ----------- ----------- NET UNREALIZED INVESTMENT GAINS (LOSSES)........... $ (41,418) $ 2,966 $ (54,586) ========== =========== =========== Net unrealized investment gains (losses)........... $ (41,418) $ 2,966 $ (54,586) ---------- ----------- ----------- Applicable deferred policy acquisition costs (Note 4)............................................... (27,425) 4,930 (39,223) Applicable deferred income tax benefit............. (4,898) (687) (5,377) ---------- ----------- ----------- Offsets to net unrealized investment losses........ (32,323) 4,243 (44,600) ---------- ----------- ----------- NET UNREALIZED INVESTMENT LOSSES INCLUDED IN OTHER COMPREHENSIVE INCOME............................. $ (9,095) $ (1,277) $ (9,986) ========== =========== =========== INVESTING CASH FLOWS INVESTMENT PURCHASES, SALES, REPAYMENTS AND MATURITIES: YEAR ENDED DECEMBER 31, ------------------------------------ 2007 2006 2005 ($ in thousands) ---------- ----------- ----------- Debt security purchases............................ $ (883,282) $ (999,542) $(1,139,974) Equity security purchases.......................... -- -- -- Other investment purchases......................... (350) (1,060) (2,434) Policy loan advances, net.......................... (7,277) (7,371) (5,685) ---------- ----------- ----------- INVESTMENT PURCHASES............................... $ (890,909) $(1,007,973) $(1,148,093) ========== =========== =========== Debt securities sales.............................. $ 816,170 $ 1,178,127 $ 873,995 Debt securities maturities and repayments.......... 390,297 549,483 477,568 Equity security sales.............................. -- -- 279 Other investment sales............................. 1,521 750 5,845 ---------- ----------- ----------- INVESTMENT SALES, REPAYMENTS AND MATURITIES........ $1,207,988 $ 1,728,360 $ 1,357,687 ========== =========== ===========
F-17 6. INVESTING ACTIVITIES (CONTINUED) The maturities of debt securities, by contractual sinking fund payment and maturity are summarized in the following table. Actual maturities may differ from contractual maturities as certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties, and we may have the right to put or sell the obligations back to the issuers.
MATURITIES OF DEBT SECURITIES: AS OF DECEMBER 31, 2007 ----------------------- COST FAIR VALUE ($ in thousands) ---------- ---------- Due in one year or less................................ $ 139,910 $ 139,540 Due after one year through five years.................. 429,405 424,704 Due after five years through ten years................. 455,099 441,414 Due after ten years.................................... 739,962 703,928 ---------- ---------- TOTAL.................................................. $1,764,376 $1,709,586 ========== ==========
7. SEPARATE ACCOUNTS, DEATH BENEFITS AND OTHER INSURANCE BENEFIT FEATURES Separate account products are those for which a separate investment and liability account is maintained on behalf of the policyholder. Investment objectives for these separate accounts vary by fund account type, as outlined in the applicable fund prospectus or separate account plan of operations. Our separate account products include variable annuities and variable life insurance contracts. The assets supporting these contracts are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate account liabilities. Amounts assessed against the policyholder for mortality, administration, and other services are included within revenue in Insurance and investment product fees. In 2007 and 2006 there were no gains or losses on transfers of assets from the general account to a separate account. Many of our variable contracts offer various guaranteed minimum death, accumulation, withdrawal and income benefits. These benefits are offered in various forms as described below. We currently reinsure a significant portion of the death benefit guarantees associated with our in-force block of business. We establish policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity policies as follows: . Liabilities associated with the guaranteed minimum death benefit (GMDB) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the liabilities are generally consistent with those used for amortizing deferred policy acquisition costs. . Liabilities associated with the guaranteed minimum income benefit (GMIB) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing deferred policy acquisition costs. For annuities with GMDB, 200 stochastically generated scenarios were used. For annuities with GMIB, we used 1,000 stochastically generated scenarios.
SEPARATE ACCOUNT INVESTMENTS OF ACCOUNT BALANCES OF CONTRACTS WITH GUARANTEES: AS OF DECEMBER 31, --------------------- 2007 2006 ($ in thousands) ---------- ---------- Debt securities.......................................... $ 494,660 $ 456,148 Equity funds............................................. 2,213,164 1,861,762 Other.................................................... 80,657 68,810 ---------- ---------- TOTAL.................................................... $2,788,481 $2,386,720 ========== ==========
F-18 7. SEPARATE ACCOUNTS, DEATH BENEFITS AND OTHER INSURANCE BENEFIT FEATURES (CONTINUED)
CHANGES IN GUARANTEED LIABILITY BALANCES: YEAR ENDED DECEMBER 31, 2007 ----------------- ANNUITY ANNUITY GMDB GMIB ($ in thousands) -------- ------- Liability balance as of January 1, 2007...................... $ 26,979 $3,568 Incurred..................................................... (21,813) 2,137 Paid......................................................... (2,057) -- -------- ------ LIABILITY BALANCE AS OF DECEMBER 31, 2007.................... $ 3,109 $5,705 ======== ======
CHANGES IN GUARANTEED LIABILITY BALANCES: YEAR ENDED DECEMBER 31, 2006 ---------------- ANNUITY ANNUITY GMDB GMIB ($ in thousands) ------- ------- Liability balance as of January 1, 2006...................... $27,749 $2,474 Incurred..................................................... 1,721 1,094 Paid......................................................... (2,491) -- ------- ------ LIABILITY BALANCE AS OF DECEMBER 31, 2006.................... $26,979 $3,568 ======= ======
The reinsurance recoverable asset related to the GMDB was $1,335 thousand and $17,139 thousand as of December 31, 2007 and 2006, respectively. The GMDB and GMIB guarantees are recorded in policy liabilities and accruals on our balance sheet. Changes in the liability are recorded in Policy benefits on our statement of operations. In a manner consistent with our policy for deferred policy acquisition costs, we regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised. We also offer certain variable products with a guaranteed minimum withdrawal benefit (GMWB), a guaranteed minimum accumulation benefit (GMAB) and a guaranteed pay-out annuity floor (GPAF). The GMWB guarantees the policyholder a minimum amount of withdrawals and benefit payments over time, regardless of the investment performance of the contract, subject to an annual limit. Optional resets are available. In addition, we have introduced a feature for these contracts beginning in the fourth quarter of 2005 that allows the policyholder to receive the guaranteed annual withdrawal amount for as long as they are alive. The GMAB rider provides the contract holder with a minimum accumulation of their purchase payments deposited within a specific time period, adjusted for withdrawals, after a specified amount of time determined at the time of issuance of the variable annuity contract. The GPAF rider provides the policyholder with a minimum payment amount if the variable annuity payment falls below this amount on the payment calculation date. The GMWB, GMAB and GPAF represent embedded derivatives in the variable annuity contracts that are required to be reported separately from the host variable annuity contract. They are carried at fair value and reported in policyholder deposit funds. The fair value of the GMWB, GMAB and GPAF obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions. F-19 7. SEPARATE ACCOUNTS, DEATH BENEFITS AND OTHER INSURANCE BENEFIT FEATURES (CONTINUED) In order to minimize the volatility associated with the GMWB and GMAB liabilities, we have entered into a contract with Phoenix Life whereby we cede 100% of any claims for these guarantees. Because this contract does not transfer sufficient risk to be accounted for as reinsurance, we use deposit accounting for the contract. As of December 31, 2007 and 2006, the embedded derivative for GMWB and GMAB was immaterial. There were no benefit payments made for the GMWB or GMAB during 2007 or 2006. See Note 10 to these financial statements for more information. For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that are payable upon annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the policyholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance.
ADDITIONAL INSURANCE BENEFITS: NET AMOUNT AVERAGE ACCOUNT AT RISK AFTER ATTAINED AGE VALUE REINSURANCE OF ANNUITANT ($ in thousands) ---------- ------------- ------------ GMDB return of premium.......................... $1,396,515 $ 5,398 59 GMDB step up.................................... 1,761,416 33,481 60 GMDB earnings enhancement benefit (EEB)......... 78,136 -- 60 GMDB greater of annual step up and roll up...... 42,492 3,582 63 ---------- ------- TOTAL GMDB AT DECEMBER 31, 2007................. $3,278,559 $42,461 ========== ======= GMIB............................................ $ 696,006 59 GMAB............................................ 381,304 55 GMWB............................................ 202,073 61 GPAF............................................ 36,684 74 ---------- TOTAL AT DECEMBER 31, 2007...................... $1,316,067 ==========
With the return of premium, the death benefit is the greater of current account value or premiums paid (less any adjusted partial withdrawals). With the step up, the death benefit is the greater of current account value, premiums paid (less any adjusted partial withdrawals) or the annual step up amount prior of the eldest original owner attaining a certain age. On and after the eldest original owner attains that age, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner's attaining that age plus premium payments (less any adjusted partial withdrawals) made since that date. With EEB, the death benefit is the greater of the premiums paid (less any adjusted partial withdrawals) or the current account value plus the EEB. The EEB is an additional amount designed to reduce the impact of taxes associated with distributing contract gains upon death. With greater of annual step up and annual roll up, the death benefit is the greater of premium payments (less any adjusted partial withdrawals), the annual step up amount, the annual roll up amount or the current account value prior to the eldest original owner attaining age 81. On and after the eldest original owner attained age 81, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner's attained age of 81 plus premium payments (less any adjusted partial withdrawals) made since that date. Liabilities for universal life are generally determined by estimating the expected value of losses when death benefits exceed revenues and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing deferred policy acquisition costs. A single set of best estimate assumptions is used since these insurance benefits do not vary significantly with capital markets volatility. At December 31, 2007 and 2006, we held additional universal life benefit reserves of $25,930 thousand and $8,841 thousand, respectively. F-20 8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS
CARRYING AMOUNTS AND ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS: AS OF DECEMBER 31, ------------------------------------------- 2007 2006 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ($ in thousands) ---------- ---------- ---------- ---------- Cash and cash equivalents.......... $ 108,200 $ 108,200 $ 47,127 $ 47,127 Debt securities.................... 1,709,586 1,709,586 2,050,989 2,050,989 Policy loans....................... 22,819 22,819 15,542 15,542 ---------- ---------- ---------- ---------- FINANCIAL ASSETS................... $1,840,605 $1,840,605 $2,113,658 $2,113,658 ========== ========== ========== ========== Investment contracts............... $1,134,635 $1,139,325 $1,491,367 $1,486,758 ---------- ---------- ---------- ---------- FINANCIAL LIABILITIES.............. $1,134,635 $1,139,325 $1,491,367 $1,486,758 ========== ========== ========== ==========
FAIR VALUE OF INVESTMENT CONTRACTS We determine the fair value of deferred annuities with an interest guarantee of one year or less at the amount of the policy reserve. In determining the fair value of deferred annuities with interest guarantees greater than one year, we use a discount rate equal to the appropriate U.S. Treasury rate plus 100 basis points to determine the present value of the projected account value of the policy at the end of the current guarantee period. DERIVATIVE INSTRUMENTS We maintain an overall interest rate risk-management strategy that primarily incorporates the use of interest rate swaps as hedges of our exposure to changes in interest rates. Our exposure to changes in interest rates primarily results from our commitments to fund interest-sensitive insurance liabilities, as well as from our significant holdings of fixed rate financial instruments. We recognized an after-tax gain of $0.0 million, $1.2 million and $0.3 million for the years ended December 31, 2007, 2006 and 2005 (reported as other comprehensive income in Statement of Income, Comprehensive Income and Changes in Stockholder's Equity), which represented the change in fair value of interest rate forward swaps which had 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, we recognize 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 into earnings in the same period or periods during which the hedged forecasted transaction (the acquired asset) affects earnings. For the years 2007, 2006 and 2005, we reclassified after-tax gains of $0.0 million, $1.2 million and $0.3 million, respectively, into earnings related to these derivatives. We held no derivative assets at December 31, 2007 and 2006. See Note 7 to these financial statements for more information on our embedded derivatives related to our variable annuity guarantees. F-21 9. INCOME TAXES
ALLOCATION OF INCOME TAXES: YEAR ENDED DECEMBER 31, ---------------------------- 2007 2006 2005 ($ in thousands) -------- -------- -------- Income tax expense (benefit) attributable to: Current......................................... $(44,715) $(21,403) $(18,313) Deferred........................................ 48,358 24,419 15,512 -------- -------- -------- INCOME TAXES APPLICABLE TO NET INCOME (LOSS).... 3,643 3,016 (2,801) Other comprehensive loss........................ (4,898) (1,121) (5,558) -------- -------- -------- INCOME TAXES APPLICABLE TO COMPREHENSIVE INCOME (LOSS)........................................ $ (1,255) $ 1,895 $ (8,359) ======== ======== ======== INCOME TAXES RECOVERED.......................... $(30,557) $(24,094) $(14,288) ======== ======== ========
EFFECTIVE INCOME TAX RATE: YEAR ENDED DECEMBER 31, ------------------------- 2007 2006 2005 ($ in thousands) ------- ------- ------- Income before income taxes......................... $19,630 $13,097 $ 1,422 ------- ------- ------- Income taxes at statutory rate of 35.0%............ 6,871 4,584 498 Dividend received deduction........................ (2,778) (1,572) (2,924) Tax interest....................................... 1 1 (378) Other, net......................................... (451) 3 3 ------- ------- ------- APPLICABLE INCOME TAXES (BENEFIT).................. $ 3,643 $ 3,016 $(2,801) ======= ======= ======= Effective income tax (benefit) rates............... 18.6% 23.0% (197.0)% ======= ======= =======
DEFERRED INCOME TAX BALANCES ATTRIBUTABLE TO TEMPORARY DIFFERENCES: AS OF DECEMBER 31, ----------------- 2007 2006 ($ in thousands) -------- -------- Deferred income tax assets: Future policyholder benefits................................ $140,526 $102,603 Unearned premiums / deferred revenues....................... 15,123 10,817 Investments................................................. 5,948 -- -------- -------- GROSS DEFERRED INCOME TAX ASSETS............................ 161,597 113,420 -------- -------- Deferred income tax liabilities: Deferred policy acquisition costs........................... 296,057 207,513 Investments................................................. -- 849 Other....................................................... 5,655 1,712 -------- -------- GROSS DEFERRED INCOME TAX LIABILITIES....................... 301,712 210,074 -------- -------- DEFERRED INCOME TAX LIABILITY............................... $140,115 $ 96,654 ======== ========
We are included in the consolidated federal income tax return filed by PNX and are party to a tax sharing agreement by and among PNX and its subsidiaries. In accordance with this agreement, federal income taxes are allocated as if they had been calculated on a separate company basis, except that benefits for any net operating losses or other tax credits used to offset a tax liability of the consolidated group will be provided to the extent such loss or credit is utilized in the consolidated federal tax return. We are included in the consolidated federal income tax return filed by PNX. Within the consolidated tax return, we are required by regulations of the Internal Revenue Service (IRS) to segregate the entities into two groups: life insurance companies and non-life insurance companies. We are limited as to the amount of any operating losses from the non-life group that can be offset against taxable income of the life group. These limitations may affect the amount of any operating loss carryovers that we have now or in the future. We have determined, based on our earnings and projected future taxable income, that it is more likely than not that deferred income tax assets at December 31, 2007 and 2006 will be realized. As of December 31, 2007, we had current taxes receivable of $10,184 thousand. F-22 9. INCOME TAXES (CONTINUED) We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, we recognized a decrease in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $1,000 thousand, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. Including the cumulative effect adjustment, we had approximately $1,840 thousand of total gross unrecognized tax benefits as of January 1, 2007. The entire amount of unrecognized tax benefits would, if recognized, impact the annual effective rate upon recognition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
RECONCILIATION OF THE BEGINNING AND ENDING AMOUNT OF UNRECOGNIZED TAX BENEFITS: ($ in thousands) Balance at January 1, 2007............................................. $1,840 Reductions for tax positions of prior years............................ (975) Settlements with taxing authorities.................................... (340) ------ BALANCE AT DECEMBER 31, 2007........................................... $ 525 ======
Based upon the timing and status of our current examinations by taxing authorities, we do not believe that it is reasonably possible that any changes to the balance of unrecognized tax benefits occurring in the next 12 months will result in a significant change to the results of operations, financial condition or liquidity. In addition, we do not anticipate that there will be additional payments made or refunds received within the next 12 months with respect to the years under audit. We do not anticipate any increases to the unrecognized tax benefits that would have a significant impact on the financial position of the company. Our federal income tax returns are routinely audited by the IRS. We are no longer subject to income tax examinations by federal authorities for tax years prior to 2004. Our U.S. federal income tax returns for 2004 and 2005 are currently being examined. We do not believe that the examination will result in a material change in our financial position. We are not currently under audit with any state taxing authorities. We recognize interest and penalties related to amounts accrued on uncertain tax positions and amounts paid or refunded from federal and state income tax authorities in tax expense. The interest and penalties recorded during the twelve month periods ending December 31, 2006 and 2007 were not material. We did not have an accrual for the payment of interest and penalties as of December 31, 2007. 10. RELATED PARTY TRANSACTIONS Capital Contributions During the year ended December 31, 2007, we received $49,984 thousand in capital contributions from Phoenix Life, of which $25,000 thousand was in cash and $24,984 was in securities. Related Party Transactions The amounts included in the following discussion are gross expenses, before deferrals for policy acquisition costs. Phoenix Life provides services and facilities to us and is reimbursed through a cost allocation process. The expenses allocated to us were $270,394 thousand, $203,521 thousand and $108,701 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to Phoenix Life were $11,767 thousand and $18,650 thousand as of December 31, 2007 and 2006, respectively. F-23 10. RELATED PARTY TRANSACTIONS (CONTINUED) During 2006, we entered into a contract with Phoenix Life whereby we cede to Phoenix Life the liabilities related to certain guarantees on our annuity products. Because this contract does not transfer sufficient risk to qualify for reinsurance accounting, we account for ceded liabilities as a deposit asset. The asset on deposit with Phoenix Life was $3,051 thousand and $220 thousand at December 31, 2007 and 2006, respectively. This amount is included in our balance sheet in other general account assets. Amounts due to Phoenix Life under this contract were $336 thousand and $215 thousand at December 31, 2007 and 2006, respectively. Phoenix Investment Partners Ltd. (PXP), an indirect wholly-owned subsidiary of PNX, through its affiliated registered investment advisors, provides investment advisory services to us for a fee. Investment advisory fees incurred by us for management of general account assets under this arrangement were $2,172 thousand, $2,439 thousand and $2,993 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to the affiliated investment advisors were $15 thousand and $106 thousand, as of December 31, 2007 and 2006, respectively. Through July 2007 PXP provided investment advisory services to the variable product separate accounts. They received variable product separate account fees on our behalf, retained a portion of those fees, for services provided, and forward the remainder to us. Amounts receivable from PXP for those fees were $0 thousand and $245 thousand as of December 31, 2007 and 2006, respectively. The variable product separate account fees retained by PXP were $271 thousand, $684 thousand and $697 thousand for 2007, 2006 and 2005, respectively. Effective August 2007, Phoenix Variable Advisors, Inc. (PVA), an indirect wholly-owned subsidiary of Phoenix Life, became the investment advisor for the variable product separate accounts. They receive variable product separate account fees on our behalf and forward them to us, net of sub-advisory fees they paid. Amounts receivable from PVA for those fees were $276 thousand as of December 31, 2007. Phoenix Equity Planning Corporation (PEPCO), a wholly-owned subsidiary of PXP, is the principal underwriter of our annuity contracts. Until May 31, 2004, contracts could be purchased through registered representatives of our former affiliate, W.S. Griffith Securities, Inc. (Griffith). Other outside broker-dealers are licensed to sell our annuity contracts as well. We incurred commissions for contracts underwritten by PEPCO of $48,331 thousand, $38,062 thousand and $35,422 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to PEPCO were $2,269 thousand and $278 thousand as of December 31, 2007 and 2006, respectively. Phoenix Life pays commissions to producers who sell our non-registered life and annuity products. Commissions paid by Phoenix Life on our behalf were $159,847 thousand, $105,993 thousand and $54,927 thousand for the years ended December 31, 2007, 2006 and 2005, respectively. Amounts payable to Phoenix Life were $13,684 thousand and $4,187 thousand as of December 31, 2007 and 2006, respectively. PREMIUM PROCESSING SERVICES We provide payment processing services for Phoenix Life, wherein we receive deposits on Phoenix Life annuity contracts, and forward those payments to Phoenix Life. During 2006, we began including life insurance premiums in this service. In connection with this service, at December 31, 2007 and 2006, we had amounts due to Phoenix Life of $416 thousand and $1,914 thousand, respectively. We do not charge any fees for this service. We also provide payment processing services for Phoenix Life and Annuity, a wholly-owned indirect subsidiary of Phoenix Life, wherein we receive deposits on certain Phoenix Life and Annuity annuity contracts, and forward those payments to Phoenix Life and Annuity. During 2006, we began including life insurance premiums in this service. In connection with this service, at December 31, 2007 and 2006, we had amounts due to Phoenix Life and Annuity of $482 thousand and $16 thousand, respectively. We do not charge any fees for this service. In certain instances Phoenix Life and Phoenix Life and Annuity may receive premiums on behalf of PHLVIC. Amounts due from Phoenix Life were $237 thousand and $71 thousand as of December 31, 2007 and 2006, respectively. Amounts due from Phoenix Life and Annuity were $15 thousand and $0 thousand as of December 31, 2007 and 2006, respectively. F-24 11. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS PNX has a non-contributory, defined benefit pension plan covering substantially all of its employees and those of its subsidiaries. Retirement benefits are a function of both years of service and level of compensation. PNX also sponsors a non-qualified supplemental defined benefit plan to provide benefits in excess of amounts allowed pursuant to the Internal Revenue Code. PNX'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 for benefits attributable not only to service to date, but to service expected to be conferred in the future. PNX sponsors pension and savings plans for its employees, and employees and agents of its subsidiaries. The qualified plans comply with requirements established by ERISA and excess benefit plans provide for that portion of pension obligations, which is in excess of amounts permitted by ERISA. PNX also provides certain health care and life insurance benefits for active and retired employees. We incur applicable employee benefit expenses through the process of cost allocation by PNX. In addition to its pension plans, PNX currently provides certain health care and life insurance benefits to retired employees, spouses and other eligible dependents through various plans which it sponsors. A substantial portion of PNX's affiliate 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 our participation in the plans. PNX, the plan sponsor, established an accrued liability and amounts attributable to us have been allocated. The amount of such allocated benefits is not significant to the financial statements. 12. OTHER COMPREHENSIVE INCOME
SOURCES OF OTHER COMPREHENSIVE INCOME: YEAR ENDED DECEMBER 31, ------------------------------------------------------- 2007 2006 2005 ----------------- ---------------- ------------------ GROSS NET GROSS NET GROSS NET ($ in thousands) -------- ------- ------- ------- -------- -------- Unrealized gains (losses) on investments.... $(36,769) $(6,995) $ 7,264 $ 1,516 $(64,713) $(16,569) Net realized investment gains (losses) on available-for-sale securities included in net income.................... (4,649) (2,100) (4,298) (2,793) 10,127 6,583 -------- ------- ------- ------- -------- -------- Net unrealized investment gains (losses).... (41,418) (9,095) 2,966 (1,277) (54,586) (9,986) Net unrealized losses on derivative instruments............................... -- -- (1,241) (807) (516) (335) -------- ------- ------- ------- -------- -------- Other comprehensive income (loss)........... (41,418) $(9,095) 1,725 $(2,084) (55,102) $(10,321) -------- ======= ------- ======= -------- ======== Applicable deferred policy acquisition cost amortization.............................. (27,425) 4,930 (39,223) Applicable deferred income tax benefit...... (4,898) (1,121) (5,558) -------- ------- -------- Offsets to other comprehensive income....... (32,323) 3,809 (44,781) -------- ------- -------- OTHER COMPREHENSIVE LOSS.................... $ (9,095) $(2,084) $(10,321) ======== ======= ========
COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME: AS OF DECEMBER 31, ------------------------------------- 2007 2006 ------------------ ----------------- GROSS NET GROSS NET ($ in thousands) -------- -------- -------- ------- Unrealized losses on investments................ $(56,002) $(11,784) $(14,584) $(2,689) Unrealized gains on derivative instruments...... -- -- -- -- -------- -------- -------- ------- Accumulated other comprehensive loss............ (56,002) $(11,784) (14,584) $(2,689) -------- ======== -------- ======= Applicable deferred policy acquisition costs.... (37,873) (10,448) Applicable deferred income taxes................ (6,345) (1,447) -------- -------- Offsets to other comprehensive income........... (44,218) (11,895) -------- -------- ACCUMULATED OTHER COMPREHENSIVE LOSS............ $(11,784) $ (2,689) ======== ========
F-25 13. STATUTORY FINANCIAL INFORMATION AND REGULATORY MATTERS We are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities. The State of Connecticut Insurance Department (the Department) has adopted the National Association of Insurance Commissioners' (the NAIC's) Accounting Practices and Procedures manual effective January 1, 2001 (NAIC SAP) as a component of its prescribed or permitted statutory accounting practices. As of December 31, 2007, 2006 and 2005, the Department has not prescribed or permitted us to use any accounting practices that would materially deviate from NAIC SAP. Statutory surplus differs from equity reported in accordance with GAAP primarily because policy acquisition costs are expensed when incurred, investment reserves are based on different assumptions, 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 deferred income tax assets based on admissibility tests. Connecticut Insurance Law requires that Connecticut life insurers report their risk-based capital. Risk-based capital is based on a formula calculated by applying factors to various assets, premium and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. Connecticut Insurance Law gives the Connecticut Commissioner of Insurance explicit regulatory authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not exceed certain risk-based capital levels. Our risk-based capital was in excess of 350% of Company Action Level (the level where a life insurance enterprise must submit a comprehensive plan to state insurance regulators) as of December 31, 2007 and 2006.
STATUTORY FINANCIAL DATA: AS OF OR FOR THE YEAR ENDED DECEMBER 31, ----------------------------- 2007 2006 2005 ($ in thousands) --------- -------- -------- Statutory capital and surplus............................ $ 167,436 $220,342 $264,825 Asset valuation reserve.................................. 14,774 14,320 5,575 --------- -------- -------- STATUTORY CAPITAL, SURPLUS AND ASSET VALUATION RESERVE... $ 182,210 $234,662 $270,400 ========= ======== ======== STATUTORY GAIN (LOSS) FROM OPERATIONS.................... $ (98,589) $(33,094) $ 12,251 ========= ======== ======== STATUTORY NET INCOME (LOSS).............................. $(102,297) $(33,994) $ 12,749 ========= ======== ========
The Connecticut Insurance Holding Company Act limits the maximum amount of annual dividends and other distributions in any 12-month period to stockholders of Connecticut domiciled insurance companies without prior approval of the Insurance Commissioner. Under current law, we cannot make any dividend distribution during 2008 without prior approval. 14. CONTINGENT LIABILITIES Litigation and Arbitration We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming us as a defendant ordinarily involves our activities as an insurer, investor, or taxpayer. It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods. F-26 14. CONTINGENT LIABILITIES (CONTINUED) Regulatory Matters State regulatory bodies, the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. (NASD) and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws and securities laws. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. In addition, federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Phoenix Life and its subsidiaries with securities and other laws and regulations affecting their registered products. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. There has been a significant increase in federal and state regulatory activity relating to financial services companies, with a number of recent regulatory inquiries focusing on late-trading, market timing and valuation issues. Our products entitle us to impose restrictions on transfers between separate account sub-accounts associated with our variable products. In 2005, the Boston District Office of the SEC completed a compliance examination of certain of PNX's affiliates that are registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for monitoring trading to prevent market timing activity. The staff requested PNX to conduct an analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have been affected by undetected market timing activity had suffered harm and to advise the staff whether PNX believes reimbursement is necessary or appropriate under the circumstances. A third party was retained to assist PNX in preparing the analysis. Based on this analysis, PNX advised the SEC that it does not believe that reimbursement is appropriate. Over the past several years, a number of companies have announced settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York Attorney General's Office. While no such action has been initiated against us, it is possible that one or more regulatory agencies may pursue this type of action against us in the future. Financial services companies have also been the subject of broad industry inquiries by state regulators and attorneys general which do not appear to be company-specific. These types of regulatory actions may be difficult to assess or quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and magnitude of their outcomes may remain unknown for substantial periods of time. While it is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the large or indeterminate amounts sought in certain of these actions and the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operation or cash flows in particular quarterly or annual periods. F-27 Part C Other Information Item 26. Exhibits. (a) Board of Directors Resolution. Resolution of the Board of Directors of PHL Variable Insurance Company (the "Depositor") establishing the PHLVIC Variable Universal Life Account is incorporated by reference to Initial Registration Statement on Form S-6 (File No. 333-65823), filed via EDGAR on October 16, 1998. (b) Custodian Agreements. Not applicable. (c) Underwriting Contracts. (1) Master Service and Distribution Compliance Agreement between Depositor and Phoenix Equity Planning Corporation dated November 1, 2000, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (2) Form of Broker Dealer Supervisory and Service Agreement among Phoenix Equity Planning Corporation and Independent Brokers with respect to the sale of Policies is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 6, filed via EDGAR on February 9, 2005. (d) Contracts. (1) Flexible Premium Survivorship Variable Universal Life Insurance Policy Form Number V612 of Depositor, is incorporated by reference to Form S-6 (File No. 333-76778), Pre-Effective Amendment No. 2, filed via EDGAR on June 19, 2002. (2) Estate Term Rider Form Number VR46 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (3) Life Plan Options Rider, Form Number UR75 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (4) Non-Transferable General Account Election Rider, Form Number VR47 of Depositor, is incorporated by reference to orm N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (5) Conditional Exchange Option Rider, Form Number VR48 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (6) Policy Split Option Rider, Form Number VR49 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (7) Survivorship Four Year Term Insurance Rider, Form Number VR50 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (8) Survivor Premium Protector Rider, Form Number VR51 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (9) Disability Benefit To Age 65 Rider, Form Number VR52 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (10) Guaranteed Death Benefit Rider, Form Number VR45 of Depositor, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 2, filed via EDGAR on February 26, 2003. (11) Age 100+ Rider, Form Number VR60 is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 6, filed via EDGAR on February 9, 2005. C-1 (e) Applications. Form of application for The Phoenix Edge-SVUL(R) (Form No. V612) is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (f) Depositor's Certificate of Incorporation and By-Laws. (1) Amended and Restated Certificate of Incorporation of PHL Variable Insurance Company is incorporated by reference to Initial Registration Statement on Form S-6 (File No. 333-81458), filed via EDGAR on January 28, 2002. (2) By Laws of PHL Variable Insurance Company as amended and restated effective May 16, 2002, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (g) Reinsurance Contracts. Form of Reinsurance Contract is incorporated by reference to Pre-effective Amendment No 1 on Form N-6 (File No. 333-143656) filed via EDGAR on November 7, 2007. (h) Participation Agreements. (1) Amended and Restated Participation Agreement dated February 1, 2008 among PHL Variable Insurance Company, Wanger Advisors Trust, Columbia Wanger Asset Management, LLP and Columbia Management Distributors, Inc. is incorporated by reference to Post-Effective Amendment No. 8 on Form N-4 (File No. 333-123040), filed via EDGAR on April 30, 2008. (2) (a) Participation Agreement as of May 1, 2000 among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Phoenix Home Life Mutual Insurance Company and PHL Variable Insurance Company ("PHLVIC"), is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (b) Amendment to Participation Agreement as of May 1, 2000 among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Phoenix Home Life Mutual Insurance Company and PHLVIC, is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (c) Amendment to Participation Agreement as of May 3, 2004 by and among Franklin Templeton Variable Insurance Products Trust, Franklin/Templeton Distributors, Inc., Phoenix Life Insurance Company and PHLVIC is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 9, filed via EDGAR on April 26, 2006. (d) Amendment No. 3 to Participation Agreement as of May 1, 2006, by and among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributor's, Inc., Phoenix Life Insurance Company, and PHL Variable Insurance Company is incorporated by reference to Form N-6 (Fie No. 333-119916), Post-Effective Amendment No. 9, filed via EDGAR on August 14, 2006. (e) Amendment No.4 to Participation Agreement as of May 1, 2007, by and among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Phoenix Life Insurance Company, and PHL Variable Insurance Company is incorporated by reference to Pre-Effective Amendment No.1 on Form N-6 (File No.333-146301), filed via EDGAR on December 21, 2007. (3) Fund Participation Agreement dated July 15, 1999, among PHL Variable Insurance Company, Insurance Series, and Federated Securities Corp. is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (4) (a) Fund Participation Agreement dated July 19, 1999 among BT Insurance Funds Trust, Bankers Trust Company, and PHL Variable Insurance Company ("PHLVIC") is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (b) Amendment No. 1 to the Fund Participation Agreement dated April 20, 2001 among Deutsche Asset Management VIT Funds (formerly, BT Insurance Funds Trust), Bankers Trust Company and PHLVIC is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. C-2 (c) Amendment No. 2 to the Fund Participation Agreement dated October 29, 2001 among Deutsche Asset Management VIT Funds, Deutsche Asset Management, Inc. and PHLVIC is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (d) Amendment No. 3 dated February 1, 2008 to the Fund Participation Agreement dated July 19, 1999 among PHL Variable Insurance Company, DWS Investments VIT Funds (formerly, Deutsche Asset Management VIT Funds and BT Insurance Funds Trust) and Deutsche Investment Management Americas Inc. (successor by merger to Deutsche Asset Management, Inc.) is incorporated by reference to Post-Effective Amendment No. 8 on Form N-4 (File No. 333-123040), filed via EDGAR on April 30, 2008. (5) Participation Agreement dated May 1, 2006 among PHL Variable Insurance Company, The Universal Institutional Funds, Inc., Morgan Stanley Distributors, Inc., and Morgan Stanley Investment Management, Inc. is incorporated by reference to Form N-6 (File No. 333-119916), Post-Effective Amendment No. 9, filed via EDGAR on August 14, 2006. (6) Participation Agreement dated June 1, 2000 among PHL Variable Insurance Company, The Alger American Fund and Fred Alger & Company, Incorporated is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (7) Participation Agreement dated June 1, 2000 among PHL Variable Insurance Company, Variable Insurance Products Fund, II and III and Fidelity Distributors Corporation is incorporated by reference to Form S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (8) (a) Participation Agreement dated March 29, 2001 among PHL Variable Insurance Company, AIM Variable Insurance Funds, Phoenix Equity Planning Corporation and AIM Distributors, Inc. is incorporated by reference to orm S-6 (File No. 333-65823), Post-Effective Amendment No. 2, filed via EDGAR on April 30, 2002. (b) Amendment and Assignment dated as of June 6, 2007 between Variable Insurance Products Fund II ("Current Fund"), Fidelity Distributors Corporation (the "Underwriter") and PHL Variable Insurance Company (the "Company") to the Participation Agreement dated June 1, 2000, as amended, is incorporated by reference to Pre-effective Amendment No.1 to Initial Registration Statement on Form N-6 (File No.333-143656) filed via EDGAR on November7, 2007. (Note: Fidelity reorganized the following portfolios: Asset Manager Portfolio, Asset Manager: Growth Portfolio and Investment Grade Bond Portfolio into a new Variable Insurance Products Fund V. This Amendment (1)amends the Participation Agreement to delete the affected portfolios; and (2)creates a new participation agreement for Fund V by adopting the terms of the Participation Agreement and assigning each fund's rights, benefits and obligations under the Participation Agreement with respect to the corresponding portfolios of Fund V.) (9) Participation Agreement dated May 1, 2006 among PHL Variable Insurance Company, Oppenheimer Variable Account Funds and Oppenheimer Funds, Inc., is incorporated by reference to Form N-6 (File No. 333-119916), Post-Effective Amendment No. 9, filed via EDGAR on August 14, 2006. (10) Participation Agreement dated May 1, 2006 among PHL Variable insurance Company, Phoenix Life and Annuity Company, PIMCO Variable Insurance Company, and Allianz Global Investor's Distributors LLC is incorporated by reference to Form N-6 (File No. 333-119916), Post-Effective Amendment No. 9, filed via EDGAR on August 14, 2006. (11) Fund Participation Agreement dated May 1, 2006 among PHL Variable Insurance Company, Phoenix Life and Annuity Company, Neuberger Berman Advisors Management Trust and Neuberger Berman Management, Inc., is incorporated by reference to Form N-6 (File No. 333-119916), Post-Effective Amendment No. 9, filed via EDGAR on August 14, 2006. (12) Fund Participation Agreement dated April 14, 2005 among PHL Variable Insurance Company, Lord Abbett Series Fund, Inc., and Lord Abbett Distributors, LLC is incorporated by reference to Form N-6 (File No. 333-76778) Post-Effective Amendment No. 9, filed via EDGAR on April 27, 2006. (13) Fund Participation Agreement dated April 25, 2005 among PHL Variable Insurance Company, Lazard Retirement Series, Inc. and Lazard Asset Management Securities, LLC is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 9, filed via EDGAR on April 27, 2006. (14) Amended and Restated Participation Agreement dated January 1, 2007, among The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Insurance Company, and Phoenix Life and Annuity Company is incorporated by reference to Form N-4 (File No. 333-87376), Post-Effective Amendment No. 27, filed via EDGAR on February 20, 2007. C-3 (15) Participation Agreement dated May 30, 2003, among PHL Variable Insurance Company, Rydex Variable Trust and Rydex Distributors, Inc. is incorporated by reference to Form N-6 (File No. 333-76778), Post-Effective Amendment No. 5, filed via EDGAR on April 30, 2004. (16) Participation Agreement dated September 7, 2007 among PHL Variable Insurance Company, Sentinel Variable Products Trust and Sentinel Financial Services Company is incorporated by reference to Post-Effective Amendment No. 7 on Form N-4 (File No. 333-123040), filed via EDGAR on or about September 6, 2007. (17) Participation Agreement dated February 1, 2008, among PHL Variable Insurance Company, Phoenix Equity Planning Corporation, Summit Mutual Funds, Inc., and Ameritas Investment Corporation is incorporated by reference to Post-Effective Amendment No. 8 on Form N-4 (File No. 333-123040), filed via EDGAR on April 30, 2008. (i) Administrative Contracts. (1) Service Agreement between The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Insurance Company and Phoenix Life and Annuity Company dated January 1, 2003 is incorporated by reference to Post-Effective Amendment No. 5 on Form N-6 (File No. 333-81458) via EDGAR on April 30, 2004. C-4 (2) First Amendment to Service Agreement between The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Life Insurance Company and Phoenix Life and Annuity Company, dated November 11, 2003 is incorporated by reference to Post-Effective Amendment No. 5 on Form N-6 (File No. 333-81458) via EDGAR on April 30, 2004. (3) Second Amendment to Service Agreement between The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Insurance Company and Phoenix Life and Annuity Company, dated February 27, 2004 is incorporated by reference to Post-Effective Amendment No. 6 (File No. 333-76778) via EDGAR on February 9, 2005. (4) Third Amendment to Service Agreement between The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Insurance Company and Phoenix Life and Annuity Company, dated November 15, 2004 is incorporated by reference to Post-Effective Amendment No. 8 on Form N-6 (File No. 333-76778) via EDGAR on April 25, 2006. (5) Fourth Amendment to Service Agreement dated November 13, 2005 by and among The Phoenix Edge Series Fund, Phoenix Life Insurance Company, PHL Variable Insurance Company and Phoenix Life and Annuity Company, is incorporated by reference to Post-Effective Amendment No. 9 on Form N-6 (File No. 333-76778) via EDGAR on April 27, 2006. (j) Other Material Contracts. (1) Amended and Restated Administration and Accounting Services Agreement dated March 1, 2003 by and between PHL Variable Insurance Company and PFPC, INC. is incorporated by reference to Post-Effective Amendment No. 7 on Form N-4 (File No. 333-123040), filed via EDGAR on September 7, 2007. (2) Amendment dated January 1, 2005 to Amended and Restated Administration and Accounting Services Agreement between PHL Variable Insurance Company and PFPC, INC. is incorporated by reference to Post-Effective Amendment No. 7 on Form N-4 (File No. 333-123040), filed via EDGAR on September 7, 2007. (3) Information Sharing Agreements pursuant to Rule 22c-2 for the following funds: AIM Variable Insurance Funds,The Alger American Fund,DWS Funds, Federated Insurance Series,.Franklin Templeton Variable Insurance Products Trust,Lazard Retirement Series,Lord Abbett Series Fund, Inc.,Neuberger Berman Advisers Management Trust,Oppenheimer Variable Account Funds,The Rydex Trust,Wanger Advisors Trust; and, The Universal Institutional Funds are incorporated by reference to Form N-4 (File No. 033-87376), Post-Effective Amendment No. 29, filed via EDGAR on May 1, 2007. (4) Information Sharing Agreement dated as of September7, 2007, pursuant to Rule 22c-2 between Phoenix Life Insurance Company, PHL Variable Insurance Company, and Phoenix Life and Annuity Company and the Sentinel Variable Products Trust is incorporated by reference to Post-effective Amendment No.6 on Form N-4 (File No.333-123035), filed via EDGAR on September 28, 2007. (5) Information Sharing Agreement dated February 1, 2008 by and between PHL Variable Insurance Company, Phoenix Life and Annuity Company, Phoenix Life Insurance Company and Summit Mutual Funds, Inc. is incorporated by reference to Post-Effective Amendment No. 8 on Form N-4 (File No. 333-123040) filed via EDGAR on April 30, 2008. (k) Legal Opinion. Opinion and Consent of Counsel of Michele Drummey, Counsel, is filed herewith. (l) Actuarial Opinion. Not applicable. (m) Calculation. Not applicable. (n) Other Opinions. (1) Consent of Independent Registered Public Accounting Firm is filed herewith. (2) Powers of Attorney for Philip K. Polkinghorn, Director and President, James D. Wehr, Director, Peter A. Hoffman, Chief Financial Officer, David R. Pellerin, Chief Accounting Officer and Christopher M. Wilkos, C-5 Director, are incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form S-1 (File No. 333-87218) filed via EDGAR on April 25, 2008. (o) Omitted Financial Statements. Not applicable. (p) Initial Capital Agreements. Not applicable. (q) Redeemability Exemption. Not applicable. C-6 Item 27. Directors and Officers of the Depositor. Name Position ---- -------- Philip K. Polkinghorn* Director and President James D. Wehr** Director, Executive Vice President and Chief Investment Officer John H. Beers* Vice President and Secretary Peter A. Hofmann* Senior Executive Vice President and Chief Financial Officer David R. Pellerin* Senior Vice President and Chief Accounting Officer John R. Flores* Vice President and Chief Compliance Officer Daniel J. Moskey* Vice President and Treasurer Tracy L. Rich* Executive Vice President and Assistant Secretary Christopher M. Wilkos** Director, Senior Vice President and Corporate Portfolio Manager -------- * The business address of this individual is One American Row, Hartford, CT 06103-2899. ** The business address of this individual is 56 Prospect Street, Hartford, CT 06115-0480. C-7 Item 28. Persons Controlled by or Under Common Control with the Depositor or Registrant. The Phoenix Companies, Inc. (100%) Delaware Phoenix Distribution Holding Company (100%) Connecticut WS Griffith Securities, Inc. (100%) New York Phoenix Investment Management Company (100%) Connecticut Phoenix Investment Partners, Ltd. (100%) Delaware DP Holdings, Ltd. (100%) New Brunswick, Canada DPCM Holdings, Inc. (100%) Illinois Duff & Phelps Investment Management Company (100%) Illinois Goodwin Capital Advisers, Inc. (100%) New York Kayne Anderson Rudnick Investment Management, LLC (100%) California Pasadena Capital Corporation (100%) California Engemann Asset Management (100%) California Phoenix Alternative Investment Advisers, Inc. (100%) Connecticut Phoenix Equity Planning Corporation (100%) Connecticut Phoenix Investment Counsel, Inc. (100%) Massachusetts Phoenix/Zweig Advisers, LLC (100%) Delaware Euclid Advisors, LLC (100%) New York PXP Securities Corp. (100%) New York Rutherford Financial Corporation (100%) Delaware Rutherford, Brown & Catherwood, LLC (73.2%) Delaware SCM Advisors, LLC (100%) California Walnut Asset Management, LLC (70.6%) Delaware Phoenix Life Insurance Company (100%) New York Phoenix Foundation (0%) Connecticut Next Generation Ventures LLC (50%) Connecticut Phoenix Life Separate Account B (100%) New York Phoenix Life Separate Account C (100%) New York Phoenix Life Separate Account D (100%) New York Phoenix Life Variable Accumulation Account (100%) New York Phoenix Life Variable Universal Life Account (100%) New York PM Holdings, Inc. (100%) Connecticut American Phoenix Life and Reassurance Company (100%) Connecticut Phoenix Life and Reassurance Company of New York (100%) New York PFG Holdings, Inc. (100%) Pennsylvania AGL Life Insurance Company (100%) Pennsylvania PFG Distribution Company (100%) Delaware Philadelphia Financial Group, Inc. (100%) Delaware PHL Variable Insurance Company (100%) Connecticut PHL Variable Accumulation Account (100%) Connecticut PHLVIC Variable Universal Life Account (100%) Connecticut Phoenix Founders, Inc. (100%) Connecticut Phoenix International Capital Corporation (100%) Connecticut Practicare, Inc. (100%) Delaware Phoenix Life and Annuity Company (100%) Connecticut Phoenix Life and Annuity Variable Universal Life Account (100%) Connecticut Phoenix New England Trust Holding Company (100%) Connecticut Phoenix Variable Advisors, Inc. (100%) Delaware PML International Insurance Limited (100%) Bermuda The Phoenix Edge Series Fund (0%) Massachusetts business trust Phoenix National Trust Holding Company (100%) Connecticut Phoenix Life Solutions, Inc. (100%) Delaware Only companies that file consolidated financial statements with the Securities and Exchange Commission ("SEC") are The Phoenix Companies Inc. and Phoenix Life Insurance Company. In addition, PHL Variable Insurance Company and Phoenix Life and Annuity Company file individual financial statements with the SEC. For the remainder, except the separate accounts (defined as Phoenix Life Separate Account B, Phoenix Life Separate Account C, Phoenix Life Separate Account D, Phoenix Life Variable Accumulation Account, Phoenix Life Variable Universal Life Account, PHL Variable Accumulation Account, PHLVIC Variable Universal Life Account, and Phoenix Life and Annuity Variable Universal Life Account) all other entities are included in the consolidated financial statement, for The Phoenix Companies, Inc., but none file individual financial statements with the SEC. C-8 Item 29. Indemnification. Section 33-776 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 33-779, inclusive". Article VI. Indemnification. Section 6.01 of the Bylaws of the Depositor (as amended and restated, effective May 16, 2002) 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, bylaw, 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. C-9 Item 30. Principal Underwriter. Phoenix Equity Planning Corporation ("PEPCO") (a)PEPCO serves as the principal underwriter for the following entities: Phoenix Adviser Trust, Phoenix Asset Trust, Phoenix Equity Series Fund, Phoenix Equity Trust, Phoenix Institutional Mutual Funds, Phoenix Investment Series Fund, Phoenix Investment Trust 06, Phoenix Investment Trust 97, Phoenix Series Fund, Phoenix Strategic Equity Series Fund, The Phoenix Edge Series Fund, Phoenix Life Variable Accumulation Account, Phoenix Life Variable Universal Life Account, Phoenix Life and Annuity Variable Universal Life Account, PHL Variable Accumulation Account, PHL Variable Accumulation Account II, PHLVIC Variable Universal Life Account and PHL Variable Separate Account MVA1. (b)Directors and Executive Officers of PEPCO Name Position ---- -------- George R. Aylward, Jr.** Director, Executive Vice President John H. Beers* Vice President and Secretary John R. Flores* Vice President and Anti-Money Laundering Officer David Hanley** Vice President and Treasurer Stephen D. Gresham** Director, Senior Vice President David C. Martin* Vice President and Chief Compliance Officer Philip K. Polkinghorn* Director, Executive Vice President -------- * The business address of this individual is One American Row, Hartford, CT 06103-2899. (c) Net Compensation Events Name of Underwriting Occasioning the Principal Discounts and Deduction of a Brokerage Other Underwriter Commissions Deferred Saleshead Commissions Compensation ----------- ------------- ------------------- ----------- ------------ PEPCO 0 0 0 0 Item 31. Location of Accounts and Records. The accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 are maintained at the administrative offices of PHL Variable Insurance Company located at One American Row, Hartford, CT 06103-2899. Item 32. Management Services. Under a contract with Phoenix Life Insurance Company ("PLIC"), Ibbotson Associates provides certain asset allocation services, including a risk tolerance questionnaire to assist the policy owner, for use in conjunction with the policy. For these services, PLIC pays Ibbotson an annual flat fee. The fees paid for the last three fiscal years follow: Year Ended December 31, Fee Paid ----------------------- -------- 2005 $ 86,000 2006 $101,000 2007 $ 95,000 Item 33. Fee Representation. Pursuant to Section 26(f)(2)(A) of the Investment Company Act of 1940, as amended, PHL Variable Insurance Company represents that the fees and charges to be deducted under the Policies, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred and the risks to be assumed thereunder by PHL Variable Insurance Company. C-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, PHLVIC Variable Universal Life Account certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment No. 12 pursuant to Rule 485(b) under the Securities Act of 1933. The Registrant causes this Post-Effective Amendment No. 12 to Registration Statement No. 333-76778 to be signed on its behalf by the undersigned thereunto duly authorized, all in the City of Hartford and the State of Connecticut, on this 30th day of April 2008. PHL VARIABLE ACCUMULATION ACCOUNT (Registrant) By: ----------------------------- Philip K. Polkinghorn* Director and President PHL VARIABLE INSURANCE COMPANY By: ----------------------------- Philip K. Polkinghorn* Director and President By: /s/ Kathleen A. McGah ----------------------------- *Kathleen A. McGah * As Attorney-in-Fact pursuant to power of attorney As required by the Securities Act of 1933, the following persons in the capacities stated have signed this Post-Effective Amendment No.12 to Registration Statement No.333-76778 on April 30, 2008. Signature Title --------- ----- ------------------------------------ Senior Vice President and Peter A. Hofmann* Chief Financial Officer ------------------------------------ Senior Vice President and David R. Pellerin* Chief Accounting Officer ------------------------------------ Director, President Philip K. Polkinghorn* ------------------------------------ Director, Executive Vice President James D. Wehr* and Chief Investment Officer ------------------------------------ Director, Senior Vice President Christopher M. Wilkos* and Corporate Portfolio Manager /s/ Kathleen A. McGah By: ------------------------- * Kathleen A. McGah * As Attorney-in-Fact pursuant to power of attorney C-11 Exhibit Index Exhibit 26 (k) Opinion and Consent of Counsel Exhibit 26(n)(1) Consent of Independent Registered Public Accounting Firm C-12