-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJazAdnzG+T4gPqeNuLBu2QEP7/hlK26npmvv3hdZJ87kQwn7BwnJHfTrpCcEkc8 tQZkplOFbyC1CYv2l3imyQ== 0000949377-01-000029.txt : 20010209 0000949377-01-000029.hdr.sgml : 20010209 ACCESSION NUMBER: 0000949377-01-000029 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHL VARIABLE INSURANCE CO /CT/ CENTRAL INDEX KEY: 0001031223 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-55240 FILM NUMBER: 1528818 BUSINESS ADDRESS: STREET 1: C/O PHOENIX HOME LIFE MUTUAL INSURANCE C STREET 2: ONE AMERICAN ROW CITY: HARTFORD STATE: CT ZIP: 06116 BUSINESS PHONE: 8604035788 MAIL ADDRESS: STREET 1: ONE AMERICAN ROW STREET 2: C/O PHOENIX HOME LIFE MUTUAL INSURANCE C CITY: HARTFORD STATE: CT ZIP: 06116 FORMER COMPANY: FORMER CONFORMED NAME: PHL VARIABLE SEPARATE ACCOUNT MVA1 DATE OF NAME CHANGE: 19970123 S-1 1 0001.txt MVA1 As filed with the Securities and Exchange Commission on February 8, 2001 Registration No. 333-________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PHL VARIABLE INSURANCE COMPANY ---------------------------------- (Exact name of registrant as specified in its charter)
Connecticut 06-1045829 - ------------------------------- ---------------------------- ---------------------- (State or other jurisdiction of (Primary Standard Industrial (IRS Employer incorporation or organization) Classification Code Number) Identification Number)
ONE AMERICAN ROW HARTFORD, CT 06102 (800) 447-4312 ----------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DONA D. YOUNG PHL VARIABLE INSURANCE COMPANY ONE AMERICAN ROW HARTFORD, CT 06102-5056 (860) 403-5967 ----------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of the Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] Pursuant to Rule 429 under the Securities Act of 1933, the prospectus herein relates to Registration Statement Number 333-20277. ================================================================================ ----------------------------------------------------- Calculation of Registration Fee
- ---------------------------------------------------------------------------------------------------------- Title of Each Class Proposed Maximum Proposed Maximum of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of Registered Registered Unit* Price* Registration Fee** - ---------------------------------------------------------------------------------------------------------- Participating Interests in Market N/A N/A $200,000,000 $50,000 Value Adjustment Account Under Variable Annuity Contract - ----------------------------------------------------------------------------------------------------------
* The maximum aggregate offering price is estimated solely for the purpose of determining the registration fee. The amount to be registered and the proposed maximum offering price per unit are not applicable in that these contracts are not issued in predetermined amounts or units. ** Previously paid $15,151.52 to register $50,000,000 for registration statement file no. 333-20277 on January 23, 1997. ------------------------------------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. MARKET VALUE ADJUSTED GUARANTEED INTEREST ACCOUNT Issued by PHL VARIABLE INSURANCE COMPANY IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT: [envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS PO Box 8027 Boston, MA 02266-8027 [telephone] Tel. 800/541-0171 PROSPECTUS February 13, 2001 This Prospectus describes a Market Value Adjusted Guaranteed Interest Account ("MVA"). The MVA is only available for use under PHL Variable Insurance Company's variable accumulation deferred annuity contracts ("Contract"). The Contract prospectus must accompany this prospectus. You should read the Contract prospectus and keep it for future reference. The Securities and Exchange Commission ("SEC") has not approved or disapproved these securities, nor has the Commission determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. 1 TABLE OF CONTENTS Heading Page - -------------------------------------------------------------- SPECIAL TERMS................................................3 PRODUCT DESCRIPTION..........................................3 The Nature of the Contract and the MVA....................3 Availability of the MVA...................................3 The MVA...................................................4 Market Value Adjustment...................................4 Setting the Guaranteed Rate...............................5 Deduction of Surrender Charges on Withdrawals.............5 INVESTMENTS BY PHL VARIABLE..................................5 DISTRIBUTION OF CONTRACTS....................................6 FEDERAL INCOME TAXATION DISCUSSION...........................6 ACCOUNTING PRACTICES.........................................6 DESCRIPTION OF PHL VARIABLE .................................6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION........................7 Executive Compensation....................................8 DIRECTORS AND OFFICERS OF PHL VARIABLE.......................9 EXPERTS......................................................9 LEGAL PROCEEDINGS............................................9 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Any document that is incorporated by reference is subject to change from time to time. When referring to such document you should be sure it is the latest version. Documents that have been incorporated by reference are part of the Prospectus. We will furnish a copy of this prospectus and the Contract prospectus free of charge. Also, we will furnish free of charge any statements or documents incorporated by reference when requested. Requests should be made by calling Variable Annuity Operations ("VAO") at 800/541-0171. 2 SPECIAL TERMS - -------------------------------------------------------------------------------- As used in this Prospectus, the following terms mean: ACCOUNT: PHL Variable Accumulation Account, a separate account of PHL Variable Insurance Company (see "The Nature of the Contract and the MVA" for a description of this Account). CONTRACT VALUE: Prior to maturity, the sum of the values under a Contract of all accumulation units held in the Subaccounts of the Account plus the values held in the Guaranteed Interest Account and in the MVA. CURRENT RATE: The Guaranteed Rate currently in effect for amounts allocated to the MVA, established from time to time for various Guarantee Periods. DEATH BENEFIT: An amount payable upon the death of the Annuitant or Owner, as applicable, to the named beneficiary. EXPIRATION DATE: The date on which the Guarantee Period ends. GUARANTEE PERIOD: The duration for which interest accrues at the Guaranteed Rate on amounts allocated to the MVA. GIA (GUARANTEED INTEREST ACCOUNT): An allocation option under which premium amounts are guaranteed to earn a fixed rate of interest. Excess interest also may be credited, in the sole discretion of PHL Variable. GUARANTEED RATE: The effective annual interest rate we use to accrue interest on amounts allocated to the MVA for a Guarantee Period. Guaranteed Rates are fixed at the time an amount is credited to the MVA and remain constant throughout the Guarantee Period. MVA (MARKET VALUE ADJUSTED GUARANTEED INTEREST ACCOUNT): This is an account that pays interest at a Guaranteed Rate if held to the end of the Guarantee Period. If such amounts are withdrawn, transferred or applied to an annuity option before the end of the Guarantee Period, a Market Value Adjustment will be made. Assets allocated to the MVA are not part of the assets allocated to the Account or our general account. MARKET VALUE ADJUSTMENT: An adjustment is made to the amount that a Contract Owner receives if money is withdrawn, transferred or applied to an annuity option from the MVA before the Expiration Date of the Guarantee Period. PHL VARIABLE (COMPANY, WE, US, OUR): PHL Variable Insurance Company. PRODUCT DESCRIPTION - -------------------------------------------------------------------------------- THE NATURE OF THE CONTRACT AND THE MVA The investment option described in this Prospectus is an MVA available only under the variable accumulation deferred annuity contracts offered by PHL Variable. The Contract is described in detail in its own prospectus. You should review the Contract prospectus along with this Prospectus before deciding to allocate purchase payments to the MVA. [diamond] The MVA currently provides four choices of interest rate Guarantee Periods: o 3 years o 5 years o 7 years o 10 years [diamond] Purchase payments can be allocated to one or more of the available MVA Guarantee Period options. Allocations may be made at the time you make a payment or you may transfer amounts held in the Subaccounts of the PHL Variable Accumulation Account (the "Account"), the GIA or other available MVA Guarantee Periods. Generally, amounts allocated to MVA options must be for at least $1,000. We reserve the right to limit cumulative amounts allocated to the MVA during any one-week period to not more than $250,000. [diamond] Amounts may be transferred to or from the MVA according to the transfer rules under the Contract. You may make up to six transfers per year from the MVA. (See "The Accumulation Period -- Transfers" of the Contract prospectus.) [diamond] Allocations that remain in the MVA until the applicable Expiration Date will be equal to the amount originally allocated, multiplied by its Guaranteed Rate which is compounded on an annual basis. [diamond] A Market Value Adjustment will be made if amounts are withdrawn, transferred or applied to an annuity option from the MVA before the Expiration Date. (See "The MVA.") [diamond] The Contract provides for the accumulation of values before maturity and for the payment of annuity benefits thereafter. Since MVA values are part of the Contract Value, your earnings on allocations to the MVA will impact the values available at surrender or maturity. No Market Value Adjustment will be applied to withdrawals to pay Death Benefit proceeds. [diamond] We may offer additional Guarantee Periods to certain individuals or groups of individuals who meet certain minimum premium criteria. AVAILABILITY OF THE MVA The MVA is not available in all states. For information, call VAO at 800/541-0171. 3 THE MVA The MVA is available only during the accumulation phase of your Contract. The MVA option currently offers different Guarantee Periods, which provide you with the ability to earn interest at different Guaranteed Rates on all or part of your Contract Value. Each allocation has its own Guaranteed Rate and Expiration Date. Because we change Guaranteed Rates periodically, amounts allocated to a Guarantee Period at different times will have different Guaranteed Rates and Expiration Dates. The applicable Guaranteed Rate, however, does not change during the Guarantee Period. We will notify you of the expiration of the Guarantee Period and of your available options within 30 days of the Expiration Date. You will have 15 days before and 15 days following the Expiration Date ("Window Period") to notify us of your election. During this Window Period, any withdrawals or transfers from the MVA will not be subject to a market value adjustment. Unless you elect to transfer funds to a different Guarantee Period, to the Subaccounts of the Account, to the GIA or elect to withdraw funds, we will begin another Guarantee Period of the same duration as the one just ended and credit interest at the current rate for that new Guarantee Period. If you chose a Guarantee Period that is no longer available or if your original Guarantee Period is no longer available, we will use the Guarantee Period with the next longest duration. We reserve the right, at any time, to discontinue Guarantee Periods or to offer Guarantee Periods that differ from those available at the time your Contract was issued. Since Guarantee Periods may change, please contact VAO to determine the current Guarantee Periods being offered. MARKET VALUE ADJUSTMENT Any withdrawal from the MVA will be subject to a Market Value Adjustment unless the effective date of the withdrawal is within the Window Period. For this purpose, redemptions, transfers and amounts applied to an annuity option under a contract are treated as withdrawals. The Market Value Adjustment will be applied to the amount being withdrawn after the deduction of any applicable Administrative Charge and before the deduction of any applicable contingent deferred sales charges (surrender charges). See the Contract prospectus for a description of these charges. The Market Value Adjustment can be positive or negative. The amount being withdrawn after application of the Market Value Adjustment can be greater than or less than the amount withdrawn before the application of the Market Value Adjustment. A Market Value Adjustment will not be applied upon the payment of the Death Benefit. The Market Value Adjustment will reflect the relationship between the Current Rate (defined below) for the amount being withdrawn and the Guaranteed Rate. It is also reflective of the time remaining in the applicable Guarantee Period. Generally, if the Guaranteed Rate is equal to or lower than the applicable Current Rate, the Market Value Adjustment will result in a lower payment upon withdrawal. Conversely, if the Guaranteed Rate is higher than the applicable Current Rate, the Market Value Adjustment will produce a higher payment upon withdrawal. The Market Value Adjustment which is applied to the amount being withdrawn is determined by using the following formula: Market Value Adjustment 1 + i n/12 = Amount x [[---------------] -1] 1 + j + 0.0025 where, Amount, is the amount being withdrawn less any applicable administrative charges. i, is the Guaranteed Rate being credited to the amount being withdrawn; and j, is the Current Rate, which is the current interest rate for new deposits with a Guarantee Period equal to the number of years remaining in the current Guarantee Period, rounded up to the next higher number of complete years; and n, is the number of months rounded up to the next whole number from the date of the withdrawal or transfer to the end of the current Guarantee Period. If the Company does not offer a Guarantee Period equal to the number of years remaining in the Guarantee Period, "j" will be determined by interpolation of the Guaranteed Rate for the Guarantee Periods then available. EXAMPLES The following examples illustrate how the Market Value Adjustment operates: EXAMPLE 1 $10,000 is deposited on January 1, 1997, into an MVA with a 5-year Guarantee Period. The Guaranteed Rate for this deposit amount is 5.50%. If, on January 1, 1999 (2 years after deposit), the full amount is taken from this MVA segment, the following amount is available: 1. The accumulated amount prior to application of Market Value Adjustment is: $10,000 x (1.055)(2) = $11,130.25 2. The Current Rate that would be applied on January 1, 1999 to amounts credited to a 3-year MVA segment is 6.50%. 3. The number of months remaining in the Guarantee Period (rounded up to next whole number) is 36. 4. The Market Value Adjustment equals $-386.43, and is calculated as follows: 4 1 + 0.055 36/12 $-386.43 = $11,130.25 x [[------------------] -1] 1 + 0.065 + 0.0025 The market value for the purposes of surrender on January 1, 1999 is therefore equal to $10,743.82 ($11,130.25 - $386.43). EXAMPLE 2 $10,000 is deposited on January 1, 1997, into an MVA with a 5-year Guarantee Period. The Guaranteed Rate for this amount is 5.50%. If, on January 1, 1999 (2 years from deposit), the full amount is taken from this MVA segment, the following amount is available: 1. The accumulated amount prior to application of Market Value Adjustment is: $10,000 x (1.055)(2) = $11,130.25 2. The Current Rate being applied on January 1, 1999 to amounts credited to a 3-year MVA segment is 4.50%. 3. The number of months remaining in the Guarantee Period (rounded up to next whole number) is 36. 4. The Market Value Adjustment equals $240.79, and is calculated as follows: 1 + 0.055 36/12 $+240.79 = $11,130.25 x [[------------------] -1] 1 + 0.045 + 0.0025 The market value for the purposes of surrender on January 1, 1999 is therefore equal to $11,371.04 ($11,130.25 + $240.79). THE ABOVE EXAMPLES ARE HYPOTHETICAL AND ARE NOT INDICATIVE OF FUTURE OR PAST PERFORMANCE. SETTING THE GUARANTEED RATE We determine Guaranteed Rates for current and future purchase payments, transfers or renewals. Although future Guaranteed Rates cannot be predicted, we guarantee that the Guaranteed Rate will never be less than 3% per annum. DEDUCTION OF SURRENDER CHARGES ON WITHDRAWALS A Market Value Adjustment will apply if a withdrawal is made before the Expiration Date and outside the Window Period as described above. As described in the Contract prospectus, you may withdraw up to 10% of the Contract Value without a surrender charge being applied. Surrender charges (expressed as a percentage) on the amount to be withdrawn in excess of the 10% allowable amount, are as follows: AGE OF PAYMENT IN COMPLETE YEARS FROM PAYMENT DATE UNTIL SURRENDER CHARGE AS A WITHDRAWAL WAS CREDITED PERCENTAGE OF AMOUNT WITHDRAWN ----------------------- ------------------------------ 0 7% 1 6% 2 5% 3 4% 4 3% 5 2% 6 1% 7 and over 0% We make this adjustment since we do not take any sales charge deductions when a purchase payment is made. The surrender charge is computed based on the date that the particular payment is received into the Contract. Purchase payments that remain on deposit for 7 complete years are not subject to surrender charges. However, all amounts allocated to the MVA continue to be subject to a Market Value Adjustment and the Market Value Adjustment remains applicable to amounts withdrawn free of surrender charges. For more information regarding the application of sales charges, please consult the Contract prospectus. Please note that other charges also are imposed against the Contract, including mortality and expense risk and administrative charges. For a more detailed explanation of any surrender charge applicable to your Contract and of other applicable charges, please see the "Deductions and Charges" section of the Contract prospectus. INVESTMENTS BY PHL VARIABLE - -------------------------------------------------------------------------------- Proceeds from purchases of the MVA option will be deposited into the PHL Variable Separate Account MVA1 ("Separate Account MVA1"), which is a non-unitized separate account established under Connecticut law. Contract Values attributable to such proceeds are based on the interest rate we credit to MVA allocations and terms of the Contract, and do not depend on the investment performance of the assets in Separate Account MVA1. Under Connecticut law, all income, gains or losses of Separate Account MVA1 whether realized or not, must be credited to or charged against the amounts placed in Separate Account MVA1 without regard to our other income, gains and losses. The assets of the Separate Account may not be charged with liabilities arising out of any other business that we may conduct. Obligations under the Contracts are obligations of PHL Variable. There are no discreet units in Separate Account MVA1. No party with rights under any Contract participates in the investment gain or loss from assets belonging to Separate Account MVA1. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account MVA1 may drop below the reserves and other liabilities it must maintain. If the Separate Account MVA1 asset value drops below the reserve and other liabilities we must maintain in relation to the Contracts supported by such assets, we will transfer assets from our general account 5 to Separate Account MVA1. Conversely, if the amount we maintain is too much, we may transfer the excess to our general account. In establishing Guaranteed Rates, we intend to take into account the yields available on the instruments in which we intend to invest the proceeds from the Contracts. The Company's investment strategy with respect to the proceeds attributable to the Contracts generally will be to invest in investment-grade debt instruments having durations tending to match the applicable Guarantee Periods. Investment-grade debt instruments in which the Company intends to invest the proceeds from the Contracts include: [diamond] Securities issued by the United States government or its agencies or instrumentalities. [diamond] Debt securities which have a rating, at the time of purchase, within the four highest grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Bb), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating service. [diamond] Other debt instruments, although not rated by Moody's or Standard & Poor's, are deemed by the Company's management to have an investment quality comparable to securities described above. While the above generally describes our investment strategy with respect to the proceeds attributable to the Contracts, we are not obligated to invest the proceeds according to any particular strategy, except as may be required by Connecticut and other state insurance law. DISTRIBUTION OF CONTRACTS - -------------------------------------------------------------------------------- Phoenix Equity Planning Corporation ("PEPCO") acts as the principal underwriter of the Contracts. Contracts may be purchased through representatives of W.S. Griffith & Company ("W.S.G.") licensed to sell PHL Variable Annuity Contracts. PEPCO and W.S.G. are registered as broker-dealers under the Securities Exchange Act of 1934 and are members of the National Association of Securities Dealers, Inc. (the "NASD"). PHL Variable, PEPCO and W.S.G. are wholly-owned indirect subsidiaries of Phoenix Home Life Mutual Insurance Company ("Phoenix"). PEPCO enters into selling agreements with other broker-dealers or entities registered under or exempt under the Securities Act of 1934 ("selling brokers"). The Contracts are sold through agents who are licensed by state insurance officials to sell the Contracts. These agents also are registered representatives of selling brokers or W.S.G. Contracts with the MVA option are offered in states where we have received authority and the MVA and the Contracts have been approved. The maximum dealer concession that a selling broker will receive for selling a Contract is 7.25%. FEDERAL INCOME TAXATION DISCUSSION - -------------------------------------------------------------------------------- Please refer to "Federal Income Taxes" in the Contract prospectus for a discussion of the income tax status of the Contract. ACCOUNTING PRACTICES - -------------------------------------------------------------------------------- The information presented below should be read with the audited financial statements of PHL Variable and other information included elsewhere in this Prospectus. The financial statements and other financial information included in this Prospectus have been prepared in conformity with accounting principles generally accepted in the United States. DESCRIPTION OF PHL VARIABLE - -------------------------------------------------------------------------------- THE COMPANY We are a life insurance company and an indirect wholly-owned subsidiary of Phoenix. Phoenix purchased the Company (formerly known as Dreyfuss Consumers Life) and its name was changed accordingly in 1994. We are domiciled in the state of Connecticut. Phoenix and its subsidiaries (the "Phoenix Group") offer a wide range of insurance and investment products and services including: [diamond] individual participating life insurance [diamond] variable life insurance [diamond] investment advisory services [diamond] mutual fund distribution services We serve as the variable annuity operation for the Phoenix Group and as of the date of this prospectus, we offer individual deferred variable annuities that are registered with the SEC, single life flexible premium and survivorship universal life insurance and 10-year and 20-year guaranteed level term life insurance. Our home office is located at One American Row, Hartford, Connecticut. Our principal administrative office is located at 101 Munson Street, Greenfield, Massachusetts. Phoenix provides all administrative and operational services for the Phoenix Group. SELECTED FINANCIAL DATA The following selected financial data was taken from the financial statements which can be found at the end of this prospectus. You should read the financial statements including the notes. 6 The following table reflects the results of our operations for the years ended December 31, 1999, 1998, and 1997 and for the nine months ended September 30, 2000: FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 1999 1998 1997 30, 2000 ---- ---- ---- ----------- (in thousands) Revenues: Premiums $ 9,838 $ 6,280 $ 230 $ 3,057 Insurance and investment product fees 20,948 10,998 5,050 22,805 Net investment income 3,891 2,458 1,543 5,966 Net realized investment gains 7 40 -- (42) ---------- --------- --------- ----------- Total revenues 34,684 19,776 6,823 31,786 ---------- --------- --------- ----------- Benefits and expenses: Policy benefits and increase in policy liabilities 9,248 3,964 1,092 15,145 Amortization of deferred policy acquisition costs 5,126 4,006 1,310 6,766 Other operating expenses 11,081 5,359 2,915 5,435 ---------- --------- --------- ----------- Total benefits and expenses 25,455 13,329 5,317 27,346 ---------- --------- --------- ----------- Income before income taxes 9,229 6,447 1,506 4,440 Income taxes 3,230 2,257 553 1,553 ---------- --------- --------- ----------- Net income $ 5,999 $ 4,190 $ 953 $ 2,887 ========== ========= ========= =========== MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - -------------------------------------------------------------------------------- RESULTS OF OPERATION NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 Premiums, net of reinsurance ceded, were $3.1 million for the nine months ended September 30, 2000, a decrease of $.9 million, or 23%, from $4.0 million for the comparable period in 1999. This decrease is primarily a result of shifting our reinsurance treaties from yearly renewable term to coinsurance, which increased the amount of reinsurance premium relative to our direct business. Gross premiums were $14.1 million for the nine months ended September 30, 2000, an increase of $6.6 million, or 88%, from $7.5 million, for the comparable period in 1999 due to increased sales of the term insurance product. Insurance and investment product fees were $22.8 million for the nine months ended September 30, 2000, an increase of $8.0 million, or 54%, from $14.8 million for the comparable period in 1999. The growth of insurance and investment product fees is attributable to variable annuity products, which increased $6.4 million, due to higher fund balances from increased sales. Funds under management increased from $1.0 billion in September 30, 1999 to $1.5 billion in September 30, 2000. Variable annuity deposits were $282.1 million for the nine months ended September 30, 2000, a 71% increase from the comparable period in 1999. Net investment income was $6.0 million, for the nine months ended September 30, 2000, an increase of $3.4 million, or 131%, from $2.6 million for the comparable period in 1999. This increase was primarily the result of higher average invested assets supporting a growing business. In addition, on October 1, 1999, a dollar cost averaging program commenced which resulted in new sales and increased assets in the general account. Policy benefits and increase in policy liabilities were $15.1 million for the nine months ended September 30, 2000, an increase of $12.9 million, from $2.2 million for the comparable period in 1999. Policy liabilities on the universal life and term life insurance products increased by $7.9 million due to the growth in business. In addition, there was a $5.0 million increase in the amount of interest credited on the variable annuity guaranteed interest account balances and a $1.6 million increase in bonus annuity payments. The amortization of deferred policy acquisition costs was $6.8 million for the nine months ended September 30, 2000, an increase of $2.4 million, or 54%, from $4.4 million for the comparable period in 1999, due to higher sales volume of term, universal life and variable annuity products. Other operating expenses were $5.4 million for the nine months ended September 30, 2000, an increase of $1.1 million, or 26%, from $4.3 million for the comparable period in 1999. This increase is primarily related to the increase in sales of our term, universal life and variable annuity products. RESULTS OF OPERATION YEAR ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998 Premiums were $9.8 million in 1999, an increase of $3.5 million, or 56%, from $6.3 million in 1998, due to increased sales of the term insurance product. Insurance and investment product fees were $20.9 million in 1999, an increase of 9.9 million, or 90%, from $11.0 million in 1998. The growth in insurance and investment product fees is attributable to variable annuity products, which increased $8.6 million, due to higher fund balances from increased sales. Fees were earned on average funds under management of approximately $1,020.2 million in 1999 compared with $613.0 million in 1998. In addition, fees earned on the universal life product increased $1.6 million from $0.1 million in 1998. This universal life product was introduced during 1998. Net investment income was $3.9 million in 1999, an increase of $1.4 million, or 56%, from $2.5 million in 1998. This increase was primarily the result of higher average invested assets. 7 Policy benefits and increase in policy liabilities were $9.2 million in 1999, an increase of $5.2 million, or 130%, from $4.0 million in 1998. Policy liabilities on the universal life and term life insurance products increased due to the growth in business and the cost of reinsurance on the growing block of variable annuity business increased to $1.0 million from $0.6 million in 1998. In addition, interest credited on guaranteed interest accounts on variable annuity contracts increased as guaranteed interest account balances rose to $64.2 million in 1999 from $39.7 million in 1998. The amortization of deferred policy acquisition costs was $5.1 million in 1999, an increase of $1.1 million, or 28%, from $4.0 million in 1998 due primarily to higher sales volume of the term insurance and universal life products and the continuing new deposits on the variable annuity products. Other operating expenses were $11.1 million in 1999, an increase of $5.7 million, or 106%, from $5.4 million in 1998, due to the increase in sales of the term insurance, universal life and variable annuity products. YEAR ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997 Premiums were $6.3 million in 1998, an increase of $6.1 million, from $0.2 million in 1997. This increase is a result of increased sales of the term insurance product, which was introduced during 1997. Insurance and investment product fees were $11.0 million in 1998, an increase of $5.9 million, or 116%, from $5.1 million in 1997. The growth in insurance and investment product fees is attributable to variable annuity products, which increased $14.4 million, due to higher fund balances from increased sales. Fees were earned on average funds under management of approximately $613.0 million in 1998 compared with $287.0 million in 1997. Net investment income was $2.5 million in 1998, an increase of $1.0 million, or 67%, from $1.5 million in 1997. This increase is primarily the result of higher average invested assets. Policy benefits and increase in policy liabilities were $4.0 million in 1998, an increase of $2.9 million, from $1.1 million in 1997. Policy liabilities on the term insurance product increased due to the growth in business and the cost of reinsurance on the growing block of variable annuity business increased to $0.6 million in 1998 from $0.3 million in 1997. In addition, interest credited on guaranteed interest accounts on variable annuity contracts increased due to the growth in guaranteed interest account balances. The amortization of deferred policy acquisition costs was $4.0 million in 1998, an increase of $2.7 million, from $1.3 million in 1997 due primarily to higher sales volume of the term insurance product and the continuing new deposits on the variable annuity products. Other operating expenses were $5.4 million in 1998, an increase of $2.5 million, or 86%, from $2.9 million in 1997, due to the increase in sales of the term insurance and variable annuity products. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements are met by anticipating and managing the timing of cash uses and sources provided from insurance operations, investing activities and capital contributions from the parent. The growth in sales has created a need for additional cash in order to cover the acquisition costs incurred in operating activities. These liquidity requirements are currently being met through investing activities and by capital contributed by its parent. P.M. Holdings has made capital contributions of $29 million in 1999, $17 million in 1998 and $5 million in 1997. SEGMENT INFORMATION As of the date of this Prospectus, the Company offers deferred variable and fixed interest rate annuities as well as two life insurance products. The life products include 10-year and 20-year guaranteed level term products and a single life flexible premium product is being added. REINSURANCE The Company has entered into a reinsurance agreement related to the death benefit on its variable deferred annuities. This agreement transfers the payment obligation for the death benefit on variable deferred annuities to the reinsurer in exchange for a reinsurance premium. In addition, other reinsurance agreements are in place for the term and universal life insurance products. These agreements transfer 90% of the life insurance benefit payment obligation to various reinsurers in exchange for a reinsurance premium. The ceding of death benefit payments does not discharge the original insurer from its primary liability to the policyholder. The original insurer would remain liable in those situations where the reinsurer is unable to meet the obligations assumed under the reinsurance agreements. The Phoenix Group has established strict standards that govern the placement of reinsurance and monitors ceded insurance security. COMPETITION The Company is engaged in a business that is highly competitive due to the large number of insurance companies and other entities competing in the marketing and sale of insurance and annuity products. There are approximately 2,300 stock, mutual and other types of insurers in the life insurance business in the United States. EMPLOYEES Phoenix employees perform all management and administrative functions. PHL Variable is charged for such services on a time allocation basis. 8 REGULATION PHL Variable is organized as a Connecticut stock life insurance company, and is subject to Connecticut law governing insurance companies. The Company is regulated and supervised by the Connecticut Commissioner of Insurance. By March 1st of every year, an annual statement must be prepared and filed in a form prescribed by the Connecticut Insurance Department. This annual statement reports on the Company's operating results for the preceding calendar year. A statement of financial condition as of December 31st of the preceding calendar year must also be prepared and filed. The Commissioner and his or her agents have the right at all times to review or examine the Company's books and records. A full examination of the Company's operations will be conducted periodically according to the rules and practices of the National Association of Insurance Commissioners ("NAIC"). PHL Variable is subject to the insurance laws and various federal and state securities laws and regulations and to regulatory agencies, such as the SEC and the Connecticut Banking Department, which administer those laws and regulations. PHL Variable can be assessed, up to prescribed limits, policyholder losses incurred by insolvent insurers under the insurance guaranty fund laws of most states. The amount of any such future assessments cannot be predicted or estimated. However, the insurance guaranty laws of most states provide for deferring payment or exempting a company from paying such an assessment if it would threaten such insurer's financial strength. Several states, including Connecticut, regulate insurers and their affiliates under insurance holding company laws and regulations. Such regulation is applicable to PHL Variable and its affiliates. Under such laws, intercompany transactions, such as dividend payments to parent companies and transfers of assets, may be subject to prior notice and approval, depending on factors such as the size of the transaction in relation to the financial position of the companies. Currently, the federal government does not directly regulate the business of insurance. However, federal legislative, regulatory and judicial decisions and initiatives often have significant effects on our business. Types of changes that are most likely to affect our business include changes to: (a) the taxation of life insurance companies; (b) the tax treatment of insurance products; (c) the securities laws, particularly as they relate to insurance and annuity products; (d) the "business of insurance" exemption from many of the provisions of the antitrust laws; and (e) any initiatives directed toward improving the solvency of insurance companies. PHL Variable would also be affected by federal initiatives that have impact on the ownership of, or investment in, United States companies by foreign companies or investors. EXECUTIVE COMPENSATION All of the executive officers of PHL Variable also serve as officers of Phoenix and receive no direct compensation from PHL Variable. Allocations have been made as to the officers' time devoted to duties as executive officers of PHL Variable. No officer or Director of PHL Variable received allocated compensation in excess of $100,000. DIRECTORS AND OFFICERS OF PHL VARIABLE - -------------------------------------------------------------------------------- NAME POSITION WITH REGISTRANT Carl T. Chadburn Director Robert W. Fiondella Director and Chairman Michael J. Gilotti Executive Vice President Joseph E. Kelleher Director and Senior Vice President Robert G. Lautensack, Jr. Senior Vice President Philip R. McLoughlin Director, Executive Vice President and Chief Investment Officer David W. Searfoss Director, Executive Vice President and Chief Financial Officer Simon Y. Tan Director and President Dona D. Young Director and Executive Vice President EXPERTS - -------------------------------------------------------------------------------- The financial statements of PHL Variable Insurance Company as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999, included herein, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. Susan E. Schechter, Counsel, Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut has passed upon legal matters relating to the validity of the securities being issued. Ms. Schechter also has provided advice on certain matters relating to federal securities and income tax laws about the Contracts. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- PHL Variable, the Account and PEPCO are not parties to any litigation that would have a material adverse effect upon the Account or the Contracts. 9 Index to Financial Statements PAGE Report of Independent Accountants ...........................................11 Balance Sheet at December 31, 1999 and 1998 .................................12 Statement of Income, Comprehensive Income and Equity for the Years Ended December 31, 1999, 1998 and 1997 ...........................................13 Statement of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 ...........................................14 Notes to Financial Statements ...........................................15-27 Unaudited Interim Condensed Balance Sheet at September 30, 2000 ............28 Unaudited Interim Condensed Statement of Income, Comprehensive Income and Equity for the Nine Months Ended September 30, 2000 and 1999 .........29 Unaudited Interim Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 ......................................30 Notes to Unaudited Interim Condensed Financial Statements ...............31-32 10 [logo] PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP 100 Pearl Street Hartford CT 06103-4508 Telephone(860) 241 7000 Facsimile(860) 241 7590 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of PHL Variable Insurance Company In our opinion, the accompanying balance sheet and the related statements of income, comprehensive income and equity and cash flows present fairly, in all material respects, the financial position of PHL Variable Insurance Company at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP February 15, 2000 11 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) BALANCE SHEET - --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 (IN THOUSANDS) ASSETS Investments Held-to-maturity debt securities, at amortized cost $ 10,298 $ 3,840 Available-for-sale debt securities, at fair value 55,840 36,480 Policy loans 522 249 Other invested assets 1,052 1,064 ----------- --------- Total investments 67,712 41,633 Cash and cash equivalents 23,039 7,320 Accrued investment income 786 511 Deferred policy acquisition costs 61,806 36,686 Deferred income taxes 2,178 Deferred and uncollected premiums 6,300 1,872 Other assets 4,394 1,860 Goodwill 451 553 Separate account assets 1,257,947 782,496 ----------- --------- Total assets $ 1,422,435 $ 875,109 =========== ========= LIABILITIES Policyholder deposit funds $ 64,230 $ 39,690 Policy liabilities and accruals 13,910 2,736 Deferred income taxes 209 Other liabilities 7,950 6,077 Separate account liabilities 1,257,947 782,496 ----------- --------- Total liabilities 1,344,246 830,999 ----------- --------- EQUITY Common stock, $5,000 par value (1,000 shares authorized, 500 shares issued and outstanding) 2,500 2,500 Additional paid-in capital 64,864 35,864 Retained earnings 11,538 5,539 Accumulated other comprehensive (loss) income (713) 207 ----------- --------- Total equity 78,189 44,110 ----------- --------- Total liabilities and equity $ 1,422,435 $ 875,109 =========== =========
The accompanying notes are an integral part of these statements. 12 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 (IN THOUSANDS) REVENUES Premiums $ 9,838 $ 6,280 $ 230 Insurance and investment product fees 20,948 10,998 5,050 Net investment income 3,891 2,458 1,543 Net realized investment gains 7 40 -- ---------- ----------- --------- Total revenues 34,684 19,776 6,823 ---------- ----------- --------- BENEFITS AND EXPENSES Policy benefits and increase in policy liabilities 9,248 3,964 1,092 Amortization of deferred policy acquisition costs 5,126 4,006 1,310 Other operating expenses 11,081 5,359 2,915 ---------- ----------- --------- Total benefits and expenses 25,455 13,329 5,317 ---------- ----------- --------- INCOME BEFORE INCOME TAXES 9,229 6,447 1,506 Income taxes 3,230 2,257 553 ---------- ----------- --------- NET INCOME 5,999 4,190 953 ---------- ----------- --------- OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES Unrealized (losses) gains on securities (913) 166 37 Reclassification adjustment for net realized losses included in net income (7) (40) -- ---------- ----------- --------- Total other comprehensive (loss) income (920) 126 37 ---------- ----------- --------- COMPREHENSIVE INCOME 5,079 4,316 990 Capital contributions 29,000 17,000 5,000 ---------- ----------- --------- NET INCREASE IN EQUITY 34,079 21,316 5,990 EQUITY, BEGINNING OF YEAR 44,110 22,794 16,804 ---------- ----------- --------- EQUITY, END OF YEAR $ 78,189 $ 44,110 $ 22,794 ========= =========== =========
The accompanying notes are an integral part of these statements. 13 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,999 $ 4,190 $ 953 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATIONS: Net realized investment gains (7) (40) -- Amortization 102 107 96 Deferred income taxes 2,883 (987) (916) Increase in accrued investment income (275) (254) (49) Increase in deferred policy acquisition costs (24,137) (15,815) (11,453) Change in other assets/liabilities 6,085 1,881 (973) Other operating activities, net -- -- (209) ---------- --------- --------- Net cash used for operating activities (9,350) (10,918) (12,551) ---------- --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from sales, maturities or repayments of available-for-sale debt securities 11,664 14,133 4,665 Proceeds from maturities or repayments of held-to-maturity debt securities 623 634 212 Purchase of available-for-sale debt securities (33,397) (28,360) (11,003) Purchase of held-to-maturity debt securities (7,000) (1,216) (1,529) Increase in policy loans (273) (249) -- Investment in separate accounts -- -- (1,000) Other investing activities, net (88) (177) -- ---------- --------- --------- Net cash used for investing activities (28,471) (15,235) (8,655) ---------- --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 29,000 17,000 5,000 Increase in policyholder deposit funds, net of interest credited 24,540 14,759 16,098 ---------- --------- --------- Net cash provided by financing activities 53,540 31,759 21,098 ---------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 15,719 5,606 (108) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,320 1,714 1,822 ---------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 23,039 $ 7,320 $ 1,714 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid, net $ 3,338 $ 1,711 $ 2,044
The accompanying notes are an integral part of these statements. 14 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS PHL Variable Insurance Company (PHL Variable) offers variable annuity and non-participating life insurance products in the United States. PHL Variable is a wholly-owned subsidiary of PM Holdings, Inc. PM Holdings is a wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company (Phoenix). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates used in determining insurance and contractholder liabilities, related reinsurance recoverables, income taxes and valuation allowances for investment assets are discussed throughout the Notes to Financial Statements. Certain reclassifications have been made to the 1998 and 1997 amounts to conform with the 1999 presentation. VALUATION OF INVESTMENTS Investments in debt securities include bonds, mortgage-backed and asset-backed securities. PHL Variable classifies its debt securities as either held-to-maturity or available-for-sale investments. Debt securities held-to-maturity consist of private placement bonds reported at amortized cost, net of impairments, that management intends and has the ability to hold until maturity. Debt securities available-for-sale are reported at fair value with unrealized gains or losses included in equity and consist of public bonds that management may not hold until maturity. Debt securities are considered impaired when a decline in value is considered to be other than temporary. Short-term investments are carried at amortized cost, which approximates fair value. Realized investment gains and losses, other than those related to separate accounts for which PHL Variable does not bear the investment risk, are determined by the specific identification method and reported as a component of revenue. A realized investment loss is recorded when an investment valuation reserve is determined. Valuation reserves are netted against the asset categories to which they apply and changes in the valuation reserves are included in realized investment gains and losses. Unrealized investment gains and losses on debt securities classified as available-for-sale are included as a component of equity, net of deferred income taxes and the assumed impact of net unrealized investment gains and losses on the amortization of deferred policy acquisition costs related to investment contracts. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash on hand and money market instruments. 15 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new business, principally commissions, underwriting, distribution and policy issue expenses, all of which vary with and are primarily related to the production of new business, are deferred. Deferred policy acquisition costs are subject to recoverability testing at the time of policy issue and loss recognition at the end of each accounting period. For universal life insurance policies, limited pay and investment type contracts, deferred policy acquisition costs are amortized in proportion to total estimated gross profits over the expected life of the contracts using estimated gross margins arising principally from investment, mortality and expense margins and surrender charges based on historical and anticipated experience, updated at the end of each accounting period. GOODWILL Goodwill represents the excess of the cost of business acquired over the fair value of their net assets. These costs are amortized on a straight-line basis over a period of 10 years, the expected period of benefit from the acquisition. The propriety of the carrying value of goodwill is periodically reevaluated in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets to be Disposed Of," by comparing estimates of future undiscounted cash flows to the carrying value of assets. Assets are considered impaired if the carrying value exceeds the expected future undiscounted cash flows. Analyses are performed at least annually, or more frequently if warranted by events and circumstances affecting PHL Variable's business. SEPARATE ACCOUNTS Separate account assets and liabilities are funds maintained in accounts to meet specific investment objectives of contractholders who can either choose to bear the full investment risk or can choose guaranteed investment earnings subject to certain conditions. For contractholders who bear the investment risk, investment income and investment gains and losses accrue directly to such contractholders. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of PHL Variable. The assets and liabilities are carried at market value. Net investment income and realized investment gains and losses for these accounts are excluded from revenues, and the related liability increases are excluded from benefits and expenses. Amounts assessed to the contractholders for management services are included in PHL Variable's revenues. For Market Value Adjusted separate accounts, contractholders are credited interest at a guaranteed rate if the account is held until the end of the guarantee period. If funds are withdrawn from the account prior to the end of the guarantee period, a market value adjustment is applied, which means that the funds received may be higher or lower than the account value, depending on whether current interest rates are higher, lower or equal to the guaranteed interest rate. In these separate accounts, appreciation or depreciation of assets, undistributed net investment income and investment or other sundry expenses are reflected as net income or loss in PHL Variable's interest in the separate accounts. POLICYHOLDER DEPOSIT FUNDS Policyholder deposit funds consist of deposits received from customers and investment earnings on their fund balances, less administrative charges. 16 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- INVESTMENT PRODUCT FEES Revenues for investment-type products consist of net investment income and contract charges assessed against the fund values (fees). Related benefit expenses primarily consist of net investment income credited to the fund values after deduction for investment and risk charges. POLICY LIABILITIES AND ACCRUALS Future policy benefits are liabilities for life insurance products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. Liabilities for universal life policies include deposits received from customers and investment earnings on their fund balances which range from 4.00% to 7.15%, less administrative and mortality charges. PREMIUM AND FEE REVENUE AND RELATED EXPENSES Term life insurance premiums are recorded as premium revenue on a pro-rata basis over each policy year. Benefits, losses and related expenses are matched with premiums over the related contract periods. Revenues for variable annuity products consist of net investment income and contract charges assessed against the fund values. Related benefit expenses primarily consist of net investment income credited to the fund values after deduction for investment and risk charges. Revenues for universal life products consist of net investment income and mortality, administration and surrender charges assessed against the fund values during the period. Related benefit expenses include universal life benefit claims in excess of fund values and net investment income credited to universal life fund values. INCOME TAXES For the tax year ended December 31, 1999, PHL Variable will file a separate federal income tax return as required under Internal Revenue Code Section 1504(c). PHL Variable has been filing on a separate company basis since December 31, 1996. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their recorded amounts for financial reporting purposes. These differences result primarily from policy liabilities, accruals and surrenders, policy acquisition expenses and unrealized gains or losses on investments. EMPLOYEE BENEFIT PLANS Phoenix sponsors pension and savings plans for its employees and agents, and those of its subsidiaries. The multi-employer qualified plans comply with requirements established by the Employee Retirement Income Security Act of 1974 (ERISA) and excess benefit plans provide for that portion of pension obligations which is in excess of amounts permitted by ERISA. Phoenix also provides certain health care and life insurance benefits for active and retired employees. PHL Variable incurs applicable employee benefit expenses through the process of cost allocation by Phoenix. Applicable information regarding the actuarial present value of vested and non-vested accumulated plan benefits, and the net assets of the plans available for benefits is omitted, as the information is not separately calculated for PHL Variable's participation in the plans. The amount of such allocated benefits is not significant to the financial statements. 17 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- However, with respect to the Phoenix Home Life Mutual Insurance Company employee pension plan, the total assets of the plan exceeded the actuarial present value of vested benefits at January 1, 1999, the date of the most recent actuarial valuation. RECENT ACCOUNTING PRONOUNCEMENTS In June, 1999, The Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." Because of the complexities associated with transactions involving derivative instruments and their prevalent use as hedging instruments and, because of the difficulties associated with the implementation of Statement 133, the effective date of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was delayed until fiscal years beginning after June 15, 2000. SFAS No. 133, initially issued on June 15, 1998, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions in which PHL Variable is hedging changes in an asset's, liability's or firm commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions, in which PHL Variable is hedging the variability of cashflows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the period in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of all hedges will be recognized in current period earnings. PHL Variable has not yet determined the impact that the adoption of SFAS No. 133 will have on its earnings or statement of financial position. On January 1, 1999, PHL Variable adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for assessments related to insurance activities. The adoption of SOP 97-3 did not have a material impact on the Company's results from operations or financial position. In 1998, the NAIC adopted the Codification of Statutory Accounting Principles guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas, e.g., deferred income taxes are recorded. The State of Connecticut Insurance Department has adopted the Codification guidance, effective January 1, 2001. The Company has not estimated the potential effect of the Codification guidance. 18 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. INVESTMENTS Information pertaining to PHL Variable's investments, net investment income and realized and unrealized investment gains and losses follows: DEBT SECURITIES The amortized cost and fair value of investments in debt securities as of December 31, 1999 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) HELD-TO-MATURITY: Corporate securities $ 10,298 $ 136 $ (169) $ 10,265 ========= ======= ======== ========= AVAILABLE-FOR-SALE: U.S. government and agency bonds $ 6,475 $ 3 $ (156) $ 6,322 State and political subdivision bonds 10,366 -- (343) 10,023 Corporate securities 16,637 -- (983) 15,654 Mortgage-backed or asset-backed securities 24,194 -- (353) 23,841 --------- ------- -------- --------- Total $ 57,672 $ 3 $ (1,835) $ 55,840 ========= ======= ======== =========
The amortized cost and fair value of investments in debt securities as of December 31, 1998 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- (IN THOUSANDS) HELD-TO-MATURITY: Corporate securities $ 3,840 $ 27 $ (126) $ 3,741 -------- ------- -------- -------- AVAILABLE-FOR-SALE: U.S. government and agency bonds $ 6,515 $ 290 $ (9) $ 6,796 State and political subdivision bonds 9,485 126 (21) 9,590 Corporate securities 13,605 187 (81) 13,711 Mortgage-backed or asset-backed securities 6,308 80 (5) 6,383 -------- ------- -------- -------- Total $ 35,913 $ 683 $ (116) $ 36,480 ======== ======= ======== ========
19 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The amortized cost and fair value of debt securities, by contractual sinking fund payment and maturity, as of December 31, 1999 are shown below. Actual maturity may differ from contractual maturity because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or PHL Variable may have the right to put or sell the obligations back to the issuers.
HELD-TO-MATURITY AVAILABLE-FOR-SALE AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ---- ----- ---- ----- (IN THOUSANDS) Due in one year or less $ 1,732 $ 1,726 $ 500 $ 500 Due after one year through five years 6,676 6,654 14,282 13,737 Due after five years through ten years 1,890 1,884 9,903 9,664 Due after ten years -- -- 8,793 8,098 Mortgage-backed or asset-backed securities -- -- 24,194 23,841 --------- --------- --------- --------- Total $ 10,298 $ 10,264 $ 57,672 $ 55,840 ========= ========= ========= =========
NET INVESTMENT INCOME The components of net investment income for the year ended December 31, were as follows:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Debt securities $ 3,362 $ 2,142 $ 1,301 Policy loans 7 1 -- Other invested assets 20 9 -- Short-term investments 561 344 269 -------- -------- -------- Sub-total 3,950 2,496 1,570 Less: investment expenses 59 38 27 -------- -------- -------- Net investment income $ 3,891 $ 2,458 $ 1,543 ======== ======== ========
20 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- INVESTMENT GAINS AND LOSSES Net unrealized (losses) gains on securities available-for-sale and carried at fair value for the year ended December 31, were as follows:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Debt securities $ (2,399) $ 333 $ 87 Deferred policy acquisition costs 983 (139) (30) Deferred income taxes (benefits) (496) 68 20 --------- ------- ------- Net unrealized investment (losses) gains on securities available-for-sale $ (920) $ 126 $ 37 ========= ======= =======
The proceeds from sales of available-for-sale debt securities for the years ended December 31, 1999, 1998 and 1997 were $6.0 million, $10.0 million and $0.2 million, respectively. The gross realized gains or losses associated with these sales were $7.4 thousand, $37.7 thousand and ($0.3) thousand in 1999, 1998 and 1997, respectively. 4. GOODWILL PHL Variable was acquired by way of a stock purchase agreement on May 31, 1994 and was accounted for under the purchase method of accounting. The assets and liabilities were recorded at fair value as of the date of acquisition and the goodwill of $1.02 million was pushed down to PHL Variable from PM Holdings. Goodwill was as follows: DECEMBER 31, ------------ 1999 1998 ---- ---- (IN THOUSANDS) Goodwill $ 1,020 $ 1,020 Accumulated amortization (569) (467) -------- -------- Total $ 451 $ 553 ======== ======== 21 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5. INCOME TAXES A summary of income taxes (benefits) in the Statement of Income, Comprehensive Income and Equity for the year ended December 31, was as follows: 1999 1998 1997 ---- ---- ---- Income taxes: Current $ 347 $ 3,244 $ 1,469 Deferred 2,883 (987) (916) -------- --------- -------- Total $ 3,230 $ 2,257 $ 553 ======== ========= ======== The income taxes attributable to the results of operations are different than the amounts determined by multiplying income before taxes by the statutory income tax rate. The sources of the difference and the tax effects of each for the year ended December 31, were as follows (in thousands, aside from the percentages):
1999 1998 1997 ---- ---- ---- Income tax expense at statutory rate $3,230 35% $2,256 35% $ 527 35% Dividend received deduction and tax-exempt interest (1) 0% -- 0% 1 0% State income tax expense Other, net 1 0% 1 0% 25 2% ------ ------ ----- Income taxes $3,230 35% $2,257 35% $ 553 37% ====== ====== =====
The net deferred income tax liability (asset) represents the tax effects of temporary differences. The components as of December 31, were as follows:
1999 1998 ---- ---- (IN THOUSANDS) Deferred policy acquisition costs $ 17,775 $ 10,953 Surrender charges (17,597) (11,886) Investments 104 72 Future policyholder benefits 376 (1,374) Other (65) (54) --------- --------- 593 (2,289) Net unrealized investment (losses) gains (384) 111 --------- --------- Deferred income tax liability (asset), net $ 209 $ (2,178) ========= =========
22 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Gross deferred income tax assets totaled $18.1 million and $13.3 million at December 31, 1999 and 1998, respectively. Gross deferred income tax liabilities totaled $18.3 million and $11.1 million at December 31, 1999 and 1998, respectively. It is management's assessment, based on PHL Variable's earnings and projected future taxable income, that it is more likely than not that the deferred income tax assets at December 31, 1999 and 1998, will be realized. PHL Variable's income tax return is not currently being examined; however, income tax years 1996 through 1998 remain open for examination. Management does not believe that there will be a material adverse effect on the financial statements as a result of pending income tax matters. 6. COMPREHENSIVE INCOME The components of, and related income tax effects for, other comprehensive (loss) income for the years ended December 31, were as follows:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS) UNREALIZED (LOSSES) GAINS ON SECURITIES AVAILABLE-FOR-SALE: Before-tax amount $ (1,405) $ 256 $ 57 Income tax (benefit) expense (492) 90 20 --------- ------- ------- Totals (913) 166 37 --------- ------- ------- RECLASSIFICATION ADJUSTMENT FOR (LOSSES) REALIZED IN NET INCOME: Before-tax amount (11) (62) -- Income tax (benefit) (4) (22) -- --------- ------- ------- Totals (7) (40) -- --------- ------- ------- NET UNREALIZED (LOSSES) GAINS ON SECURITIES AVAILABLE-FOR-SALE: Before-tax amount (1,416) 194 57 Income tax (benefit) expense (496) 68 20 --------- ------- ------- Totals $ (920) $ 126 $ 37 ========= ======= =======
The following table summarizes accumulated other comprehensive (loss) income balances:
DECEMBER 31, 1999 1998 ---- ---- (IN THOUSANDS) ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Balance, beginning of year $ 207 $ 81 Change during period (920) 126 -------- ------- Balance, end of year $ (713) $ 207 ======== =======
23 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. REINSURANCE PHL Variable entered into a reinsurance treaty in 1996 that cedes death benefits to a reinsurer in excess of account balances on variable contracts. Premiums paid by PHL Variable during 1999, 1998 and 1997 were $1,114 thousand, $668 thousand and $259 thousand, respectively, less claims of $22 thousand, $13 thousand and $1 thousand in 1999, 1998 and 1997, respectively. In connection with PHL Variable's life insurance products, automatic treaties have been established with four reinsurers and their subsidiaries, covering 90% of the net amount at risk, on a first dollar basis. As of December 31, 1999, PHL Variable had approximately $661.5 million of net insurance in force, including $6.5 billion of direct in force less $5.8 billion of reinsurance ceded. As of December 31, 1998, PHL Variable had approximately $271.6 million of net insurance in force, including $2.7 billion of direct in force less $2.4 billion of reinsurance ceded. As of December 31, 1997, PHL Variable had approximately $9.1 million of net insurance in force, including $80.7 million of direct in force less $71.6 million of reinsurance ceded. No claims were recovered in 1999, 1998 or 1997. For PHL Variable's life insurance products, a stop loss treaty between Phoenix and PHL Variable was introduced in 1998. The reinsurance recoverables were $0 thousand as of December 31, 1999 and $455 thousand as of December 31, 1998. The claims recovered were $455 thousand for 1999 and $0 for 1998 and 1997, respectively. 8. RELATED PARTY TRANSACTIONS Phoenix provides services and facilities to PHL Variable and is reimbursed through a cost allocation process. Investment services are provided for a fee by a Phoenix registered investment advisor. 9. DEFERRED POLICY ACQUISITION COSTS The following reflects the amount of policy acquisition costs deferred and amortized for the years ended December 31: 1999 1998 ---- ---- (IN THOUSANDS) Balance at beginning of year $ 36,686 $ 21,010 Acquisition cost deferred 28,884 19,791 Amortized to expense during the year (4,747) (3,976) Adjustment to net unrealized investment gains (losses) included in other comprehensive income 983 (139) --------- --------- Balance at end of year $ 61,806 $ 36,686 ========= ========= 24 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 10. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS Other than debt securities being held-to-maturity, financial instruments that are subject to fair value disclosure requirements (insurance contracts are excluded) are carried in the financial statements at amounts that approximate fair value. The fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts which could be realized upon immediate liquidation. In cases where market prices are not available, estimates of fair value are based on discounted cash flow analyses that utilize current interest rates for similar financial instruments which have comparable terms and credit quality. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND CASH EQUIVALENTS For these short-term investments, the carrying amount approximates fair value. DEBT SECURITIES Fair values are based on quoted market prices, where available, or quoted market prices of comparable instruments. Fair values of private placement debt securities are estimated using discounted cash flows that apply interest rates currently being offered with similar terms to borrowers of similar credit quality. POLICY LOANS Fair values are estimated as the present value of loan interest and policy loan repayments discounted at the ten year Treasury rate. Loan repayments were assumed only to occur as a result of anticipated policy lapses, and it was assumed that annual policy loan interest payments were made at the guaranteed loan rate less 17.5 basis points. Discounting was at the ten year Treasury rate, except for policy loans with a variable policy loan rate. Variable policy loans have an interest rate that is reset annually based upon market rates and therefore, book value is a reasonable approximation of fair value. INVESTMENT CONTRACTS Variable annuity contracts have guarantees of less than one year for which interest credited is closely tied to rates earned on owned assets. For such liabilities, fair value is assumed to be equal to the stated liability balances. The contract liability balances for December 31, 1999 and 1998 were $64.2 million and $39.7 million, respectively. OTHER INVESTED ASSETS Other invested assets consist of the Company's interest in the separate accounts which are carried at fair value. 25 PHL VARIABLE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. COMMITMENTS AND CONTINGENCIES In the normal course of its business operations, PHL Variable is involved with litigation from time to time with claimants, beneficiaries and others, and a number of litigation matters were pending as of December 31, 1999. It is the opinion of management, after consultation with counsel, that the ultimate liability with respect to these claims, if any, will not materially affect the financial position or results of operations of PHL Variable. 12. STATUTORY FINANCIAL INFORMATION The insurance subsidiaries of Phoenix are required to file annual statements with state regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities. As of December 31, 1999, there were no material practices not prescribed by the State of Connecticut Insurance Department. Statutory surplus differs from equity reported in accordance with GAAP for life insurance companies primarily because policy acquisition costs are expensed when incurred, investment reserves are based on different assumptions, postretirement benefit costs are based on different assumptions and reflect a different method of adoption, life insurance reserves are based on different assumptions and income tax expense reflects only taxes paid or currently payable. The following reconciles the statutory net income of PHL Variable as reported to regulatory authorities to the net income as reported in these financial statements for the year ended December 31:
1999 1998 1997 ---- ---- ---- (IN THOUSANDS) Statutory net income $ (1,655) $ 1,542 $ 937 Deferred policy acquisition costs 24,136 15,815 11,483 Future policy benefits (13,496) (14,056) (12,271) Deferred income taxes (2,882) 987 899 Other, net (104) (98) (95) --------- -------- ------- Net income, as reported $ 5,999 $ 4,190 $ 953 ========= ======== =======
26 The following reconciles the statutory surplus and asset valuation reserve (AVR) of PHL Variable as reported to regulatory authorities to equity as reported in these financial statements: DECEMBER 31, 1999 1998 ---- ---- (IN THOUSANDS) Statutory surplus and AVR $ 66,354 $ 41,268 Deferred policy acquisition costs, net 61,072 36,686 Future policy benefits (48,391) (37,155) Investment valuation allowances (1,089) 568 Deferred income taxes (208) 2,178 Other, net 451 565 --------- --------- Equity, as reported $ 78,189 $ 44,110 ========= ========= The Connecticut Insurance Holding Act limits the maximum amount of annual dividends or other distributions available to stockholders of Connecticut domiciled insurance companies without prior approval of the Insurance Commissioner. Under current law, the maximum dividend distribution that may be made by PHL Variable during 1999 without prior approval is subject to restrictions relating to statutory surplus. 27 PHL Variable Insurance Company (a wholly-owned subsidiary of PM Holdings, Inc.) Unaudited Interim Condensed Balance Sheet - -------------------------------------------------------------------------------- SEPTEMBER 30, 2000 (IN THOUSANDS) ASSETS Investments Held-to-maturity debt securities, at amortized cost $ 12,605 Available-for-sale debt securities, at fair value 108,348 Policy loans 697 Other invested assets 1,026 ------------- Total investments 122,676 Cash and cash equivalents 41,708 Accrued investment income 1,292 Deferred policy acquisition costs 74,575 Deferred and uncollected premiums 5,209 Other assets 14,516 Goodwill 374 Separate account assets 1,398,552 ------------- Total assets $ 1,658,902 ============= LIABILITIES Policyholder deposit funds $ 131,137 Policy liabilities and accruals 24,183 Deferred income taxes 4,660 Other liabilities 3,920 Separate account liabilities 1,398,552 ------------- Total liabilities 1,562,452 ------------- EQUITY Common stock, $5,000 par value (1,000 shares authorized, 500 shares issued and outstanding) 2,500 Additional paid-in capital 79,864 Retained earnings 14,427 Accumulated other comprehensive loss (341) ------------- Total equity 96,450 ------------- Total liabilities and equity $ 1,658,902 ============= The accompanying notes are an integral part of these statements. 28 PHL Variable Insurance Company (a wholly-owned subsidiary of PM Holdings, Inc.) Unaudited Interim Condensed Statement of Income, Comprehensive Income and Equity - --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 (IN THOUSANDS) REVENUES Premiums $ 3,057 $ 3,993 Insurance and investment product fees 22,805 14,785 Net investment income 5,966 2,578 Net realized investment losses (42) (104) --------------------- --------------------- Total revenues 31,786 21,252 --------------------- --------------------- BENEFITS AND EXPENSES Policy benefits and increase in policy liabilities 15,145 2,205 Amortization of deferred policy acquisition costs 6,766 4,389 Other operating expenses 5,435 4,277 --------------------- --------------------- Total benefits and expenses 27,346 10,871 --------------------- --------------------- INCOME BEFORE INCOME TAXES 4,440 10,381 Income taxes 1,553 3,628 --------------------- --------------------- NET INCOME 2,887 6,753 --------------------- --------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES Unrealized gains (losses) on securities 389 (620) Reclassification adjustment for net realized losses (gains) included in net income 15 (9) --------------------- --------------------- Total other comprehensive income (loss) 374 (611) --------------------- --------------------- COMPREHENSIVE INCOME 3,261 6,142 Capital contributions 15,000 12,000 --------------------- --------------------- NET INCREASE IN EQUITY 18,261 18,142 EQUITY, BEGINNING OF PERIOD 78,189 44,110 --------------------- --------------------- EQUITY, END OF PERIOD $ 96,450 $ 62,252 ===================== =====================
The accompanying notes are an integral part of these statements. 29 PHL Variable Insurance Company (a wholly-owned subsidiary of PM Holdings, Inc.) Unaudited Interim Condensed Statement of Cash Flows - --------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,887 $ 6,753 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATIONS: Net realized investment losses 42 104 Amortization 102 102 Deferred income taxes 4,231 1,952 Increase in accrued investment income (506) (338) Increase in deferred policy acquisition costs (13,180) (12,067) Change in other assets/other liabilities, net (6,227) 5,695 -------------------- -------------------- Net cash (used for) provided by operating activities (12,651) 2,201 -------------------- -------------------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from sales, maturities or repayments of available-for-sale debt securities 10,759 6,022 Proceeds from maturities or repayments of held-to-maturity debt securities 4,235 624 Purchase of available-for-sale debt securities (58,923) (27,044) Purchase of held-to-maturity debt securities (6,483) (2,000) Increase in policy loans (175) (206) -------------------- -------------------- Net cash used for investing activities (50,587) (22,604) -------------------- -------------------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 15,000 12,000 Increase in policyholder deposit funds, net of interest credited 66,907 7,991 -------------------- -------------------- Net cash provided by financing activities 81,907 19,991 -------------------- -------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 18,669 (412) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,039 7,320 -------------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41,708 $ 6,908 ==================== ==================== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid, net $ - $ 3,630
The accompanying notes are an integral part of these statements. 30 PHL Variable Insurance Company (a wholly-owned subsidiary of PM Holdings, Inc.) Notes to Unaudited Interim Condensed Financial Statements - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS PHL Variable Insurance Company (PHL Variable) offers variable annuity and non-participating life insurance products in the United States of America. PHL Variable is a wholly-owned subsidiary of PM Holdings, Inc. PM Holdings is a wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company (Phoenix). 2. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The State of Connecticut Insurance Department (the Insurance Department) recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the Connecticut State Insurance Law. No consideration is given by the Insurance Department to financial statements prepared in accordance with GAAP in making such determination. In the opinion of management, adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. These interim financial statements should be read in conjunction with the financial statements of PHL Variable for the year ended December 31, 1999. 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Derivatives" - an amendment of SFAS 133. This Statement makes certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The effective portion of a derivative's change in fair value will be recognized immediately in earnings. PHL Variable plans to adopt SFAS No. 133 and SFAS No. 138 effective January 1, 2001. PHL Variable has reviewed its inventory of financial instruments, including insurance and annuity contracts and "hybrid" investments, for potential embedded derivatives. PHL Variable has also reviewed its portfolio of freestanding derivatives, which includes interest rate swap, cap and floor contracts, swaptions and foreign currency swap agreements. PHL Variable has evaluated the effect of adopting SFAS No. 133 and has determined that the implementation of SFAS No. 133, as it relates to embedded derivatives in insurance and annuity products, "hybrid" investments and freestanding derivatives, will not have a material impact on its statement of financial position or results of operations. 31 4. REORGANIZATION On June 16, 2000, Phoenix submitted to the staff of the State of New York Insurance Department a draft Plan of Reorganization whereby Phoenix would convert, pursant to the New York Insurance Law, from a New York mutual life insurance company to a New York stock life insurance company and become a wholly-owned subsidiary of a newly formed holding company. The Plan of Reorganization was approved by Phoenix's board of directors on December 18, 2000 and subsequently amended and restated on January 26, 2001 but has yet to be approved by the State of New York Insurance Department. 5. COMMITMENTS AND CONTINGENCIES In the normal course of its business operations, PHL Variable is involved with litigation from time to time with claimants, beneficiaries and others, and a number of litigation matters were pending as of September 30, 2000. It is the opinion of management, after consultation with counsel, that the ultimate liability with respect to these claims, if any, will not materially affect the financial position or results of operations of PHL Variable. 32 PART II INFORMATION NOT REQUIRED IN A PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses incurred by the registrant in connection with the issuance and distribution of the securities registered hereby, other than underwriting discounts and commissions, are as follows:* SEC Registration Fee: $50,000 Printing and Engraving: $30,000 Accounting Fees and Expenses: $5,000 Legal Fees and Expenses: $10,000 *Except for the SEC Registration Fee, all expenses are estimates ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 5.9 of the Connecticut Corporation Law & Practice, provides that a corporation may indemnify any director or officer of the corporation made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, by reason of the fact that he, his testator or intestate, served such other corporation in any capacity at the request of the indemnifying corporation. Article III Section 14 of the By-laws of the Company provides: "Each Director, officer or employee of the Company, and his heirs, executors or administrators, shall be indemnified or reimbursed by the Company for all expenses necessarily incurred by him in connection with the defense or reasonable settlement of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director, officer or employee of the Company, or of any other company which he was serving as a Director or officer at the request of the Company, except in relation to matters as to which such Director, officer or employee is finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director, officer or employee. The foregoing right of indemnification or reimbursement shall not be exclusive of any other rights to which he may be entitled under any statute, by-law, agreement, vote of shareholders or otherwise." Insofar as indemnification for liability arising under the Securities Act of 1933 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. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Not applicable. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits: 1 Underwriting Agreement.* 2 Plan of acquisition, reorganization, arrangement, liquidation or succession. Not applicable. 3 (i) Amended and Restated Certificate of Incorporation of PHL Variable Insurance Company.* (ii) By-laws.* 4 Forms of Variable Annuity Contracts with MVA Rider. Filed via Edgar with the initial registration statement on Form S-1 (File No. 333-20277) on January 23, 1997, and with post-effective amendment no. 9 to Form N-4 (File No. 033-87376) on July 15, 1999, and incorporated herein by reference. 5 Opinion re legality. Refer to Exhibit 23.2. 8 Opinion re tax matters. Not applicable. 9 Voting trust agreement. Not applicable. 10 Material contracts. Not applicable. 11 Statement re computation of per share earnings. Not applicable. 12 Statements re computation of ratios. Not applicable. 15 Letter re unaudited interim financial information. Not applicable. 16 Letter re change in certifying accountant. Not applicable. 21 Subsidiaries of the registrant. Not applicable. 23.1 Consent of PricewaterhouseCoopers LLP.* 23.2 Opinion and Consent of Counsel.* 24.1 Powers of attorney are incorporated herein by reference to registrant's post-effective amendment no. 1 to Form S-1 file no. 333-20277, on April 28, 1998. 24.2 Power of attorney for Carl T. Chadburn.* 25 Statement of eligibility of trustee. Not applicable. 26 Invitation for competitive bids. Not applicable. (b) Financial Statement Schedules: All financial statements and schedules conforming to the requirement of Regulation S-X are filed herewith. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers of sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Not applicable. - ---------------------------------- * Filed herewith. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on this 8th day of February, 2001. PHL VARIABLE INSURANCE COMPANY By /s/ Simon Y. Tan* ----------------- Simon Y. Tan President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the persons in the capacities indicated with PHL Variable Insurance Company on this 8th day of February, 2001. SIGNATURE TITLE --------- ----- /s/ Carl T. Chadburn** - ------------------------- Director Carl T. Chadburn /s/ Robert W. Fiondella* - ------------------------- Chairman of the Board Robert W. Fiondella (Principal Executive Officer) /s/ Joseph E. Kelleher* - ------------------------- Director Joseph E. Kelleher /s/ Philip R. McLoughlin* - ------------------------- Director *Philip R. McLoughlin /s/ David W. Searfoss* - ------------------------- Director, Executive Vice President, David W. Searfoss Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Simon Y. Tan* - ------------------------- Director, President Simon Y. Tan /s/ Dona D. Young - ------------------------- Director Dona D. Young By: /s/ DONA D. YOUNG ____________________ Dona D. Young *DONA D. YOUNG, as Attorney-in-Fact pursuant to Powers of Attorney filed with Registrant's post-effective amendment no. 1 to Form S-1, file no. 333-20277, on April 28, 1998, and incorporated herein by reference. **DONA D. YOUNG, as Attorney-in-Fact pursuant to Power of Attorney filed herewith, Exhibit 24.2. S-1 EX-1 2 0002.txt UNDERWRITING AGREEMENT EXHIBIT 1 Form of Underwriting Agreement between PHL Variable Insurance Company and Phoenix Equity Planning Corporation MASTER SERVICE AND DISTRIBUTION COMPLIANCE AGREEMENT This Agreement, made this 1st day of June, 1999, by and among PHL Variable Insurance Company ("PHL Variable"), a Connecticut stock company, PHL Accumulation Account (the "Account"), and Phoenix Equity Planning Corporation ("PEPCO"), a Connecticut corporation. WHEREAS, PHL Variable offers for sale variable annuity contracts funded through Separate Accounts of PHL Variable registered as unit investment trusts under the Investment Company Act of 1940 ("1940 Act") including, in the case of certain variable annuity contracts, the Account, pursuant to a registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933 ("Securities Act"), and listed on Schedule A of this Agreement (the "Contracts"), and WHEREAS, PEPCO is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 ("1934 Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"), and WHEREAS, PHL Variable desires to engage PEPCO to perform certain services with respect to the books and records to be maintained in connection with the sale of Contracts and certain administrative and other functions as set forth herein. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: I. Services of PEPCO ----------------- A. Appointment. PHL Variable hereby appoints PEPCO, and PEPCO hereby accepts the appointment as, Master Service and Distributor of the Contracts. B. Duties. PEPCO shall perform certain administrative, compliance and other services with respect to the Contracts as described herein. PEPCO agrees to use its best efforts in performing the activities outlined in paragraphs I. C and I. E of this Agreement. C. Written Agreements. PEPCO shall enter into Agreements with broker-dealer firms whose registered representatives have been or shall be properly licensed, including variable annuity licensed if required, and appointed as life insurance agents of PHL Variable. PHL Variable shall pay all fees associated with the insurance appointment of such selected representatives as insurance agents of PHL Variable. Such written Agreements with broker-dealers shall provide that such broker-dealer shall cause applications to be solicited for the purchase of the Contracts. Such Agreements shall include such terms and conditions as PEPCO may determine not inconsistent with this Agreement, provided, however, that any broker-dealer with whom PEPCO has entered into a written Agreement must: -2- (a) be a registered broker-dealer under the 1934 Act and be a member of the NASD; and (b) agree that, in connection with the solicitation of applications for the purchase of Contracts, the broker-dealer will in all respects conform to the requirements of all state and federal laws and the Rules of Fair Practice of the NASD relating to the sale of the Contracts and will indemnify and hold harmless PEPCO and PHL Variable from any damage or expense on account of the negligence, misconduct or wrongful act of such broker-dealer or any employee, representative or agent of such broker-dealer. In obtaining and entering into written Agreements with broker-dealers, PEPCO will in all respects conform to the requirements of all state and federal law, and the Rules of Fair Practice of the NASD. D. Recordkeeping. PEPCO shall maintain and preserve, or cause to be maintained and preserved, such accounts, books, and other documents as are required of it under this Agreement, the 1934 Act and any other applicable laws and regulations, including without limitation and to the extent applicable, Rules 17a-3 and 17a-4 under the 1934 Act. The books, accounts and records of PEPCO as to services provided hereunder, shall be maintained so as to disclose clearly and accurately the nature and details of the transactions. E. Sales Assistance to Agents/Registered Representatives. PEPCO shall provide sales assistance with respect to, and cause applications to be solicited for the purchase of, the Contracts by agents of PHL Variable who have been appointed by PHL Variable. PEPCO shall also prepare sales promotional materials for the Contracts and assist the agents in utilizing the materials. In addition, PEPCO shall provide broker-dealers and agents with reasonable quantities of sales promotional materials, prospectuses, sample Contracts, applications and any necessary service forms. F. Supervision. PEPCO shall select persons associated with it who are trained and qualified persons to solicit applications for purchase of Contracts in conformance with applicable state and federal laws. Any such person shall be a registered representative of PEPCO in accordance with the rules of the NASD, be licensed to offer the Contract in accordance with the insurance laws of any jurisdiction in which such person solicits applications, be licensed with and appointed by PHL Variable as an insurance agent to solicit applications for the Contracts and have entered into the appropriate Variable Contract Insurance Commission Agreement with PHL Variable. PEPCO will train and supervise its registered representatives to insure that the purchase of a Contract is not recommended to an applicant in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for that applicant. PEPCO shall pay the fees to regulatory authorities in connection with obtaining necessary securities licenses and authorizations for its registered representatives to solicit applications for the purchase of Contracts. PEPCO is not responsible for -3- fees in connection with the appointment of registered representatives as insurance agents of PHL Variable. G. Sales Materials and Other Documents. ------------------------------------ (a) PEPCO's Responsibilities. PEPCO shall be responsible for: ------------------------ (i) the design, preparation and printing of all promotional material to be used in the distribution of the Contracts: (ii) the approval of promotional material by the SEC and the NASD, where required; and (iii) the prompt forwarding of all Contract applications received by PEPCO along with other documents, if any, and any payments received with such applications. (b) PHL Variable's Responsibilities. ------------------------------- (i) PHL Variable shall provide PEPCO with sufficient quantities of prospectuses regarding the Contracts. (ii) PHL Variable shall be responsible for the approval of promotional material by state and other local insurance regulatory authorities. (iii) PHL Variable shall, on behalf of any broker-dealer with whom PEPCO has entered into a written Agreement, confirm the issuance of the Contract to the Contract Owner. (c) Right to Approve. PEPCO shall not print, publish or distribute any advertisement, circular or any document relating to the Contracts or relating to PHL Variable unless such advertisement, circular or document shall have been approved in writing by PHL Variable. Neither PHL Variable nor any of its agents or affiliates shall print, publish or distribute any advertisement, circular or any document relating to the Contracts or relating to PEPCO unless such advertisement, circular or document shall have been approved in writing by PEPCO. However, nothing herein shall prohibit any party from advertising annuities or life insurance in general or on a generic basis. Each party reserves the right to require modification of any such material to comply with applicable laws, rules and regulations and agrees to provide timely responses regarding material submitted to it by the other party. -4- H. Payments to Broker-Dealers. PEPCO shall serve as paying agent for amounts due broker-dealers for sales commissions. PHL Variable shall forward to PEPCO any such amounts due broker-dealers and PEPCO shall be responsible to pay such amounts to the persons entitled thereto as set forth in the applicable written Agreements with such broker-dealers. PEPCO shall reflect such amounts on its books and records as required by Paragraph D hereto. I. Compliance. PEPCO shall, at all times, when performing its functions under this Agreement, be registered as a securities broker-dealer with the SEC and the NASD and be licensed or registered as a securities broker-dealer in any jurisdiction where the performance of the duties contemplated by this Agreement would require such licensing or registration. PEPCO represents and warrants that it shall otherwise comply with provisions of federal and state law in performing its duties hereunder. J. Payment of Expenses by PEPCO. PEPCO shall pay the expenses incurred in connection with its provision of services hereunder and the distribution of the Contracts, including those expenses incurred in connection with the preparation and distribution of sales literature and promotional materials for the Contracts and the sale and delivery of the Contracts. II. General Provisions ------------------ A. Inspection of Books and Records. PEPCO and PHL Variable agree that all records relating to services provided hereunder shall be subject to reasonable periodic, special or other audit or examination by the SEC, NASD, or any state insurance commissioner or any other regulatory body having jurisdiction. PEPCO and PHL Variable agree to cooperate fully in any securities, insurance or judicial regulatory investigation, inspection, inquiry or proceeding arising in connection with the services provided under this Agreement, or with respect to PEPCO or PHL Variable or their affiliates, to the extent related to the distribution of the Contracts. PEPCO and PHL Variable will notify each other promptly of any customer compliant or notice of regulatory proceeding, and, in the case of a customer complaint, will cooperate in arriving at a mutually satisfactory response. B. Indemnification. PEPCO will indemnify and hold harmless PHL Variable and the Account, from expenses, losses, claims, damages or liabilities (including attorney fees) incurred by reason of any material misrepresentation in sales literature or promotional materials developed by PEPCO for the Contracts and not pre-approved in writing by PHL Variable, or on account of any other misrepresentation, wrongful or unauthorized act or omission, negligence of, or failure of PEPCO, including any employee of PEPCO, to comply with the terms of this Agreement, but PEPCO shall not be required to indemnify for any expenses, losses, claims, damages or liabilities which have resulted from the negligence, misconduct or wrongful act of the party seeking indemnification. PEPCO shall also hold harmless and indemnify PHL Variable and Account for any expenses, losses, claims, damages, or liability (including attorneys fees) arising from any misrepresentation, wrongful or unauthorized act or omission, negligence of, or failure of a broker-dealer or its employees, agents -5- or registered representatives, to comply with the terms of the written agreement entered into between PEPCO and such broker-dealer but only to the extent that PEPCO is indemnified by the broker-dealer under the terms of the written agreement. PHL Variable will indemnify and hold harmless PEPCO, for any expenses, losses, claims, damages or liabilities (including attorneys fees) incurred by reason of any material misrepresentation or omission in a registration statement or prospectus for the Contracts, or on account of any other misrepresentation, wrongful or unauthorized act or omission, negligence of, or failure of PHL Variable, including any employee of PHL Variable, to comply with the terms of this Agreement, but PHL Variable shall not be required to indemnify for any expenses, losses, claims, damages or liabilities which have resulted from the negligence, misconduct or wrongful act of the party seeking indemnification. C. Compensation. PHL Variable shall compensate PEPCO for the services PEPCO performs hereunder as the parties shall agree from time to time and as listed on Schedule A of this Agreement. In addition, PHL Variable shall reimburse PEPCO for its expenses incurred under Paragraph I. J. of this Agreement. PEPCO agrees to return promptly to PHL Variable all compensation received for any Contract returned within the "free look" period as specified in the Contract. D. Termination. This Agreement shall become effective on the date of this Agreement and shall continue to be in effect, except that: (a) Any party hereto may terminate this Agreement on any date by giving the other party at least thirty (30) days' prior written notice of such termination specifying the date fixed therefor. (b) This Agreement may not be assigned by PEPCO without the consent of PHL Variable. E. Registration. PHL Variable and the Account agree to use their best efforts to effect and maintain the registration of the Contracts under the Securities Act and the Account under the 1940 Act, and to qualify the Contracts under the state securities and insurance laws, and to qualify the Contracts as annuities under the Internal Revenue Code. PHL Variable will pay or cause to be paid expenses (including the fees and disbursements of its own counsel) of the registration and maintenance of the Contracts under the Securities Act and of the Account under the 1940 Act, and to qualify the Contracts under the state securities and insurance laws. F. Authority. PEPCO shall have authority hereunder only as expressly granted in this Agreement. G. Miscellaneous. PHL Variable agrees to advise PEPCO immediately in the case of an issuance by the SEC of any stop order suspending the effectiveness of the Prospectus for the Contracts, of all action of the SEC with respect to any amendments to the registration statement(s) -6- which may from time to time be filed with the SEC and of any material event which makes untrue any statement made in the registration statement for the Contracts, or which requires the making of a change in the registration statement in order to make the statement therein not misleading. PHL Variable agrees to advise PEPCO in the event that formal administrative proceedings are instituted against PHL Variable by the SEC, or any state securities or insurance department or any other regulatory body regarding PHL Variable's duties under this Agreement, unless PHL Variable determines in its sole judgment exercised in good faith, that any such administrative proceeding will not have a material adverse effect upon its ability to perform its obligations under this Agreement. PEPCO agrees to advise PHL Variable in the event that formal administrative proceedings are instituted against PEPCO by the SEC, NASD, or any state securities or insurance department or any other regulatory body regarding PEPCO's duties under this Agreement, unless PEPCO determines in its sole judgment exercised in good faith, that any such administrative proceedings will not have a material adverse effect upon its ability to perform its obligations under this Agreement. H. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. IN WITNESS WHEREOF, the parties have hereunto set their hands on the date first above written. PHL VARIABLE INSURANCE COMPANY AND PHL VARIABLE ACCUMULATION ACCOUNT By: /s/Simon Y. Tan ---------------------------- Title: President PHOENIX EQUITY PLANNING CORPORATION By: /s/William R. Moyer ---------------------------- Title: Senior Vice President and Chief Financial Officer phl/560 Schedule A ---------- PEPCO has been appointed by PHL Variable to perform certain administrative, compliance and other services with respect to the following variable annuity contracts ("Contracts") issued by PHL Variable Insurance Company: The Big Edge Choice - Individual Deferred Variable Accumulation Annuity Contracts issued by the PHL Variable Accumulation Account of PHL Variable Insurance Company ("PHLV"). PEPCO shall receive payments for services performed under this Agreement equal to 6.25% of purchase or premium payments made under The Big Edge Choice contracts. In addition, upon the submission of documentation satisfactory to PHLV, PEPCO shall receive reimbursement from PHLV for any payments made to broker-dealers who act as wholesalers in introducing The Big Edge Choice to broker-dealers or financial institutions. EX-3.(I) 3 0003.txt AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3(i) Amended and Restated Certificate of Incorporation of PHL Variable Insurance Company VOL. 1253 0350 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PHL VARIABLE INSURANCE COMPANY This Amended and Restated Certificate of Incorporation gives effect to the amendment of the previous Restated Certificate of Incorporation of the corporation and otherwise purports merely to restate all those provisions already in effect. The amended portions of this Certificate have been adopted by unanimous written consent of the Board of Directors and the shareholders. Section 1. PHL Variable Insurance Company is created a body politic and corporate and under that name shall have all the powers granted by the general statutes, as now enacted or hereinafter amended, to corporations formed under the Stock Corporation Act. Section 1. The Corporation shall have the purposes and powers to write any and all forms of insurance which any other corporations now or hereafter chartered by Connecticut and empowered to do an insurance business may now or hereafter lawfully do; to accept and to cede reinsurance; to issue policies and contracts for any kind or combination of kinds of insurance; to issue policies or contracts either with or without participation in profits; to acquire and hold any or all of the shares or other securities or any insurance corporation or any other kind of corporation; and to engage in any lawful act or activity for which corporations may be formed under the Stock Corporation Act. The corporation is authorized to exercise the powers herein granted in any state, territory or jurisdiction of the United States or in any foreign country. Section 3. The authorized capital shall be five million dollars divided into one thousand shares of common stock with a part value or five thousand dollars each. Section 4. The corporation shall obtain a license from the insurance commissioner prior to the commencement of business and shall be subject to all general statutes applicable to insurance companies. We hereby declare, under the penalties of false statement, that the statements made in the foregoing certificate are true. /s/ Alan M. Eisner ------------------------ Alan M. Eisner /s/ Steven F. Newman ------------------------ Steven F. Newman agrmt/134 5/10/94 STATE OF CONNECTICUT } SS. HARTFORD OFFICE OF THE SECRETARY OF STATE } I hereby certify that this is a true copy of record in this Office In Testimony whereof, I have hereunto set my hand, and affixed the Seal of said State, at Hartford, this 26th day of August A.D. 1994. ---- ------ /s/ Pauline R. Kezer - ---------------------------------------------------- SECRETARY OF THE STATE EX-3.(II) 4 0004.txt BY-LAWS OF PHL VARIABLE INSURANCE COMPANY EXHIBIT 3 (ii) By-Laws of PHL Variable Insurance Company BY-LAWS of the PHL VARIABLE INSURANCE COMPANY as amended on February 15, 1984 and as amended, effective June 1, 1994 By-Laws of PHL VARIABLE INSURANCE COMPANY ARTICLE I NAME Section 1. The Company shall be named PHL Variable Insurance Company. ARTICLE II SHAREHOLDERS AND SHAREHOLDERS' MEETINGS Section 1 - Annual Meeting. The annual meeting of the shareholders of the Company for the election of Directors and the transactions of such other business as may properly come before said meeting shall be held at such location, on such day and at such hours, as the Board of Directors may appoint. Section 2 - Special Meetings. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors or the President, or in the absence of both, by any Vice President, or as otherwise provided by law, and shall be so called upon the written request of a majority of the Board of Directors. Section 3 - Notice. Written notice of every meeting of the shareholders and of the time, place and hour thereof shall be given by an Executive Officer of the Company at least seven days prior to the time appointed for such meeting, which, in the case of a special meeting, shall also state in general terms the purpose or purposes for which the meeting is called. Said requirements of notice shall be deemed to have been lawfully given upon the written waiver signed by the party entitled to notice, whether before or after such meeting, and shall be deemed to have been waived by attendance at such meeting except when attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 4 - Quorum. Holders of the majority of the voting power of shares entitled to vote at any meeting of shareholders shall constitute a quorum for such meeting. Section 5 - Number of Votes. Each shareholder entitled to vote shall be entitled to the number of votes equal to the number of shares of the stock of the Company he holds. Section 6 - Conduct of Meetings. At every meeting of the shareholders, the Chairman of the Board of Directors or the President shall serve as Chairman of the meeting. A Secretary of the Company shall keep minutes of the proceedings at said meeting, which minutes shall be made part of the permanent records of the Company. Should such officers be absent or otherwise unable to act as Chairman and Secretary of the meeting, the shareholders shall elect a Chairman and a Secretary by a voice vote. Section 7 - Written Consent. Any action required by law to be taken at any annual or special meeting of the shareholders, or any action which may be taken at any annual or special meeting of -2- the shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the persons who would be required to vote upon such action at a meeting at which all shares entitled to vote thereon were present and voted. ARTICLE III DIRECTORS Section 1 - Authority. The management of the property and affairs of the Company shall be vested in the Board of Directors. Section 2 - Election. The number of Directors of the Company shall be not fewer than three nor more than twenty. At each annual meeting of shareholders, Directors shall be chosen by the shareholders. Each Director shall hold office until the next annual meeting of shareholders and until his successor is elected and qualified. Section 3 - Vacancies. When any vacancy shall occur in the membership of the Board of Directors due to resignation, death or otherwise, and when newly created directorships result from any increase in the authorized number of Directors, a majority of the Directors remaining may choose Directors to fill such vacancies. Section 4 - Meetings. Regular meetings of the Board of Directors shall be held at such time and place as may be designated from time to time by the Board of Directors without further notice. When so requested by the Chairman of the Board of Directors or by the President, or, in their absence, by the Chairman of the Finance Committee or by any Vice President, or by any three Directors, a special meeting shall be called by a Secretary or an Assistant Secretary. Save as otherwise expressly provided, written or printed notice of each special meeting shall be given by a Secretary or an Assistance Secretary to all Directors by delivering a copy thereof to each personally, or by mailing a copy thereof to such address as each may designate, at least two days before the time appointed for such meeting. The mailing of a copy of such notice to such address shall be conclusive evidence that notice of such meeting was given to each Director. In the event of an emergency, a special meeting of Directors may be called upon less than two days' notice and in such case a Secretary or Assistant Secretary may given such notice, orally or otherwise, as may be most expedient. The Board of Directors may meet without notice immediately after the adjournment of any annual meeting of the shareholders. The Board of Directors or any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can participate. Regular and special meetings of the Board of Directors shall be held at such place as may be designated by the Board of Directors or the officers or Directors requesting any such meeting to be called. Section 5 - Quorum. A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business, and the action of a majority of Directors present at a regular or special meeting shall be the act of the Board. At every meeting of the Board, the presiding officer of the meeting shall have the right to vote. -3- Section 6 - Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting if all members of the Board of Directors or Committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 7 - Chairman. The Board of Directors may elect from its members a Chairman of the Board of Directors who shall, when present, preside at all meetings of the Board of Directors, shall perform such duties as may be assigned to him by the Board of Directors and shall have such authority and powers as an Executive Officer of the Company as may be granted to him by the Board of Directors. He shall, unless earlier removed from such office by the Board of Directors, hold office for one year and until a successor is elected in his stead by the Board of Directors. Section 8 - Secretary. A Secretary of the Company designated by the Board of Directors shall keep a record meetings of the Board of Directors. In the absence of a Secretary, an Assistant Secretary may be directed by the Chairman of the Board, the President, the Chairman of the Finance Committee or any Vice President to keep such records. Section 9 - Executive Committee. The Board of Directors may by affirmative vote of the majority of the whole Board appoint an Executive Committee of three or more members of the Board of Directors, which Executive Committee shall, during the intervals between the meetings of the Board of Directors, have authority to exercise any and all of the powers of the Board of Directors in the management of the business and affairs of the Company, and may affix the sale of the Company to all papers which may require it. The members of the Executive Committee shall, subject to prior removal by the Board of Directors, hold office until the first meeting of the Board of Directors following the next annual meeting of the shareholders and until their successors have been appointed. In the event the Board of Directors shall not appoint an Executive Committee, the Finance Committee, if any, shall have power to exercise the powers which would otherwise vest in such Executive Committee. Section 10 - Finance Committee. The Board of Directors may be affirmative vote of a majority of the whole Board appoint a Finance Committee of three or more members of the Board of Directors, one of whom shall be the Chairman of the Finance Committee elected a such as provided in Article IV, Section 1 below. The members of the Finance Committee shall, subject to prior removal by the Board of Directors, hold office until the first meeting of the Board of Directors following the next annual meeting of the shareholders and until their successors have been appointed. The Finance Committee shall have the power and it shall be its duty to supervise and manage the finances of the Company and its shall discharge such other powers and duties as are granted and imposed upon it by three By-Laws or by the Board of Directors. Such powers and duties shall include, but not by way of limitation, the direction of the mode, manner and time of making investments, the sale, transfer and exchange of investments, and the reinvestment of the proceeds thereof. A record of the meetings of the Finance Committee shall be kept and reported to the Board of Directors and the Finance Committee shall make such other reports to the Board of Directors concerning the funds, securities and investments of the Company as may be requested by the Board of Directors. Section 11 - Other Committees. The Board of Directors may also, by affirmative vote of the majority of the whole Board, appoint such other committees from its own members as it may deem advisable and delegate to such committees such of the powers of the Board of Directors as it may deem judicious. -4- Section 12 - Minutes. Regular minutes of the proceedings of any committee shall be kept in a book provided for that purpose which shall always be open for inspection by any Director. The proceedings of any committee shall be read at the next meeting of the Board of Directors. In the absence or disqualification of a member of any committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent of disqualified member. Section 13 - Dividends. The Board of Directors may declare such dividends to the shareholders out of the Company's earnings and surplus as it may deem expedient. Section 14 - Indemnification. Each Director, officer or employee of the Company, and his heirs, executors or administrators, shall be indemnified or reimbursed by the Company for all expenses necessarily incurred by him in connection with the defense or reasonable settlement of any action, suit or proceeding in which he is made a party by reason of his being or having been a Director, officer or employee of the Company, or of any other company which he was serving as a Director or officer at the request of the Company, except in relation to matters as to which such Director, officer or employee is finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of his duties as such Director, officer or employee. The foregoing right of indemnification or reimbursement shall not be exclusive of any other rights to which he may be entitled under any statute, by-law, agreement, vote of shareholders or otherwise. ARTICLE IV OFFICERS Section 1 - General. The President shall be elected by the Board of Directors. The Board of Directors may also elect one of its members to serve as Chairman of the Board of Directors and, if there is a Finance Committee, the Board of Directors shall elect one of its members to serve as Chairman of such Committee. The President, or an officer appointed by him, shall have authority to appoint all other officers, expect as stated herein, including one or more Vice Presidents and Assistant Vice Presidents, the Treasurer and one or more Associate or Assistant Treasurers, one or more Secretaries and Assistant Secretaries and such other officers as the President may from time to time designate. All officers of the Company shall hold office during the pleasure of the Board of Directors. The Directors may require any officer of the Company to give security for the faithful performance of his duties. Section 2 - President. The President shall have the general care, oversight and supervision of the affairs of the Company, subject to the direction of the Board of Directors. Section 3 - Vice Presidents. The Vice Presidents and Assistant Vice Presidents shall perform such duties as may be assigned to them, and exercise such powers as may be granted to them by the Board of Directors, the Chairman of the Board of Directors or by the President of the Company. In the absence of the President, or when he is unable to act, The Board of Directors may designate the Chairman of the Board or any Vice President to perform the duties imposed upon and to exercise all of the powers granted to, the President, as the emergencies of the Company may require. Section 4 - Execution Of Instruments. The President, the Chairman of the Finance Committee (if any), any Vice President or Assistant Vice President and such other Officers as the Board of Directors shall designate, shall each have power and authority to execute for and on behalf of the Company any and all instruments relating to the property, funds and securities of the Company, -5- including but not by way of limitation, contracts, transfers, assignments, powers of attorney, deeds, conveyances, endorsements and releases of or by the Company. Any such officer or his appointee shall also have power to represent the interest of the Company at any meeting of any corporation, association or other entity, the stock or obligations of which are held by the Company, or to execute a proxy therefor. Section 5 - Treasurer. The Treasurer shall have the custody of the corporate funds and securities, shall keep full ad accurate accounts of receipts and disbursements in books belonging to the Company, shall deposit all monies and other valuable effects in the name and to the credit of the Company or in such other name and in such depositories as may be designated in accordance with Article V, and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors. The Treasurer or an Associate or Assistant Treasurer may endorse documents requiring endorsements for or on behalf of the Company and may sign all receipts and vouchers for payments made to the Company. The Treasurer or an Associate or Assistant Treasurer shall disburse the funds of the Company as may be ordered by the Board of Directors, taking proper vouchers for such disbursements. The Treasurer or Associate or an Assistant Treasurer may sign with the President or a Vice President, certificates of share in the capital stock of the Company. They shall also have charge of the stock ledger, stock certificate book and transfer book, and such other books and papers as the Board may direct. All books and papers shall be open at all reasonable times, to the examination of any Director, upon application at the office of the Company during business hours. An Associate or Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe. Section 6 - Secretaries. The Secretaries and the Assistant Secretaries shall perform such duties as may be assigned to them by these by-laws or by the Board of Directors, the Chairman of the Board of Directors or by their senior officers and any Secretary or Assistant Secretary may affix the seal of the company and attest it and the signature of any officer to any and all instruments. Section 7 - Execution of Insurance Contracts. The President or any Vice President or Assistant Vice President, acting with any Secretary or Assistant Secretary shall have power to sign and execute on behalf of the Company any and all policies or contracts of insurance or reinsurance, together with endorsements, riders or other instruments relating or applicable thereto, and any such policies or contracts of insurance or reinsurance, and endorsements, riders or other instruments relating thereto, so signed and executed, with or without the common seal, shall be valid and binding upon the Company. The signatures of such officers may be affixed to any such instruments by a facsimile, and any such instruments bearing such facsimile signatures shall be valid and binding upon the Company provided they shall also have been countersigned by a duly authorized representative or agent of the Company. Any Executive Officer of the Company shall have power to authorize or to terminate the authorization of, or to confirm the authorization or the termination or the authorization of, any representative or agent of the Company to so countersign any such instruments or to otherwise represent or act on behalf of the Company in the exercise of such power and authority as may be vested in such representative or agent. ARTICLE V FUNDS All monies belonging to the Company shall be deposited to the credit of the Company, or in such other name as the Finance Committee, the Chairman of the Finance Committee or such Executive Officers as are designated by the Board of Directors shall direct, in such bank or banks as may be -6- designated from time to time by the Finance Committee, the Chairman of the Finance Committee or by such Executive Officers as are designated by the Board of Directors. Such monies shall be drawn only on checks or drafts signed by any two Executive Officers of the Company, provided that the Board of Directors may authorize the withdrawal of such monies by check or draft signed with the facsimile signature of any one or more Executive Officers, and provided further, that the Finance Committee may authorize such alternative methods of withdrawal as it deems proper. The Board of Directors, the President, the Chairman of the Finance Committee, a Vice President, or such Executive Officers as are designated by the Board of Directors may authorize withdrawal of funds by checks or drafts drawn at offices of the Company to be signed by Managers, General Agents or employees of the Company, provided that all such checks or drafts shall be signed by two such authorized persons, except checks or drafts used for the payment of claims or losses, which need to signed by only one such authorized person, and provided further that the Board of Directors of the Company or Executive Officers designated by the Board of Directors may impose limitations or restrictions upon the withdrawal of funds. ARTICLE VI SEAL, AMENDMENTS AND REPEAL Section 1 - Seal. The Corporate Seal shall be circular in form and shall have inscribed thereon the name of the Company, the year of its creation and the words "Corporate Seal" and "Connecticut". Section 2 - Amendment; Repeal. The Board of Directors may adopt, amend or repeal these By-Laws. State of Connecticut ) ) ss. County of Hartford ) This is to certify that the foregoing is a true copy of the By-Laws of PHL Variable Insurance Company in full force and effect on this 1st day of June, 1994. Attest: /s/Carol A. Masters /s/Keith Robbins - ------------------------------- -------------------------------- Secretary Vice President -7- EX-23.1 5 0005.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in this Registration Statement on Form S-1 of our report dated February 15, 2000 relating to the financial statements of PHL Variable Insurance Company, which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut February 7, 2001 EX-23.2 6 0006.txt OPINION AND CONSENT OF COUNSEL EXHIBIT 23.2 OPINION AND CONSENT OF COUNSEL Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 February 8, 2001 Re: PHL Variable Insurance Company Registration No. 333- _______ Dear Sirs: As Counsel to the Registrant, I am familiar with the market value adjustment feature ("MVA") that is part of certain variable annuity contracts ("Contracts") issued through a Separate Account of PHL Variable Insurance Company (the "Company"), and which is the subject of the above-captioned Registration Statement on Form S-1. In connection with this opinion, I have reviewed the Contracts and registration statements, the Charter and By-Laws of the Company, relevant proceedings of the Board of Directors, and the provisions of Connecticut insurance law I deem relevant to the issuance of the Contracts with the MVA. Based upon this review, I am of the opinion that each of the Contracts when issued with the MVA will have been validly and legally issued fully paid and non-assessable securities, and enforceable against the company according to its terms. I further consent to the use of this opinion as an exhibit to the above-captioned Registration Statement and to my being named as a expert under "Experts" therein. Very truly yours, /s/ Susan E. Schechter - ---------------------- Susan E. Schechter, - ------------------- Counsel PHL Variable Insurance Company EX-24.2 7 0007.txt POWER OF ATTORNEY EXHIBIT 24.2 POWER OF ATTORNEY POWER OF ATTORNEY I, the undersigned member of the Directors of PHL Variable Insurance Company, do hereby constitute and appoint each of Simon Y. Tan, Dona D. Young, and Philip R. McLoughlin as my true and lawful attorneys and agents, and with full power to act without the others, are hereby authorized, empowered and directed to take all action necessary, on behalf of PHL Variable Insurance Company, in order to comply with the Securities Act of 1933, the Investment Company Act of 1940 and any other applicable Federal laws, including the filing of registration statements, any amendments to registration statements, any undertakings, any applications for exemptions from the Investment Company Act of 1940 relating to securities issued or sold by PHL Variable Insurance Company or any of its separate accounts, and any or all amendments to the foregoing as such attorneys and agents shall deem necessary or appropriate. The undersigned hereby ratifies and confirms my signature as it may be signed by said attorneys and agents. I hereby declare that a photostatic, xerographic or other similar copy of this original instrument shall be as effective as the original. I hereby further revoke any and all powers of attorney previously given by myself with respect to the above named company, provided that this revocation shall not affect the exercise of such powers prior to the date hereof. WITNESS my hand and seal on the date set forth below. Date: May 16, 2000 /s/ Carl T. Chadburn - --------------------- Carl T. Chadburn, Director -----END PRIVACY-ENHANCED MESSAGE-----