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UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, D.C.
20549



FORM 10-Q



(MARK ONE)



|þ | QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
|- | ------------------------------------------------
|  | OF THE SECURITIES EXCHANGE ACT OF
1934          



FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 2006



OR



| ̈ | TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
|- | -------------------------------------------------
|  | OF THE SECURITIES EXCHANGE ACT OF
1934           



FOR THE TRANSITION
PERIOD FROM __________ TO __________



Commission File
Number:  333-20277



PHL VARIABLE
INSURANCE COMPANY

(Exact name of registrant as specified
in its charter)



|Delaware                        | 06-1045829         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)



|One American Row,
Hartford, Connecticut 06102-5056

(860) 403-5000
|------------------------------------------------------------------
|                                                                  

(Address, including zip code, and
telephone number,

including area code, of principal
executive offices)



Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.

Yes  ̈
    No þ



Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
 See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.  (Check one):

Large accelerated filer
 ̈     Accelerated filer
 ̈
    Non-accelerated filer þ



Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ̈
    No þ



PHL Variable
Insurance Company is a wholly-owned indirect subsidiary of The Phoenix Companies, Inc., and there is no market
for the registrants common stock.  On July 31, 2006, there were 500 shares of the registrants
common stock outstanding.



The registrant
meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this
Form with the reduced disclosure format permitted by that General Instruction.



|
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1



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TABLE OF
CONTENTS





|          | Item No. | Description                                                                                                                                                                  | Page
|--------- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|          |          |                                                                                                                                                                              |     
|PART I.   |          | FINANCIAL INFORMATION                                                                                                                                                        |     
|          |          |                                                                                                                                                                              |     
|          | 1        | Financial Statements:                                                                                                                                                        |     
|          |          |                                                                                                                                                                              |     
|          |          | Unaudited Interim Condensed Balance Sheet as of
    June 30, 2006 and December 31, 2005                                                                                      | 3   
|          |          |                                                                                                                                                                              |     
|          |          | Unaudited Interim Condensed Statement of Income and
   Comprehensive Income and Changes in Stockholders Equity
   for the three and six months ended June 30, 2006 and 2005 | 4   
|          |          |                                                                                                                                                                              |     
|          |          | Unaudited Interim Condensed Statement of Cash Flows for the
   three and six months ended June 30, 2006 and 2005                                                             | 5   
|          |          |                                                                                                                                                                              |     
|          |          | Notes to Unaudited
Interim Condensed Financial Statements for the  three and six months ended June 30, 2006
and 2005                                                         | 6   
|          |          |                                                                                                                                                                              |     
|          | 2        | Managements Discussion and Analysis of Financial Condition and
  Results of Operations                                                                                      | 12  
|          |          |                                                                                                                                                                              |     
|          | 3        | Quantitative
and Qualitative Disclosures About Market Risk                                                                                                                   | 18  
|          |          |                                                                                                                                                                              |     
|          | 4        | Controls and
Procedures                                                                                                                                                      | 19  
|          |          |                                                                                                                                                                              |     
|PART II   |          | OTHER INFORMATION                                                                                                                                                            |     
|          |          |                                                                                                                                                                              |     
|          | 1        | Legal
Proceedings                                                                                                                                                            | 20  
|          |          |                                                                                                                                                                              |     
|          | 1A       | Risk Factors                                                                                                                                                                 | 21  
|          |          |                                                                                                                                                                              |     
|          | 2        | Unregistered
Sales of Equity Securities and Use of Proceeds                                                                                                                  | 21  
|          |          |                                                                                                                                                                              |     
|          | 3        | Defaults Upon
Senior Securities                                                                                                                                              | 21  
|          |          |                                                                                                                                                                              |     
|          | 4        | Submission of
Matters to a Vote of Security Holders                                                                                                                          | 21  
|          |          |                                                                                                                                                                              |     
|          | 5        | Other
Information                                                                                                                                                            | 21  
|          |          |                                                                                                                                                                              |     
|          | 6        | Exhibits                                                                                                                                                                     | 22  
|          |         
|Signature | 23      





2



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PART I.  FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS



PHL VARIABLE INSURANCE COMPANY

Unaudited Interim Condensed Balance
Sheet

($ in thousands, except share data)

June 30, 2006 (unaudited) and
December 31, 2005



|                                                                           | June 30, |           | Dec 31,
|-------------------------------------------------------------------------- | -------- | --------- | -------
|                                                                           | 2006     |           | 2005   
|                                                                           |          |           |        
|ASSETS:                                                                    |          |           |        
|Available-for-sale debt securities, at fair value                          | $        | 2,183,000 |        
|Policy loans, at unpaid principal balances                                 |          | 14,231    |        
|Other invested assets                                                      |          | 1,267     |        
|Total investments                                                          |          | 2,198,498 |        
|Cash and cash equivalents                                                  |          | 13,974    |        
|Accrued investment income                                                  |          | 21,371    |        
|Receivables                                                                |          | 75,459    |        
|Deferred policy acquisition costs                                          |          | 648,265   |        
|Receivable from related parties                                            |          | 2,554     |        
|Other general account assets                                               |          | 2,355     |        
|Separate account assets                                                    |          | 2,642,399 |        
|Total assets                                                               | $        | 5,604,875 |        
|                                                                           |          |           |        
|LIABILITIES:                                                               |          |           |        
|Policyholder deposit funds                                                 | $        | 1,699,575 |        
|Policy liabilities and accruals                                            |          | 604,713   |        
|Deferred income taxes                                                      |          | 83,489    |        
|Payable to related parties                                                 |          | 20,181    |        
|Other general account liabilities                                          |          | 18,370    |        
|Separate account liabilities                                               |          | 2,642,399 |        
|Total liabilities                                                          |          | 5,068,727 |        
|                                                                           |          |           |        
|CONTINGENT LIABILITIES
(Note 5)                                            |          |           |        
|                                                                           |          |           |        
|STOCKHOLDERS
EQUITY:                                                      |          |           |        
|Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued |          | 2,500     |        
|Additional paid-in capital                                                 |          | 503,234   |        
|Retained earnings                                                          |          | 40,295    |        
|Accumulated other comprehensive loss                                       |          | (9,881)   |        
|Total stockholders equity                                                 |          | 536,148   |        
|Total liabilities and stockholders equity                                 | $        | 5,604,875 |        



The accompanying notes
are an integral part of these financial
statements.



3



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PHL VARIABLE INSURANCE COMPANY

Unaudited Interim Condensed
Statement of Income and Comprehensive Income

and Changes in Stockholders
Equity

($ in thousands, except share data)

Three and Six Months Ended June 30,
2006 and 2005



|                                          | Three Months Ended |         | Six Months Ended
|----------------------------------------- | ------------------ | ------- | ----------------
|                                          | June 30,           |         | June 30,        
|                                          | 2006               |         | 2005            
|REVENUES:                                 |                    |         |                 
|Premiums                                  | $                  | 3,219   |                 
|Insurance and
investment product fees     |                    | 41,841  |                 
|Investment
income, net of expenses        |                    | 33,906  |                 
|Net realized
investment losses            |                    | (64)    |                 
|Total
revenues                            |                    | 78,902  |                 
|                                          |                    |         |                 
|BENEFITS AND EXPENSES:                    |                    |         |                 
|Policy
benefits                           |                    | 36,640  |                 
|Policy
acquisition cost amortization      |                    | 20,767  |                 
|Other
operating expenses                  |                    | 16,263  |                 
|Total
benefits and expenses               |                    | 73,670  |                 
|Income (loss)
before income taxes         |                    | 5,232   |                 
|Applicable
income taxes (benefits)        |                    | 1,329   |                 
|Net income
(loss)                         | $                  | 3,903   |                 
|                                          |                    |         |                 
|COMPREHENSIVE INCOME:                     |                    |         |                 
|Net income
(loss)                         | $                  | 3,903   |                 
|Net unrealized
investment gains (losses)  |                    | (4,812) |                 
|Net unrealized
derivative losses          |                    | (65)    |                 
|Other
comprehensive income (loss)         |                    | (4,877) |                 
|Comprehensive loss                        | $                  | (974)   |                 
|                                          |                    |         |                 
|RETAINED EARNINGS:                        |                    |         |                 
|Net income
(loss)                         | $                  | 3,903   |                 
|                                          |                    |         |                 
|OTHER COMPREHENSIVE INCOME:               |                    |         |                 
|Other
comprehensive income (loss)         |                    | (4,877) |                 
|Change in
stockholders equity            |                    | (974)   |                 
|Stockholders equity, beginning of period |                    | 537,122 |                 
|Stockholders equity, end of period       | $                  | 536,148 |                 



The accompanying notes are an integral part of these financial
statements.



4



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PHL VARIABLE INSURANCE COMPANY

Unaudited Interim Condensed
Statement of Cash Flows

($ in thousands)

Six Months Ended June 30, 2006 and
2005



|                                                         | Six Months Ended
|-------------------------------------------------------- | ----------------
|                                                         | June 30,        
|                                                         | 2006            
|OPERATING ACTIVITIES:                                    |                 
|Net income
(loss)                                        | $               
|Net realized
investment losses                           |                 
|Investment
income (loss)                                 |                 
|Deferred
income taxes (benefit)                          |                 
|(Increase)
decrease in receivables                       |                 
|(Increase)
decrease in deferred policy acquisition costs |                 
|Increase in
policy liabilities and accruals              |                 
|Other assets
and other liabilities net change            |                 
|Cash from
operating activities                           |                 
|                                                         |                 
|INVESTING ACTIVITIES:                                    |                 
|Investment
purchases                                     |                 
|Investment
sales, repayments and maturities              |                 
|Cash from
investing activities                           |                 
|                                                         |                 
|FINANCING ACTIVITIES:                                    |                 
|Policyholder
deposit fund deposits                       |                 
|Policyholder
deposit fund withdrawals                    |                 
|Cash for
financing activities                            |                 
|Change in
cash and cash equivalents                      |                 
|Cash and cash
equivalents, beginning of period           |                 
|Cash and
cash equivalents, end of period                 | $               



The accompanying notes are an integral part of these financial
statements.



5



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PHL VARIABLE INSURANCE COMPANY

Notes to Unaudited Interim
Condensed Financial Statements

Three and Six Months Ended June 30,
2006 and 2005







1.

Organization
and Operations



PHL Variable Insurance Company is a life insurance company offering
variable and fixed annuity and non-participating life insurance products.  It is a wholly-owned subsidiary
of PM Holdings, Inc.  PM Holdings, Inc. is a wholly-owned subsidiary of Phoenix Life Insurance Company
(Phoenix Life), which is a wholly-owned subsidiary of The Phoenix Companies, Inc., a New York Stock Exchange
listed company. Certain prior year amounts have been reclassified to conform with 2006 presentation.



We have prepared these financial statements in accordance with
accounting principles generally accepted in the United States, or GAAP.  In preparing these financial
statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported
amounts of assets and liabilities at reporting dates and the reported amounts of revenues and expenses during
the reporting periods.  Actual results will differ from these estimates and assumptions.  We employ
significant estimates and assumptions in the determination of: deferred policy acquisition costs; policyholder
liabilities and accruals; the valuation of investments in debt and equity securities; the valuation of deferred
tax liabilities and accruals for contingent liabilities.  Our significant accounting policies are
presented in the notes to our financial statements in our 2005 Annual Report on Form 10-K.



Our interim financial statements do not include all of the
disclosures required by GAAP for annual financial statements.  In our opinion, we have included all
adjustments, consisting of normal, recurring adjustments, considered necessary for a fair statement of the
results for the interim periods.  Financial results for the three and six-month periods in 2006 are not
necessarily indicative of the results that may be expected for the year 2006.  These unaudited financial
statements should be read in conjunction with our financial statements in our 2005 Annual Report on Form
10-K.



Recently issued accounting
standards



Uncertain Tax Positions:  In June 2006, the Financial
Accounting Standards Board Issued FIN 48, Accounting for Uncertainty in Income Taxes, or FIN 48.
 FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements.  FIN 48 also provides
guidance on measurement and classification of taxes and introduces new disclosure requirements.  This
guidance is effective for fiscal years beginning after December 15, 2006.  We are currently assessing the
impact of FIN 48 on our financial position and results of operations.



Deferred Acquisition Costs:  In September 2005, the
Accounting Standards Executive Committee, or AcSEC, of the American Institute of Certified Public Accountants,
or AICPA, issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection With Modifications or Exchanges of Insurance Contracts, or SOP 05-1.  SOP 05-1
provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal
replacements of insurance and investment contracts other than those specifically described in Statement of
Financial Accounting Standards No. 97, or SFAS No. 97.  The SOP defines an internal replacement as a
modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for
a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or
coverage within a contract.  This SOP is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006.  We will adopt SOP 05-1 on January 1, 2007.  We are currently
assessing the impact of SOP 05-1 on our financial position and results of operations.



Servicing of Financial Assets:  In March 2006, the
Financial Accounting Standards Board issued SFAS 156, Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140, or SFAS 156.  SFAS 156 provides guidance on recognition and
disclosure of servicing assets and liabilities and is effective beginning January 1, 2007.  We do not
expect our adoption of SFAS 156 to have a material impact on our financial statements.





6



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Accounting changes



Certain Hybrid Financial Instruments:  Effective January
1, 2006, we adopted SFAS 155, Accounting for Certain Hybrid Financial Instruments, or SFAS 155.
 SFAS 155 resolves certain issues surrounding the accounting for beneficial interests in securitized
financial assets.  Our adoption of SFAS 155 did not have a material effect on our financial
statements.



Other-Than-Temporary Impairments:  Effective January 1, 2006, we adopted FASB Staff Position Nos. FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, or FSP 115-1. FSP
115-1 provides guidance as to the determination of other-than-temporarily impaired securities and requires
certain financial disclosures with respect to unrealized losses.  These accounting and disclosure
requirements largely codify our existing practices as to other-than-temporarily impaired securities and,
accordingly, our adoption did not have a material effect on our financial statements.





2.

Operating
Activities



|Activity in Deferred Policy Acquisition Costs:                                                            | Three Months Ended |          | Six Months Ended
|--------------------------------------------------------------------------------------------------------- | ------------------ | -------- | ----------------
|($ in thousands)                                                                                          | June 30,           |          | June 30,        
|                                                                                                          | 2006               |          | 2005            
|                                                                                                          |                    |          |                 
|Policy acquisition costs
deferred                                                                         | $                  | 47,984   |                 
|Recurring costs amortized
to expense                                                                      |                    | (20,600) |                 
|Decrease (increase)
related to realized investment gains or losses                                        |                    | (167)    |                 
|(Cost) credit offsets to
net unrealized investment gains or losses included in other
comprehensive income |                    | 10,568   |                 
|Change in deferred policy
acquisition costs                                                               |                    | 37,785   |                 
|Deferred policy
acquisition costs, beginning of period                                                    |                    | 610,480  |                 
|Deferred policy
acquisition costs, end of period                                                          | $                  | 648,265  |                 





3.

Investing
Activities



Debt securities



|Fair Value and Cost of Debt Securities: | June 30, 2006 |           | December 31, 2005
|--------------------------------------- | ------------- | --------- | -----------------
|($ in thousands)                        | Fair Value    |           | Cost             
|                                        |               |           |                  
|U.S. government and agency              | $             | 115,042   |                  
|State and political
subdivision         |               | 18,806    |                  
|Foreign government                      |               | 54,984    |                  
|Corporate                               |               | 1,236,008 |                  
|Mortgage-backed                         |               | 474,271   |                  
|Other asset-backed                      |               | 283,889   |                  
|Debt securities                         | $             | 2,183,000 |                  



We owned no non-income producing debt
securities as of June 30, 2006 or 2005.



7



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|Gross and Net Unrealized Gains and Losses from | June 30, 2006 |          | December 31, 2005
|---------------------------------------------- | ------------- | -------- | -----------------
|Debt Securities:                               | Gains         |          | Losses           
|($ in thousands)                               |               |          |                  
|                                               |               |          |                  
|U.S. government and agency                     | $             | 135      |                  
|State and political
subdivision                |               | 190      |                  
|Foreign government                             |               | 2,054    |                  
|Corporate                                      |               | 3,466    |                  
|Mortgage-backed                                |               | 2,280    |                  
|Other asset-backed                             |               | 1,959    |                  
|Debt securities gains
(losses)                 | $             | 10,084   |                  
|Debt securities net
losses                     | $             | (50,557) |                  





|Aging of Temporarily Impaired                                                                  | June 30, 2006      
|---------------------------------------------------------------------------------------------- | -------------------
|Debt Securities:                                                                               | Less than 12 months
|($ in thousands)                                                                               | Fair               
|                                                                                               | Value              
|Debt securities                                                                                |                    
|U.S. government and agency                                                                     | $                  
|State and political
subdivision                                                                |                    
|Foreign government                                                                             |                    
|Corporate                                                                                      |                    
|Mortgage-backed                                                                                |                    
|Other asset-backed

Other asset-backed                                                         |                    
|Total temporarily impaired securities                                                          | $                  
|                                                                                               |                    
|Below investment grade                                                                         | $                  
|Below investment grade
after offsets for deferred policy acquisition cost adjustment
and taxes |                    



These securities are considered to be temporarily impaired at June
30, 2006 as each of these securities has performed, and is expected to continue to perform, in accordance with
their original contractual terms, and we have the ability and intent to hold these securities until they
recover their value.



There are no unrealized losses of
below investment grade debt securities with a fair value less than 80% of the securities amortized cost at June
30, 2006.



|Aging of Temporarily Impaired General                                                       | As of December 31, 2005
|------------------------------------------------------------------------------------------- | -----------------------
|Account Debt Securities:                                                                    | Less than 12 months    
|($ in thousands)                                                                            | Fair                   
|                                                                                            | Value                  
|Debt Securities                                                                             |                        
|U.S. government and agency                                                                  | $                      
|State and political
subdivision                                                             |                        
|Foreign government                                                                          |                        
|Corporate                                                                                   |                        
|Mortgage-backed                                                                             |                        
|Other asset-backed
Other asset-backed                                                       |                        
|Total temporarily impaired securities                                                       | $                      
|                                                                                            |                        
|Below investment grade                                                                      | $                      
|Below investment grade after offsets
  for deferred acquisition cost
  adjustment and taxes |                        



These securities were considered to be temporarily impaired at
December 31, 2005 as each of these securities had performed, and was expected to continue to perform, in
accordance with their original contractual terms, and we have the ability and intent to hold these securities
until they recover their value.



8



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Net investment income



|Sources of Net Investment Income: | Three Months Ended |        | Six Months Ended
|--------------------------------- | ------------------ | ------ | ----------------
|($ in thousands)                  | June 30,           |        | June 30,        
|                                  | 2006               |        | 2005            
|                                  |                    |        |                 
|Debt securities                   | $                  | 33,830 |                 
|Equity securities                 |                    |       |                 
|Other investments                 |                    | (27)   |                 
|Policy loans                      |                    | 47     |                 
|Cash and cash equivalents         |                    | 514    |                 
|Total investment income           |                    | 34,364 |                 
|Less:
investment expenses         |                    | 458    |                 
|Net investment income             | $                  | 33,906 |                 





The negative income amount of $27 thousand shown for other investments is attributable to partnership valuation per the financial statements received in the second quarter of 2006.





Net realized investment gains (losses)



|Sources and Types of Net Realized Investment                    | Three Months Ended |         | Six Months Ended
|--------------------------------------------------------------- | ------------------ | ------- | ----------------
|Gains (Losses):                                                 | June 30,           |         | June 30,        
|($
in thousands)                                                | 2006               |         | 2005            
|Debt security impairments                                       | $                  |        |                 
|Debt security transaction gains                                 |                    | 1,053   |                 
|Debt security transaction losses                                |                    | (1,494) |                 
|Equity security transaction gains                               |                    |        |                 
|Other invested asset transaction gains (losses)                 |                    | 377     |                 
|Net transaction gains (losses)                                  |                    | (64)    |                 
|Net realized investment gains (losses)                          | $                  | (64)    |                 
|                                                                |                    |         |                 
|Net realized investment gains (losses)                          | $                  | (64)    |                 
|Applicable deferred policy acquisition costs                    |                    | 167     |                 
|Applicable deferred income tax benefit                          |                    | (81)    |                 
|Offsets to realized investment gains                            |                    | 86      |                 
|Net realized investment gains (losses)
  included in net income | $                  | (150)   |                 



Unrealized investment gains
(losses)



|Sources of Changes in Net Unrealized Investment                                 | Three Months Ended |          | Six Months Ended
|------------------------------------------------------------------------------- | ------------------ | -------- | ----------------
|Gains (Losses):                                                                 | June 30,           |          | June 30,        
|($ in thousands)                                                                | 2006               |          | 2005            
|                                                                                |                    |          |                 
|Debt securities                                                                 | $                  | (17,974) |                 
|Equity securities                                                               |                    |         |                 
|Net unrealized
investment gains (losses)                                        | $                  | (17,974) |                 
|                                                                                |                    |          |                 
|Net unrealized investment
gains (losses)                                        | $                  | (17,974) |                 
|Applicable deferred policy
acquisition costs (benefit)                          |                    | (10,568) |                 
|Applicable deferred income
tax benefit                                          |                    | (2,594)  |                 
|Offsets to net unrealized
investment losses                                     |                    | (13,162) |                 
|Net unrealized
investment gains (losses) included in other comprehensive income | $                  | (4,812)  |                 







9



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4.

Income Taxes



For the six months ended June 30, 2006 and 2005, the effective
income tax rates applicable to income from continuing operations differ from the 35.0% U.S. federal statutory
tax rate.  Items giving rise to the differences and the effects are as follows:



|Analysis of Effective Income Tax Rates:                                | Three Months Ended |  | Six Months Ended
|---------------------------------------------------------------------- | ------------------ |  | ----------------
|                                                                       | June 30,           |  | June 30,        
|                                                                       | 2006               |  | 2005            
|                                                                       |                    |  |                 
|Income taxes at statutory
rate                                         | 35.0%              |  | (35.0%)         
|Investment income not
subject to tax                                   | (9.6%)             |  | (0.6%)          
|Effective income tax
benefit rates applicable to continuing operations | 25.4%              |  | (35.6%)         



Our federal income tax returns are routinely audited by the IRS and
estimated provisions are routinely provided in the financial statements in anticipation of the results of these
audits.  The current periods being audited by the IRS are the 2002 and 2003 tax years.  While it is
often difficult to predict the outcome of these audits, including the timing of any resolution of any
particular tax matter, we believe that our reserves, as recorded on the balance sheet, are adequate for all
open years.  Unfavorable resolution of any particular issue could result in additional use of cash to pay
liabilities that would be deemed owed to the IRS.  Additionally, any unfavorable or favorable resolution
of any particular issue could result in an increase or decrease, respectively, to our effective income tax rate
to the extent that our estimates differ from the ultimate resolution.





5.

Contingent Liabilities



We are regularly involved in litigation, both as a defendant and as
a plaintiff.  The litigation naming us as a defendant ordinarily involves our activities as an insurer,
investor or taxpayer.  Several current proceedings are discussed below.  In addition, state
regulatory bodies, the Securities and Exchange Commission, or SEC, the National Association of Securities
Dealers, Inc., or NASD, and other regulatory bodies regularly make inquiries of us and, from time to time,
conduct examinations or investigations concerning our compliance with, among other things, insurance laws and
securities laws.



For example, during 2003 and 2004, the SEC conducted examinations of
certain Company variable products and certain affiliated investment advisors and mutual funds.  In 2004,
the NASD also commenced examinations of two affiliated broker-dealers; the examinations were closed in April
2005 and November 2004, respectively.  In February 2005, the NASD notified an affiliate of the Company
that it was asserting violations of trade reporting rules by the affiliate of the Company.  The affiliated
company responded to the NASD allegations in May 2005 but has not received any further inquiries to date.



Federal and state regulatory authorities from time to time make
inquiries and conduct examinations regarding compliance by the Company with securities and other laws and
regulations affecting its registered products.  The Company endeavors to respond to such inquiries in an
appropriate way and to take corrective action if warranted.  Recently, there has been a significant
increase in federal and state regulatory activity relating to financial services companies, with a number of
recent regulatory inquiries focusing on late-trading, market timing and valuation issues.  Our products
entitle us to impose restrictions on transfers between separate account sub-accounts associated with our
variable products.



In 2004 and 2005, the Boston District Office of the SEC conducted a
compliance examination of certain of the Companys affiliates that are registered under the Investment
Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston
District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for
monitoring trading to prevent market timing activity.  The staff requested the Company to conduct an
analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have
been affected by undetected market timing activity had suffered harm and to advise the staff whether the
Company believes reimbursement is necessary or appropriate under the circumstances.  A third party was
retained to assist the Company in preparing the analysis.  Based on this analysis, the Company advised the
SEC that it does not believe that reimbursement is appropriate.



10



---



Over the past two years, a number of companies have announced
settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York
Attorney Generals Office.  While no such action has been initiated against us, it is possible that
one or more regulatory agencies may pursue this type of action against us in the future.



Financial services companies have also been the subject of broad
industry inquiries by state regulators and attorneys general which do not appear to be company-specific.
 In this regard, in 2004, we received a subpoena from the Connecticut Attorney Generals office
requesting information regarding certain distribution practices since 1998.  Over 40 companies received
such a subpoena.  We cooperated fully and have had no further inquiry since filing our response.



These types of regulatory actions may be difficult to assess or
quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and
magnitude of their outcomes may remain unknown for substantial periods of time.  While it is not feasible
to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to provide
reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in
the aggregate, to have a material adverse effect on our financial condition, or consideration of available
insurance and reinsurance and the provision made in our financial statements.  However, given the large or
indeterminate amounts sought in certain of these matters and litigations inherent unpredictability, it is
possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on
our results of operation or cash flows.







11

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ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



FORWARD-LOOKING STATEMENTS



The following discussion may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.  The Company intends these
forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating
to forward-looking statements.  These include statements relating to trends in, or representing
managements beliefs about, the Companys future strategies, operations and financial results, as
well as other statements including words such as anticipate, believe, plan,
estimate, expect, intend, may, should and other
similar expressions.  Forward-looking statements are made based upon managements current
expectations and beliefs concerning trends and future developments and their potential effects on the Company.
 They are not guarantees of future performance. Actual results may differ materially from those suggested
by forward-looking statements as a result of risks and uncertainties which include, among others: (i) changes
in general economic conditions, including changes in interest and currency exchange rates and the performance
of financial markets; (ii) heightened competition, including with respect to pricing, entry of new competitors
and the development of new products and services by new and existing competitors; (iii) regulatory, accounting
or tax developments that may affect the Company or the cost of, or demand for, its products or services; (iv)
downgrades in the financial strength ratings of the Company; (v) discrepancies between actual claims experience
and assumptions used in setting prices for the Companys products and establishing the Companys
liabilities for future policy benefits and claims relating to such products; (vi) movements in the equity
markets that affect our investment results, the fees we earn from funds on deposit and the demand for our
variable products; (vii) the relative success and timing of implementation of the Companys strategies;
(viii) the effects of closing the Companys retail brokerage operations; and (ix) other risks and
uncertainties described in Part II, Item IA. Risk Factors below or in any of the Companys
other filings with the SEC.  The Company undertakes no obligation to update or revise publicly any
forward-looking statement, whether as a result of new information, future events or otherwise.





MANAGEMENTS
NARRATIVE ANALYSIS OF THE

RESULTS OF OPERATIONS



This section reviews our results of operations for the three and six
months ended June 30, 2006 and 2005.  This discussion should be read in conjunction with the unaudited
interim condensed financial statements and notes contained in this filing as well as in conjunction with our
financial statements for the year ended December 31, 2005 in our 2005 Annual Report on Form 10-K.



Overview



We are a manufacturer of insurance and annuity products for the
accumulation, preservation and transfer of wealth.  We provide products and services to affluent and
high-net-worth individuals through their advisors.  We offer a broad range of life insurance and annuity
products, including universal, variable universal, term life insurance and a range of variable annuity offerings
and services through a variety of distributors. These distributors include independent advisors and financial
services firms who make our products and services available to their clients.



We derive our revenues principally
from:



·

premiums on life insurance;

·

insurance and investment product fees on variable
life and annuity products and universal life products; and

·

net investment income and net realized investment
gains.



Under generally accepted accounting principles, or GAAP, premium and
deposit collections for variable life, universal life and annuity products are not recorded as revenues.
 For certain investment options of variable products, collections are reflected on our balance sheet as an increase in separate account liabilities.  Collections
for fixed annuities and certain investment options of variable annuities are reflected on our balance sheet as an increase
in policyholder deposit funds.  Collections for other products are reflected on our balance sheet as an increase
in policy liabilities and accruals.



12



---





Our expenses consist principally of:



·

insurance policy benefits provided to
policyholders, including interest credited on policies;

·

deferred policy acquisition costs amortization;

·

other operating expenses; and

·

income taxes.



Our profitability depends principally
upon:



·

the adequacy of our product pricing, which is
primarily a function of our:

·

ability to select underwriting risks;

·

mortality experience;

·

ability to generate investment earnings;

·

ability to maintain expenses in accordance with
our pricing assumptions; and

·

persistency on policies issued (the percentage
of policies remaining in force from year to year as measured by premiums);

·

the amount and composition of funds on deposit;

·

the maintenance of our target spreads between the
rate of earnings on our investments and interest rates credited to customers;
and

·

our ability to manage expenses.



Our sales and financial results over the last several years have
been affected by demographic, industry and market trends.  The baby boom generation has begun to enter its
prime savings years.  Americans generally have begun to rely less on defined benefit retirement plans,
social security and other government programs to meet their postretirement financial needs.  Product
preferences have shifted between fixed and variable options depending on market and economic conditions.
 Our balanced product portfolio, including universal life, variable life and variable annuity products, is
well positioned to meet this shifting demand.



Recently Issued Accounting
Standards



Uncertain Tax Positions:  In June 2006, the Financial
Accounting Standards Board Issued FIN 48, Accounting for Uncertainty in Income Taxes, or FIN 48.
 FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements.  FIN 48 also provides
guidance on measurement and classification of taxes and introduces new disclosure requirements.  This
guidance is effective for fiscal years beginning after December 15, 2006.  We are currently assessing the
impact of FIN 48 on our financial position and results of operations.



Deferred Acquisition Costs:  In September 2005, the
Accounting Standards Executive Committee, or AcSEC, of the American Institute of Certified Public Accountants,
or AICPA, issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection With Modifications or Exchanges of Insurance Contracts, or SOP 05-1.  SOP 05-1
provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal
replacements of insurance and investment contracts other than those specifically described in Statement of
Financial Accounting Standards No. 97, or SFAS No. 97.  The SOP defines an internal replacement as a
modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for
a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or
coverage within a contract.  This SOP is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006.  We will adopt SOP 05-1 on January 1, 2007. We are currently assessing
the impact of SOP 05-1 on our financial position and results of operations.



Servicing of Financial Assets:  In March 2006, the
Financial Accounting Standards Board issued SFAS 156, Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140, or SFAS 156.  SFAS 156 provides guidance on recognition and
disclosure of servicing assets and liabilities and is effective beginning January 1, 2007.  We do not
expect our adoption of SFAS 156 to have a material impact on our financial statements.





13



---

Accounting changes



Certain Hybrid Financial Instruments:  Effective January
1, 2006, we adopted SFAS 155, Accounting for Certain Hybrid Financial Instruments, or SFAS 155.
 SFAS 155 resolves certain issues surrounding the accounting for beneficial interests in securitized
financial assets.  Our adoption of SFAS 155 did not have a material effect on our financial
statements.



Other-Than-Temporary Impairments:  Effective January 1, 2006, we adopted FASB Staff Position Nos. FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, or FSP 115-1. FSP
115-1 provides guidance as to the determination of other-than-temporarily impaired securities and requires
certain financial disclosures with respect to unrealized losses.  These accounting and disclosure
requirements largely codify our existing practices as to other-than-temporarily impaired securities and,
accordingly, our adoption did not have a material effect on our financial statements.



Critical Accounting Estimates



The discussion and analysis of our results of operations are based
upon our financial statements, which have been prepared in accordance with GAAP.  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.



Critical accounting estimates are reflective of significant
judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain.  See our 2005 Annual Report on Form 10-K for a description of our critical accounting
estimates.



Results of Operations



|Summary Financial Data:                 | Three Months Ended |        |      |   | Six Months Ended |  |     
|--------------------------------------- | ------------------ | ------ | ---- | - | ---------------- |  | ----
|($
in thousands)                        | June 30,           |        |      |   | June 30,         |  |     
|                                        | 2006               |        | 2005 |   | Change           |  | 2006
|REVENUES:                               |                    |        |      |   |                  |  |     
|Premiums                                | $                  | 3,219  |      | $ | 1,539            |  | $   
|Insurance and investment
  product fees |                    | 41,841 |      |   | 25,542           |  |     
|Investment income,
  net of expenses    |                    | 33,906 |      |   | 38,133           |  |     
|Net realized investment
  losses        |                    | (64)   |      |   | (1,680)          |  |     
|Total revenues                          |                    | 78,902 |      |   | 63,534           |  |     
|                                        |                    |        |      |   |                  |  |     
|BENEFITS AND EXPENSES:                  |                    |        |      |   |                  |  |     
|Policy benefits                         |                    | 36,640 |      |   | 32,486           |  |     
|Policy acquisition cost
  amortization  |                    | 20,767 |      |   | 36,494           |  |     
|Other operating expenses                |                    | 16,263 |      |   | 9,374            |  |     
|Total benefits and
  expenses           |                    | 73,670 |      |   | 78,354           |  |     
|Income (loss) before
  income taxes     |                    | 5,232  |      |   | (14,820)         |  |     
|Applicable income taxes
  (benefit)     |                    | 1,329  |      |   | (5,279)          |  |     
|Net income (loss)                       | $                  | 3,903  |      | $ | (9,541)          |  | $   



Three months ended June 30, 2006 vs. June 30, 2005



Premium revenues for the three and six months ended June 30, 2006
increased $1,680 thousand, or 109%, and $2,803 thousand, or 97%, over the comparable periods in 2005 due
primarily to higher sales of our term life insurance products.





14



---

Insurance and investment product fees for
the three and six months ended June 30, 2006 increased 64% and 71%, respectively, over the comparable periods
in 2005 due principally to higher universal life fees resulting from higher sales and growth of policies in
force.



Net investment income for the three and six months ended June 30,
2006 decreased 11% and 9%, respectively, from the comparable periods in 2005.  These decreases are due
primarily to lower prepayments, lower incidence of makewhole premiums on called bonds and lower annuity funds
on deposit in the general account, primarily related to discontinued products.



Net realized investment losses for the three and six-month periods
ended June 30, 2006 increased 96% and 83%, respectively, over the comparable periods in 2005 due to higher
sales activity in the 2006 periods to fund policyholder deposit fund withdrawals, including the scheduled
maturity of a $20.6 million institutionally-placed contract.



Policy benefits for the three and six months ended June 30, 2006
increased 13% and 23%, respectively, over the comparable periods in 2005 as a result of higher universal life
claims. Universal life claims represented a small number of claims which we believe are not indicative of a deterioration in overall experience.



Policy acquisition cost amortization for the three and six months
ended June 30, 2006 decreased 43% and 34%, respectively, due primarily to the effects of the second quarter
2005 unlocking of deferred policy acquisition costs and reduced margins from universal life claims.



Other operating expenses for the three and six months ended June 30,
2006 increased 73% and 114%, respectively, over the comparable periods in 2005 as a result of higher
non-deferred expenses, such as maintenance and indirect costs associated with business growth and premium taxes
driven primarily by the increase in universal life new business.



General Account



The invested assets in our general account are generally of high
quality and broadly diversified across asset classes, sectors and individual credits and issuers.  Our
investment professionals manage these general account assets in investment segments that support specific
product liabilities.  These investment segments have distinct investment policies that are structured to
support the financial characteristics of the related liabilities within them.  Segmentation of assets
allows us to manage the risks and measure returns on capital for our various products.



Separate Accounts



Separate account assets are managed in accordance with the specific
investment contracts and guidelines relating to our variable products.  We generally do not bear any
investment risk on assets held in separate accounts.  Rather, we receive investment management fees based
on assets under management.  Assets held in separate accounts are not available to satisfy general account
obligations.



Debt and Equity Securities Held in Our General Account



Our general account debt securities portfolios consist primarily of
investment-grade publicly traded and privately placed corporate bonds, residential mortgage-backed securities,
commercial mortgage-backed securities and asset-backed securities.  As of June 30, 2006, our general
account held debt securities with a carrying value of $2,183.0 million, representing 99.3% of total general
account investments.  Public debt securities represented 81.4% of total debt securities, with the
remaining 18.6% represented by private debt securities.



15



---



|Debt Securities by Type and Credit Quality: | As of June 30, 2006
|------------------------------------------- | -------------------
|($ in thousands)                            | Investment Grade   
|                                            | Fair Value         
|                                            |                    
|United States government
and agency         | $                  
|State and political
subdivision             |                    
|Foreign government                          |                    
|Corporate                                   |                    
|Mortgage-backed                             |                    
|Other asset-backed                          |                    
|Total debt securities                       | $                  
|                                            |                    
|Percentage of total
debt securities         |                    



We manage credit risk through industry and issuer diversification.
 Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger
exposure limits.  Our investment approach emphasizes a high level of industry diversification.  The
top five industry holdings as of June 30, 2006 in our debt securities portfolio are diversified financial
services (6.2%), banking (5.3%), insurance (3.6%), telecommunications equipment (2.6%) and electric utilities
(2.5%).



Total net unrealized losses on debt securities were $50.6 million
(unrealized losses of $60.6 million less unrealized gains of $10.0 million).



At the end of each reporting period, we review our security holdings
for potential recognition of an other-than-temporary impairment.  We maintain a watch list of securities
in default, near default or otherwise considered by our investment professionals as being distressed,
potentially distressed or requiring a heightened level of scrutiny.  We also identify securities whose
carrying value has been below amortized cost on a continuous basis.



The following table presents certain information with respect to our
gross unrealized losses related to our investments in general account debt securities.  Applicable
deferred acquisition costs and deferred income taxes reduce the effect of these losses on our comprehensive
income.





16



---



|Duration of Gross Unrealized Losses              | As of June 30, 2006
|------------------------------------------------ | -------------------
|on
General Account Securities:                   |                    
|($
in thousands)                                 | Total              
|                                                 |                    
|Debt securities                                  |                    
|Total
fair value                                 | $                  
|Total
amortized cost                             |                    
|Unrealized losses                                | $                  
|Unrealized losses after offsets                  | $                  
|Unrealized losses over 20% of cost               | $                  
|Unrealized losses over 20% of cost after offsets | $                  
|                                                 |                    
|Investment grade:                                |                    
|Unrealized losses                                | $                  
|Unrealized losses after offsets                  | $                  
|Unrealized losses over 20% of cost               | $                  
|Unrealized losses over 20% of cost after offsets | $                  
|                                                 |                    
|Below
investment grade:                          |                    
|Unrealized losses                                | $                  
|Unrealized losses after offsets                  | $                  
|Unrealized losses over 20% of cost               | $                  
|Unrealized losses over 20% of cost after offsets | $                  



For debt securities with gross unrealized losses, 87.4% of the
unrealized losses after offsets pertain to investment grade securities and 12.6% of the unrealized losses after
offsets pertain to below investment grade securities at June 30, 2006.



In determining that the securities giving rise to unrealized losses
were not other-than-temporarily impaired, we considered many factors, including those cited previously.
 In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no
assurance that actual results will not differ from our judgments and that such differences may require the
future recognition of other-than-temporary impairment charges that could have a material effect on our
financial position and results of operations.  In addition, the value of, and the realization of any loss
on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk,
credit risk and liquidity risk.  The magnitude of any loss incurred by us may be affected by the relative
concentration of our investments in any one issuer or industry.  We have established specific policies
limiting the concentration of our investments in any single issuer and industry and believe our investment
portfolio is prudently diversified.



Liquidity and Capital Resources



In the normal course of business, we enter into transactions
involving various types of financial instruments such as debt and equity securities.  These instruments
have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations.



Our liquidity requirements principally relate to the liabilities
associated with various life insurance and annuity products and operating expenses.  Liabilities arising
from life insurance and annuity products include the payment of benefits, as well as cash payments in
connection with policy surrenders, withdrawals and loans.



Historically, we have used cash flow from operations and investment
activities to fund liquidity requirements.  Our principal cash inflows from life insurance and annuities
activities come from premiums, annuity deposits and charges on insurance policies and annuity contracts.
 Principal cash inflows from investment activities result from repayments of principal, proceeds from
maturities, sales of invested assets and investment income.

17



---



Ratings



Ratings are an important factor in establishing our competitive
position in the insurance and financial services marketplace.  There can be no assurance that our ratings
will continue for any given period of time or that they will not be changed.  In the event our ratings are
downgraded, our ability to borrow, the level of our revenues and the persistency of our business may be
adversely affected.  Please see Section II, Item 1A. Risk Factors below.



Our current financial strength and
debt ratings are set forth in the chart below.



|                        |  | Financial Strength Ratings of     
|----------------------- |  | ----------------------------------
|Rating Agency           |  | Phoenix Life and PHL Variable Life
|                        |  |                                   
|A.M. Best Company, Inc. |  | A (Excellent)                   
|                        |  |                                   
|Fitch                   |  | A+ (Strong)                     
|                        |  |                                   
|Standard & Poors       |  | A (Strong)                      
|                        |  |                                   
|Moodys                 |  | A3 (Good)                       



On July 27, 2006, Standard & Poors affirmed our rating, as
well as Phoenix Lifes A (Strong) financial strength rating.  In addition, Standard &
Poors revised its outlook for these ratings from stable to negative.  On July 28, 2006, Fitch
affirmed our rating, as well as Phoenix Lifes A+ (Strong) financial strength rating, and
maintained its stable outlook.



These ratings are not a recommendation to buy or hold any of our
securities.



See our 2005 Annual Report on Form 10-K for additional information
as to liquidity and capital resources.



Contractual Obligations and Commercial Commitments



As of June 30, 2006, there were no significant changes to our
outstanding contractual obligations and commercial commitments as disclosed in our 2005 Annual Report on Form
10-K.



Off-Balance Sheet Arrangements



As of June 30, 2006 and December 31, 2005, we did not have any
significant off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of SEC Regulation S-K.



Reinsurance



We maintain life reinsurance programs designed to protect against
large or unusual losses in our life insurance business. Based on our review of their financial statements and
reputations in the reinsurance marketplace, we believe that these third-party reinsurers are financially sound
and, therefore, that we have no material exposure to uncollectible life reinsurance.



Risk Based Capital



At June 30, 2006, our estimated Total Adjusted Capital level was in
excess of 400% of Company Action Level.





ITEM 3.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We have omitted this information from this report as we meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
with the reduced disclosure format permitted by that General Instruction.





18



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ITEM 4.
 CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures.  We
have carried out an evaluation under the supervision and with the participation of our management, including
our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures.  There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control objectives.
 Based upon our evaluation, these officers have concluded that, as of June 30, 2006, the disclosure
controls and procedures were effective to provide reasonable assurance that information required to be
disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the SECs rules and forms.



Changes in Internal Control over Financial Reporting.
 During the three months ended on June 30, 2006, there were no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



19



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PART II.  OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS



We are regularly involved in litigation, both as a defendant and as
a plaintiff.  The litigation naming us as a defendant ordinarily involves our activities as an insurer,
investor or taxpayer.  Several current proceedings are discussed below.  In addition, state
regulatory bodies, the Securities and Exchange Commission, or SEC, the National Association of Securities
Dealers, Inc., or NASD, and other regulatory bodies regularly make inquiries of us and, from time to time,
conduct examinations or investigations concerning our compliance with, among other things, insurance laws and
securities laws.



For example, during 2003 and 2004, the SEC conducted examinations of
certain Company variable products and certain affiliated investment advisors and mutual funds.  In 2004,
the NASD also commenced examinations of two affiliated broker-dealers; the examinations were closed in April
2005 and November 2004, respectively.  In February 2005, the NASD notified an affiliate of the Company
that it was asserting violations of trade reporting rules by the affiliate of the Company.  The affiliated
company responded to the NASD allegations in May 2005 but has not received any further inquiries to date.



Federal and state regulatory authorities from time to time make
inquiries and conduct examinations regarding compliance by the Company with securities and other laws and
regulations affecting its registered products.  The Company endeavors to respond to such inquiries in an
appropriate way and to take corrective action if warranted.  Recently, there has been a significant
increase in federal and state regulatory activity relating to financial services companies, with a number of
recent regulatory inquiries focusing on late-trading, market timing and valuation issues.  Our products
entitle us to impose restrictions on transfers between separate account sub-accounts associated with our
variable products.



In 2004 and 2005, the Boston District Office of the SEC conducted a
compliance examination of certain of the Companys affiliates that are registered under the Investment
Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston
District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for
monitoring trading to prevent market timing activity.  The staff requested the Company to conduct an
analysis as to whether shareholders, policyholders and contract holders who invested in the funds that may have
been affected by undetected market timing activity had suffered harm and to advise the staff whether the
Company believes reimbursement is necessary or appropriate under the circumstances.  A third party was
retained to assist the Company in preparing the analysis.  Based on this analysis, the Company advised the
SEC that it does not believe that reimbursement is appropriate.



Over the past two years, a number of companies have announced
settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York
Attorney Generals Office.  While no such action has been initiated against us, it is possible that
one or more regulatory agencies may pursue this type of action against us in the future.



Financial services companies have also been the subject of broad
industry inquiries by state regulators and attorneys general which do not appear to be company-specific.
 In this regard, in 2004, we received a subpoena from the Connecticut Attorney Generals office
requesting information regarding certain distribution practices since 1998.  Over 40 companies received
such a subpoena.  We cooperated fully and have had no further inquiry since filing our response.



These types of regulatory actions may be difficult to assess or
quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and
magnitude of their outcomes may remain unknown for substantial periods of time.  While it is not feasible
to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to provide
reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in
the aggregate, to have a material adverse effect on our financial condition, or consideration of available
insurance and reinsurance and the provision made in our financial statements.  However, given the large or
indeterminate amounts sought in certain of these matters and litigations inherent unpredictability, it is
possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on
our results of operation or cash flows.





20



---



ITEM 1A.  RISK FACTORS



We face significant risks, any of which could have a significant or
material adverse effect on our business, financial condition, operating results or liquidity.  The risks
described below updates the risk factors described in our 2005 Form10-K and should be read in addition to
those risk factors.  The risk factors described in this Form 10-Q and our 2005 Form 10-K may not be the
only risks we face.  This information should be considered carefully together with the other information
contained in this Form 10-Q and the other reports and materials we file with the Securities and Exchange
Commission.



Downgrades to Phoenix Lifes and PHL Variable Insurance
Companys financial strength ratings could increase policy surrenders and withdrawals, adversely affect
relationships with distributors, reduce new sales and earnings from certain of our life insurance products and
increase our future borrowing costs.



Rating agencies assign financial strength ratings based on their
opinions of the relevant companys ability to meet its financial obligations.  Financial strength
ratings reflect a rating agencys view of an insurance companys ability to meet its obligations to
its insureds.  These ratings are therefore key factors underlying the competitive position of life
insurers. Downgrades could adversely affect our reputation and, hence, our relationships with existing
distributors and our ability to establish additional distributor relationships.  If this were to occur, we
might experience a decline in sales of certain products and the persistency of existing customers.  At
this time, we cannot estimate the impact on sales or persistency. A significant decline in our sales or
persistency could have a material adverse effect on our financial results.





ITEM 2.  UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS



We have omitted this information from this report as we meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
with the reduced disclosure format permitted by that General Instruction.





ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES



We have omitted this information from this report as we meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
with the reduced disclosure format permitted by that General Instruction.





ITEM 4.  SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS



We have omitted this information from this report as we meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
with the reduced disclosure format permitted by that General Instruction.





ITEM 5.  OTHER INFORMATION



(a)

None.



(b)

No material
changes.







21



---

ITEM 6.
 EXHIBITS



|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|3.1     |  | Form of Amended and Restated Certificate of Incorporation (as
amended and restated effective May 31, 1994) (incorporated herein by reference to Exhibit 3.1 to the PHL
Variable Insurance Companys Annual Report on Form 10-K filed March 31, 2006)                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|3.2     |  | Bylaws of PHL Variable Life Insurance Company (as amended and
restated effective May 16, 2002) (incorporated herein by reference to Exhibit 3.2 to the PHL Variable Insurance
Companys Annual Report on Form 10-K filed March 31, 2006)                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.1    |  | Services Agreement effective as of January 1, 1995 by and among PHL
Variable Insurance Company, Phoenix Life Insurance Company, American Life and Reassurance Company, Phoenix
American Life Insurance Company and Phoenix Home Life Mutual Insurance Company (incorporated herein by
reference to Exhibit 10.1 to the PHL Variable Insurance Companys Annual Report on Form 10-K filed March
31, 2006)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.2    |  | Investment Management Agreement effective as of January 1, 1995 by
and between PHL Variable Insurance Company and Phoenix Investment Counsel, Inc. (incorporated herein by
reference to Exhibit 10.2 to the PHL Variable Insurance Companys Annual Report on Form 10-K filed March
31, 2006)                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.3    |  | Amendment #1 (effective as of January 1, 1998) to the Investment
Management Agreement dated as of January 1, 1995 by and between PHL Variable Insurance Company and Phoenix
Investment Counsel, Inc. (incorporated herein by reference to Exhibit 10.3 to the PHL Variable Insurance
Companys Annual Report on Form 10-K filed March 31, 2006)                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.4    |  | Amended and Restated Tax Allocation Agreement dated as of January 1,
2001 by and among The Phoenix Companies, Inc. and most of its subsidiaries (incorporated herein by reference to
Exhibit 10.4 to the PHL Variable Insurance Companys Annual Report on Form 10-K filed March 31, 2006)                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.5    |  | Amendment #1 (effective as of January 1, 2006) to the Amended and
Restated Tax Allocation Agreement dated as of January 1, 2001 by and among The Phoenix Companies, Inc. and most
of its subsidiaries (incorporated herein by reference to Exhibit 10.5 to the PHL Variable Insurance
Companys Annual Report on Form 10-K filed March 31, 2006)                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|31.1    |  | Certification of Philip K. Polkinghorn, Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|31.2    |  | Certification of Michael E. Haylon, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|32      |  | Certification by Philip K. Polkinghorn, Chief Executive Officer and
Michael E. Haylon, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         



|* |  | Filed herewith
|- |  | --------------
|  |  |               



We will furnish any exhibit upon the payment of a reasonable fee,
which fee shall be limited to our reasonable expenses in furnishing such exhibit.  Requests for copies
should be directed to: Corporate Secretary, The Phoenix Companies, Inc., One American Row, P.O. Box 5056,
Hartford, Connecticut 06102-5056.





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---



Signature



Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.



PHL VARIABLE INSURANCE COMPANY



Date:

August 14, 2006

By:

/s/ Michael E. Haylon





Michael E. Haylon

Executive Vice President

and Chief Financial Officer





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