<PAGE>
Phoenix Investment Partners
DECEMBER 31, 1998
ANNUAL REPORT
Phoenix Strategic
Allocation Fund, Inc.
[LOGO] PHOENIX
INVESTMENT PARTNERS
<PAGE>
Mutual Funds are not insured by the FDIC; are not
deposits or other obligations of a bank and are not
guaranteed by a bank; and are subject to investment
risks, including possible loss of the principal
invested.
<PAGE>
MESSAGE FROM THE PRESIDENT
DEAR SHAREHOLDER:
[PHOTO]
We are pleased to provide this report for the Phoenix Strategic Allocation
Fund for the 12 months ended December 31, 1998.
After months of unprecedented volatility, the U.S. stock market ended 1998 up
28.8%, as measured by the S&P 500 Index(1). The "bear market" of 1998 (October's
20% correction) will be remembered as the shortest on record. Fixed-income
markets also experienced some difficult times. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. government
securities.
During such market extremes, it is important to keep a long-term perspective.
We believe that by remaining true to our investment discipline, we will continue
to add value for our shareholders over the long term. Of course, past
performance is not a guarantee of future results.
On the following pages, your Fund's portfolio management team discuss their
investment strategy and provide their outlook for the next six months. We hope
you find their comments informative. If you have any questions, please contact
your financial advisor or call us at 1-800-243-4361.
Sincerely,
/s/ Philip R McLoughlin
Philip R McLoughlin
JANUARY 28, 1999
(1) THE S&P 500 INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF STOCK MARKET
TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT.
1
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC.
A DISCUSSION WITH THE FUND'S PORTFOLIO MANAGEMENT TEAM
Q: WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A: The Fund is appropriate for investors seeking long-term appreciation through
investments in a combination of common stocks and fixed-income securities,
including foreign and high-yield debt issues. Investors should note that foreign
investing involves special risks, such as currency fluctuations, less public
disclosure, and economic and political risks, and high yielding fixed-income
securities generally are subject to greater market fluctuations and risk of loss
of income and principal than are investments in lower yielding fixed-income
securities.
Q: HOW DID THE FUND PERFORM FOR THE FISCAL YEAR?
A: For the 12 months ended December 31, 1998, the Fund's Class A shares returned
20.38% and Class B shares returned 19.53% compared with an average return of
14.20% for a peer universe of 207 flexible portfolio funds, according to Lipper
Inc. A composite benchmark index comprised of 55% of the return for the S&P 500
Index(1), 35% of the return for the Lehman Brothers Aggregate Bond Index(2) and
10% of the return of the 90-day T-bill(3) returned 19.67% and the S&P 500 Index
returned 28.76% for the same period. The performance benchmark was changed to a
composite index because this more accurately represents the Fund's asset mix
than does the S&P 500 Index, the Fund's previous benchmark. All performance
figures assume reinvestment of distributions and are net of sales charges.
Q: GIVEN THE FUND'S STRONG RELATIVE PERFORMANCE OVER THIS LATEST REPORTING
PERIOD, BRIEFLY DESCRIBE HOW THE EQUITY PORTION OF THE PORTFOLIO WAS POSITIONED
DURING 1998.
A: Last year was marked by a large disparity in returns between asset classes.
Small-capitalization stocks continued to underperform, and profitability at many
cyclical companies came under pressure due to weakness in the international
markets and falling commodity prices. Recognizing these trends, we focused our
stock selection on large-capitalization companies with predictable revenue
streams and a domestic focus. The Fund's heavy bias towards large-cap names and
its overweighting in the health-care, consumer staples, and technology sectors
were the primary drivers for our strong performance during 1998.
Q: HOW DID THE FIXED-INCOME PORTION OF THE FUND FARE OVER THE YEAR?
A: With respect to the fixed-income portion of the Fund, the interest rate
roller coaster ride of 1997 (with rates starting out at 6.64%, peaking at 7.15%,
and ending at 5.92%) turned into a "yield ride" in 1998, as many fixed-income
investors began the year reaching for yield in both domestic high-yield
securities and lower quality foreign bonds. Despite the favorable backdrop of a
moderate, stable U.S. economy and historically low rates, this strategy began to
lose favor as global uncertainty caused investor sentiment to shift in the
second half of the year toward a preference for the safety and liquidity of U.S.
(1) THE S&P 500 INDEX IS AN UNMANAGED, COMMONLY USED MEASURE OF STOCK MARKET
TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE FOR DIRECT INVESTMENT.
(2) THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS AN UNMANAGED, COMMONLY USED
MEASURE OF BOND MARKET TOTAL RETURN PERFORMANCE. THE INDEX IS NOT AVAILABLE
FOR DIRECT INVESTMENT.
(3) THE 90-DAY T-BILL IS A COMMONLY USED MEASURE OF SHORT-TERM DEBT TOTAL RETURN
PERFORMANCE.
2
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC. (CONTINUED)
Treasuries. With the benefit of three swift rate cuts by the Federal Reserve
Board, the markets began to calm in the fourth quarter, and the 30-year U.S.
Treasury bond closed out the year at 5.09%. While the most recent CPI figures
indicate that U.S. inflation remains benign at a modest 1.6% annualized rate --
a slight slowdown from 1997's 1.7% rate -- the mood in the bond market remains
tenuous.
While we are not pleased with our fixed-income results, they can be
explained by a "flight to quality" of unprecedented magnitude. As stated
earlier, the U.S. Treasury sector was the best performing sector in 1998. While
market environments such as this happen relatively infrequently, they penalize
managers such as ourselves that have a significant underweighting to U.S.
Treasuries. It is noteworthy that since 1980 there was only one occurrence where
U.S. Treasuries were the best performing bond market sector two years in a row.
During this difficult time, we remained true to our discipline and remained
fully allocated to those sectors we believed were the most attractive from a
risk-reward perspective. We believe that this is the most prudent manner in
which to manage assets particularly during extreme market moves.
Q: WHAT IS YOUR OUTLOOK AND HOW IS THE FUND POSITIONED TO REFLECT THESE VIEWS?
A: As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the stock market. While we
expect corporate profits to remain under pressure, this current environment of
benign inflation and historically low interest rates should continue to be a
positive catalyst for financial assets. After four straight years of
double-digit gains, it is also likely that we will see more normalized
(single-digit) returns for U.S. equities in 1999. Lastly, we believe that the
financial markets will remain volatile over the near term, as there are still
many crosscurrents at work in the global financial systems.
Although we anticipate a modest slowdown in the U.S. economy, we do not
expect the recession that seems going forward, to be factored into the domestic
high-yield market currently. We do expect that this sector's defaults will pick
up in 1999; however, the level being priced into the market is extremely high.
Our holdings in this area represent a diversified group of securities in
industries with good fundamentals, and solid underlying businesses. In addition,
we have some small exposure to U.S. dollar-denominated below investment-grade
foreign holdings. This sector remains among the most attractive from a risk-
reward perspective. We own debt securities of countries that have good
fundamentals and more stable political situations.
We believe the fixed-income portion of the Fund is well structured to take
advantage of current market conditions, and we will continue to emphasize the
credit-sensitive sectors given their
3
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC. (CONTINUED)
very favorable valuations. The market is paying investors a large yield premium
or yield advantage as compensation for taking risk. Priced into this premium is
much bad news. For those investors willing and able to be patient and
discerning, we believe these factors present outstanding opportunities.
JANUARY 25, 1999
4
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
AVERAGE ANNUAL TOTAL RETURNS(1) PERIODS ENDING 12/31/98
<TABLE>
<CAPTION>
INCEPTION INCEPTION
1 YEAR 5 YEARS 10 YEARS TO 12/31/98 DATE
------ ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Class A Shares at NAV(2) 20.38% 12.80% 13.48% -- --
Class A Shares at POP(3) 14.67 11.71 12.93 -- --
Class B Shares at NAV(2) 19.53 -- -- 15.22% 10/24/94
Class B Shares with CDSC(4) 15.69 -- -- 14.93 10/24/94
Lipper Analytical Services Flexible
Portfolio Index(6) 16.55 13.69 13.02 16.88 10/31/94
S&P 500 Index(7) 28.76 24.15 19.22 29.12 10/24/94
Balanced Benchmark(8) 19.67 16.29 14.46 19.50 10/31/94
</TABLE>
(1) Total returns are historical and include changes in share price and the
reinvestment of both dividends and capital gains distributions.
(2) "NAV" (Net Asset Value) total returns do not include the effect of any
sales charge.
(3) "POP" (Public Offering Price) total returns include the effect of the
maximum front-end 4.75% sales charge.
(4) CDSC (Contingent Deferred Sales Charge) is applied to redemptions of
certain classes of shares that do not have a sales charge applied at the
time of purchase. CDSC charges for B shares decline from 5% to 0% over a
five year period.
(5) This chart illustrates POP returns on Class A Shares for ten years. Returns
on Class B Shares will vary due to differing sales charges.
(6) The Lipper Analytical Services Flexible Portfolio Index is an average of
the largest mutual funds within the flexible portfolio category; the 5 and
10 year returns are derived from compounding the yearly returns.
Performance is based on the reinvestment of all distributions and does not
reflect the effects of sales charges.
(7) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index's performance does not reflect sales
charges.
(8) The Balanced Benchmark is a composite index made up of 55% of the S&P 500
Index return, 35% of the Lehman Brothers Aggregate Bond Index return and
10% of the 90-day Treasury bill return. The Index's performance does not
reflect sales charges.
All returns represent past performance which may not be indicative of
future performance. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
GROWTH OF $10,000 PERIODS ENDING 12/31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PHOENIX STRATEGIC LIPPER ANALYTICAL
ALLOCATION FUND, INC. S&P 500 SERVICES FLEXIBLE BALANCED
CLASS A(5) INDEX(7) PORTFOLIO INDEX(6) BENCHMARK(8)
<S> <C> <C> <C> <C>
12/30/1988 $ 9,525.00 $10,000.00 $10,000.00 $10,000.00
12/29/1989 $11,275.49 $13,143.49 $11,725.08 $12,312.04
12/31/1990 $11,777.03 $12,723.63 $11,834.86 $12,595.30
12/31/1991 $15,148.16 $16,609.89 $15,027.78 $15,488.25
12/31/1992 $16,711.25 $17,887.30 $15,880.20 $16,608.63
12/31/1993 $18,464.85 $19,676.05 $17,903.98 $18,144.34
12/30/1994 $18,048.23 $19,936.37 $17,426.38 $18,179.16
12/29/1995 $21,339.28 $27,413.96 $21,537.75 $23,129.04
12/31/1996 $23,213.71 $33,787.07 $24,564.00 $26,444.46
12/31/1997 $28,014.66 $45,063.71 $29,177.75 $32,249.49
12/31/1998 $33,733.35 $58,022.45 $34,006.77 $38,592.09
</TABLE>
This Growth of $10,000 chart assumes an initial investment of $10,000 made on
12/31/88 for Class A shares and reflects the maximum sales charge of 4.75% on
the initial investment. Performance assumes dividends and capital gains are
reinvested. The performance of other share classes will be greater or less than
that shown based on differences in inception dates, fees and sales charges.
SECTOR WEIGHTINGS 12/31/98
As a percentage of equity holdings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<C> <S>
Technology 24%
Consumer Staples 19%
Health-Care 18%
Financials 14%
Communication Services 9%
Capital Goods 7%
Consumer Cyclicals 6%
Other 3%
</TABLE>
5
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
TEN LARGEST EQUITY HOLDINGS AT DECEMBER 31, 1998 (AS A PERCENTAGE OF TOTAL NET
ASSETS)
<TABLE>
<C> <S> <C>
1. Intel Corp. 3.0%
DESIGNS, DEVELOPS AND MARKETS ADVANCED MICROCOMPUTER COMPONENTS
2. International Business Machines Corp. 2.6%
PROVIDES ADVANCED INFORMATION TECHNOLOGIES
3. AirTouch Communications, Inc. 2.5%
PROVIDES WIRELESS TELECOMMUNICATIONS AND PAGING SERVICES
4. Microsoft Corp. 2.4%
WORLD'S LEADING COMPUTER SOFTWARE COMPANY
5. Pfizer, Inc. 2.4%
PRODUCES AND DISTRIBUTES PROPRIETARY HEALTH-RELATED ITEMS
6. Bristol-Myers Squibb Co. 2.0%
COMPREHENSIVE HEALTH-CARE COMPANY
7. General Electric Co. 2.0%
DIVERSIFIED MANUFACTURING AND FINANCIAL SERVICES PROVIDER
8. Safeway, Inc. 1.9%
OPERATES A CHAIN OF FOOD AND DRUG STORES
9. Compuware Corp. 1.8%
DEVELOPS AND MARKETS PROGRAMMING AND APPLICATION PRODUCTIVITY
SOFTWARE
10. Warner-Lambert Co. 1.8%
MAKES CONSUMER HEALTH-CARE PRODUCTS
</TABLE>
INVESTMENTS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--9.8%
U.S. TREASURY BONDS--0.4%
U.S. Treasury Bonds 6.125%, 11/15/27.... AAA $ 1,250 $ 1,396,697
U.S. TREASURY NOTES--9.4%
U.S. Treasury Notes 5.375%, 1/31/00..... AAA 8,000 8,062,248
U.S. Treasury Notes 5.50%, 2/29/00...... AAA 7,000 7,067,089
U.S. Treasury Notes 4.50%, 9/30/00...... AAA 1,525 1,522,386
U.S. Treasury Notes 5.50%, 1/31/03...... AAA 5,000 5,145,245
U.S. Treasury Notes 5.75%, 4/30/03...... AAA 1,250 1,300,395
U.S. Treasury Notes 5.25%, 8/15/03...... AAA 2,503 2,566,148
U.S. Treasury Notes 5.50%, 2/15/08...... AAA 2,275 2,410,570
U.S. Treasury Notes 5.625%, 5/15/08..... AAA 2,831 3,021,112
-------------
31,095,193
-------------
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(IDENTIFIED COST $32,042,589) 32,491,890
- --------------------------------------------------------------------------------
AGENCY MORTGAGE-BACKED SECURITIES--0.2%
GNMA 6.50%, 6/15/28..................... AAA 596 602,468
- --------------------------------------------------------------------------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $593,132) 602,468
- --------------------------------------------------------------------------------
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
MUNICIPAL BONDS--4.3%
CALIFORNIA--2.0%
California State Department Water
Resources Revenue Series S 5%,
12/1/29................................. AA $ 325 $ 321,343
Kern County Pension Obligation Revenue
Taxable 7.26%, 8/15/14.................. AAA 1,700 1,878,500
Long Beach Pension Obligation Taxable
6.87%, 9/1/06........................... AAA 950 1,020,062
Los Angeles County Public Works 5.125%,
12/1/29................................. AAA 495 498,094
San Bernardino County Pension Obligation
Revenue Taxable 6.87%, 8/1/08........... AAA 455 489,694
San Bernardino County Pension Obligation
Revenue Taxable 6.94%, 8/1/09........... AAA 1,240 1,343,850
Ventura County Pension Obligation
Taxable 6.54%, 11/1/05.................. AAA 1,100 1,156,375
-------------
6,707,918
-------------
FLORIDA--1.6%
Florida State Department of
Transportation Series A 5%, 7/1/27...... AA+ 400 397,500
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
FLORIDA--CONTINUED
Miami Beach Special Obligation Revenue
Taxable 8.60%, 9/1/21................... AAA $ 3,600 $ 4,113,000
University of Miami Revenue Taxable
Series A 7.65%, 4/1/20.................. AAA 595 637,394
-------------
5,147,894
-------------
MASSACHUSETTS--0.1%
Massachusetts State Water Resources
Authority Revenue Series D 5%, 8/1/24... AAA 400 395,000
NEW YORK--0.4%
New York State Dormitory Authority
Revenue Taxable 6.90%, 4/1/03........... BBB+ 600 625,500
New York State Environmental Facilities
Corp. Revenue Taxable 6.70%, 3/15/08.... AAA 600 637,500
-------------
1,263,000
-------------
TEXAS--0.2%
Houston Water & Sewer System Revenue
Refunding, Jr. Lien, Series D 5%,
12/1/25................................. AAA 495 485,100
Texas State General Obligation Series B
5.25%, 10/1/08(g)....................... AA 200 216,500
-------------
701,600
-------------
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(IDENTIFIED COST $13,479,135) 14,215,412
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--1.6%
AESOP Funding II LLC 97-1, A2 144A
6.40%, 10/20/03(d)...................... AAA 1,600 1,636,000
Capita Equipment Receivables Trust 97-1,
B 6.45%, 8/15/02........................ A+ 600 606,000
Copelco Capital Funding Corp. 98-A, A3
5.78%, 8/15/01.......................... AAA 1,250 1,251,563
Fleetwood Credit Corp. Grantor Trust
96-B, A 6.90%, 3/15/12.................. AAA 514 521,205
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
Green Tree Financial Corp. 96-2, M1
7.60%, 4/15/27.......................... AA- $ 1,150 $ 1,193,484
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $5,114,302) 5,208,252
- --------------------------------------------------------------------------------
CORPORATE BONDS--1.2%
COMPUTERS (SOFTWARE & SERVICES)--0.1%
Computer Associates International Series
B 6.375%, 4/15/05....................... A- 435 428,475
HEALTH CARE (DIVERSIFIED)--0.2%
Tenet Healthcare Corp. 144A 8.125%,
12/1/08(d).............................. BB- 600 621,750
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.2%
Boston Scientific Corp. 6.625%,
3/15/05................................. BBB 650 613,437
MANUFACTURING (DIVERSIFIED)--0.2%
Tyco International Group SA 6.375%,
6/15/05................................. A- 750 762,187
PAPER & FOREST PRODUCTS--0.1%
Buckeye Cellulose Corp. 9.25%,
9/15/08................................. BB- 350 363,563
RETAIL (FOOD CHAINS)--0.2%
Meyer (Fred), Inc. 7.45%, 3/1/08........ BB+ 525 568,313
TRUCKS & PARTS--0.2%
Cummins Engine, Inc. 6.45%, 3/1/05...... BBB+ 475 463,719
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $3,774,454) 3,821,444
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED
SECURITIES--2.7%
CS First Boston Mortgage Securities
Corp. 95-AEW1, B 7.182%, 11/25/27....... AA- 1,770 1,766,984
First Union Lehman Bros. 97-C1, B 7.43%,
4/18/07................................. Aa(c) 600 648,562
G.E. Capital Mortgage Services, Inc.
96-8, 1M 7.25%, 5/25/26................. AA 243 246,313
Lehman Large Loan 97-LLI, B 6.95%,
3/12/07................................. AA 725 763,063
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
Nationslink Funding Corp. 96-1, B 7.69%,
12/20/05................................ AA $ 325 $ 346,430
Residential Asset Securitization Trust
96-A8, A1 8%, 12/25/26.................. AAA 136 136,526
Residential Funding Mortgage Securities
I 96-S1, A11 7.10%, 1/25/26............. AAA 1,500 1,509,375
Residential Funding Mortgage Securities
I 96-S4, M1 7.25%, 2/25/26.............. AA 485 487,467
Structured Asset Securities Corp. 93-C1,
6.60%, 10/25/24......................... A+ 1,275 1,279,090
Structured Asset Securities Corp. 95-C4,
B 7%, 6/25/26........................... AA 1,850 1,867,344
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $8,877,628) 9,051,154
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES--2.1%
ARGENTINA--0.3%
Republic of Argentina Bearer FRB 6.188%,
3/31/05(e).............................. BBB- 780 667,071
Republic of Argentina 9.75%, 9/19/27.... BBB- 340 304,470
-------------
971,541
-------------
BRAZIL--0.2%
Republic of Brazil NMB-L Bearer 6.188%,
4/15/09(e).............................. B+ 875 483,985
BULGARIA--0.1%
Republic of Bulgaria FLIRB Series A
Bearer Euro 2.50%, 7/28/12(e)........... B(c) 580 333,500
COLOMBIA--0.2%
Republic of Colombia Yankee 7.25%,
2/23/04................................. BBB- 750 639,375
CROATIA--0.2%
Croatia Series B 6.563%, 7/31/06(e)..... BBB- 362 293,148
Croatia Series A 6.563%, 7/31/10(e)..... BBB- 420 336,000
-------------
629,148
-------------
KOREA--0.2%
Republic of Korea 8.875%, 4/15/08....... BB+ 735 757,050
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
<S> <C> <C> <C>
MEXICO--0.3%
United Mexican States Global Bond
11.50%, 5/15/26......................... BB $ 870 $ 926,985
PANAMA--0.2%
Republic of Panama 8.875%, 9/30/27...... BB+ 715 675,675
PERU--0.1%
Peru PDI 4%, 3/7/17(e).................. BB 540 341,550
POLAND--0.3%
Poland PDI Bearer 5%, 10/27/14(e)....... BBB- 1,125 1,053,984
- --------------------------------------------------------------------------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(IDENTIFIED COST $7,214,102) 6,812,793
- --------------------------------------------------------------------------------
FOREIGN CORPORATE BONDS--0.6%
ARGENTINA--0.0%
Compania de Radiocomunicaciones Moviles
SA 144A 9.25%, 5/8/08(d)................ BBB 200 185,000
CHILE--0.2%
Compania Sud Americana de Vapores SA
7.375%, 12/8/03......................... BBB 200 181,000
Petropower I Funding Trust 144A 7.36%,
2/15/14(d).............................. BBB 500 421,875
-------------
602,875
-------------
JAPAN--0.3%
IBJ Preferred Capital Co. LLC 144A
8.79%, 12/29/49(d)(e)................... Baa(c) 620 534,166
SB Treasury Co. LLC 144A 9.40%,
12/29/49(d)(e).......................... BB+ 620 590,076
-------------
1,124,242
-------------
POLAND--0.1%
TPSA Finance 144A 7.75%,
12/10/08(d)(f).......................... BBB- 240 236,700
- --------------------------------------------------------------------------------
TOTAL FOREIGN CORPORATE BONDS
(IDENTIFIED COST $2,370,352) 2,148,817
- --------------------------------------------------------------------------------
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
COMMON STOCKS--72.9%
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--2.7%
Bank One Corp........................... 41,406 $ 2,114,294
Mellon Bank Corp........................ 27,600 1,897,500
U.S. Bancorp............................ 34,900 1,238,950
Wells Fargo & Co........................ 93,000 3,714,187
-------------
8,964,931
-------------
BANKS (MONEY CENTER)--0.9%
BankAmerica Corp........................ 51,893 3,120,038
BEVERAGES (ALCOHOLIC)--0.8%
Anheuser-Busch Companies, Inc........... 38,000 2,493,750
BEVERAGES (NON-ALCOHOLIC)--1.2%
PepsiCo, Inc............................ 98,200 4,020,062
BROADCASTING (TELEVISION, RADIO & CABLE)--3.6%
CBS Corp................................ 37,200 1,218,300
Chancellor Media Corp.(b)............... 32,900 1,575,087
Clear Channel Communications, Inc.(b)... 23,100 1,258,950
Fox Entertainment Group, Inc. Class
A(b).................................... 29,900 753,106
Liberty Media Group Class A(b).......... 62,050 2,858,178
Tele-Communications, Inc. Class A(b).... 77,800 4,303,312
-------------
11,966,933
-------------
COMMUNICATIONS EQUIPMENT--0.6%
Tellabs, Inc.(b)........................ 28,000 1,919,750
COMPUTERS (HARDWARE)--2.6%
International Business Machines Corp.... 46,500 8,590,875
COMPUTERS (NETWORKING)--1.2%
Cisco Systems, Inc.(b).................. 41,650 3,865,641
COMPUTERS (PERIPHERALS)--1.2%
EMC Corp.(b)............................ 45,500 3,867,500
COMPUTERS (SOFTWARE & SERVICES)--8.6%
America Online, Inc.(b)................. 14,800 2,368,000
BMC Software, Inc.(b)................... 82,800 3,689,775
Compuware Corp.(b)...................... 77,200 6,031,250
Edwards (J.D.) & Co.(b)................. 30,400 862,600
HBO & Co................................ 132,400 3,798,225
Microsoft Corp.(b)...................... 57,400 7,960,662
Oracle Corp.(b)......................... 51,100 2,203,687
Sterling Commerce, Inc.(b).............. 32,000 1,440,000
-------------
28,354,199
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
CONSUMER FINANCE--0.9%
Capital One Financial Corp.............. 26,900 $ 3,093,500
DISTRIBUTORS (FOOD & HEALTH)--1.1%
Cardinal Health, Inc.................... 49,200 3,733,050
ELECTRICAL EQUIPMENT--2.0%
General Electric Co..................... 64,300 6,562,619
ELECTRONICS (SEMICONDUCTORS)--3.5%
Intel Corp.............................. 83,700 9,923,681
Micron Technology, Inc.................. 32,800 1,658,450
-------------
11,582,131
-------------
FINANCIAL (DIVERSIFIED)--3.5%
Citigroup, Inc.......................... 69,050 3,417,975
Freddie Mac............................. 84,200 5,425,637
Morgan Stanley Dean Witter & Co......... 39,900 2,832,900
-------------
11,676,512
-------------
HEALTH CARE (DIVERSIFIED)--4.2%
Bristol-Myers Squibb Co................. 50,000 6,690,625
Mylan Laboratories, Inc................. 46,300 1,458,450
Warner-Lambert Co....................... 78,300 5,887,181
-------------
14,036,256
-------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)--4.8%
Pfizer, Inc............................. 62,200 7,802,212
Schering-Plough Corp.................... 98,400 5,436,600
Watson Pharmaceuticals, Inc.(b)......... 44,200 2,779,075
-------------
16,017,887
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--2.8%
Baxter International, Inc............... 46,000 2,958,375
Becton, Dickinson and Co................ 24,000 1,024,500
Genzyme Corp. (b)....................... 24,600 1,223,850
Medtronic, Inc.......................... 54,800 4,068,900
-------------
9,275,625
-------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.7%
Clorox Co. (The)........................ 8,500 992,906
Colgate-Palmolive Co.................... 13,200 1,225,950
Procter & Gamble Co. (The).............. 37,300 3,405,956
-------------
5,624,812
-------------
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
INSURANCE (LIFE/HEALTH)--0.5%
UNUM Corp............................... 26,800 $ 1,564,450
INSURANCE (MULTI-LINE)--1.4%
American International Group, Inc....... 31,500 3,043,688
ReliaStar Financial Corp................ 31,400 1,448,325
-------------
4,492,013
-------------
LODGING-HOTELS--0.4%
Carnival Corp........................... 25,300 1,214,400
MANUFACTURING (DIVERSIFIED)--1.6%
Tyco International Ltd.................. 68,800 5,190,100
OIL & GAS (DRILLING & EQUIPMENT)--0.4%
Halliburton Co.......................... 15,600 462,150
Schlumberger Ltd........................ 10,100 465,863
Transocean Offshore, Inc................ 15,800 423,638
-------------
1,351,651
-------------
OIL (DOMESTIC INTEGRATED)--1.3%
USX-Marathon Group...................... 139,600 4,205,450
OIL (INTERNATIONAL INTEGRATED)--1.6%
Amoco Corp.............................. 69,300 4,183,988
Conoco, Inc. Class A(b)................. 45,800 956,075
-------------
5,140,063
-------------
RETAIL (BUILDING SUPPLIES)--1.4%
Home Depot, Inc. (The).................. 75,800 4,638,013
RETAIL (COMPUTERS & ELECTRONICS)--0.3%
Tandy Corp.............................. 23,400 963,788
RETAIL (DRUG STORES)--3.1%
CVS Corp................................ 93,400 5,137,000
Rite Aid Corp........................... 103,600 5,134,675
-------------
10,271,675
-------------
RETAIL (FOOD CHAINS)--3.1%
Meyer (Fred), Inc.(b)................... 67,760 4,082,540
Safeway, Inc.(b)........................ 102,800 6,264,375
-------------
10,346,915
-------------
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C> <C>
RETAIL (GENERAL MERCHANDISE)--0.6%
Wal-Mart Stores, Inc.................... 22,900 $ 1,864,919
RETAIL (SPECIALTY)--1.3%
Borders Group, Inc.(b).................. 52,400 1,306,725
Staples, Inc.(b)........................ 72,050 3,147,684
-------------
4,454,409
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.4%
ServiceMaster Co. (The)................. 57,000 1,257,563
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.5%
AirTouch Communications, Inc.(b)........ 113,800 8,207,825
TELECOMMUNICATIONS (LONG DISTANCE)--2.3%
AT&T Corp............................... 47,100 3,544,275
MCI WorldCom, Inc.(b)................... 58,802 4,219,066
-------------
7,763,341
-------------
TELEPHONE--1.6%
BellSouth Corp. ........................ 59,200 2,952,600
SBC Communications, Inc. ............... 40,500 2,171,813
-------------
5,124,413
-------------
WASTE MANAGEMENT--1.2%
Waste Management, Inc................... 86,400 4,028,400
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $188,005,498) 240,845,459
- --------------------------------------------------------------------------------
FOREIGN COMMON STOCKS--0.6%
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.6%
Elan Corp. PLC Sponsored ADR
(Ireland)(b)............................ 27,000 1,878,188
- --------------------------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS
(IDENTIFIED COST $1,670,538) 1,878,188
- --------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS--96.0%
(IDENTIFIED COST $263,141,730) 317,075,877
- --------------------------------------------------------------------------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
----------- --------- -------------
SHORT-TERM OBLIGATIONS--4.1%
<S> <C> <C> <C>
COMMERCIAL PAPER--3.5%
Receivables Capital Corp. 5.15%,
1/4/99.................................. A-1+ $ 3,730 $ 3,728,399
SBC Communications, Inc. 5.95%,
1/6/99.................................. A-1 2,905 2,902,599
Preferred Receivables Funding 5.17%,
1/7/99.................................. A-1 1,000 999,154
Vermont American Corp. 5.45%, 1/27/99... A-1+ 4,100 4,083,862
-------------
11,714,014
-------------
FEDERAL AGENCY SECURITIES--0.6%
FMC 4.90%, 1/15/99...................... 1,945 1,941,294
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(IDENTIFIED COST $13,655,292) 13,655,308
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS--100.1%
(IDENTIFIED COST $276,797,022) 330,731,185(a)
Cash and receivables, less liabilities--(0.1%) (211,849)
-------------
NET ASSETS--100.0% $ 330,519,336
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $57,246,267 and gross
depreciation of $4,249,229 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purpose was
$277,734,147.
(b) Non-income producing.
(c) As rated by Moody's, Fitch or Duff & Phelps.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $4,225,567 or 1.3% of net
assets.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(f) All or a portion segregated as collateral.
(g) When issued.
See Notes to Financial Statements 11
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value
(Identified cost $276,797,022) $330,731,185
Cash 17,435
Collateral received for securities loaned 2,427,748
Receivables
Investment securities sold 1,686,465
Interest and dividends 1,334,620
Fund shares sold 123,215
Prepaid expenses 5,944
------------
Total assets 336,326,612
------------
LIABILITIES
Payables
Investment securities purchased 2,504,906
Collateral on securities loaned 2,427,748
Fund shares repurchased 367,387
Investment advisory fee 175,517
Transfer agent fee 118,114
Distribution fee 74,637
Financial agent fee 24,797
Directors' fee 5,000
Accrued expenses 109,170
------------
Total liabilities 5,807,276
------------
NET ASSETS $330,519,336
------------
------------
NET ASSETS CONSIST OF:
Capital paid in on shares of common stock $274,975,520
Undistributed net investment income 641,746
Accumulated net realized gain 967,907
Net unrealized appreciation 53,934,163
------------
NET ASSETS $330,519,336
------------
------------
CLASS A
Shares of common stock, $1 par value,
50,000,000 shares authorized (Net Assets $318,846,636) 18,722,960
Net asset value per share $17.03
Offering price per share $17.03/(1-4.75%) $17.88
CLASS B
Shares of common stock, $1 par value,
50,000,000 shares authorized (Net Assets $11,672,700) 692,012
Net asset value and offering price per share $16.87
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest $ 6,870,713
Dividends 1,518,382
Security lending 74,507
Foreign taxes withheld (19,483)
-----------
Total investment income 8,444,119
-----------
EXPENSES
Investment advisory fee 2,049,531
Distribution fee, Class A 760,756
Distribution fee, Class B 108,294
Financial agent fee 205,260
Transfer agent 455,400
Printing 75,464
Custodian 33,623
Professional 29,025
Registration 24,643
Directors 15,052
Miscellaneous 24,488
-----------
Total expenses 3,781,536
Custodian fees paid indirectly (1,970)
-----------
Net Expenses 3,779,566
-----------
NET INVESTMENT INCOME 4,664,553
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities 16,549,036
Net change in unrealized appreciation (depreciation) on
investments 37,970,099
-----------
NET GAIN ON INVESTMENTS 54,519,135
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $59,183,688
-----------
-----------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/98 12/31/97
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 4,664,553 $ 5,377,989
Net realized gain (loss) 16,549,036 55,056,093
Net change in unrealized appreciation
(depreciation) 37,970,099 166,401
------------- -------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 59,183,688 60,600,483
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income, Class A (4,386,234) (5,272,416)
Net investment income, Class B (82,422) (110,138)
Net realized gains, Class A (21,922,429) (50,054,070)
Net realized gains, Class B (803,938) (1,756,759)
------------- -------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (27,195,023) (57,193,383)
------------- -------------
FROM SHARE TRANSACTIONS
CLASS A
Proceeds from sales of shares
(1,803,964 and 609,276 shares,
respectively) 29,452,632 10,117,463
Net asset value of shares issued from
reinvestment of distributions
(1,395,511 and 3,143,046 shares,
respectively) 22,778,819 47,891,238
Cost of shares repurchased (4,476,479
and 3,705,438 shares, respectively) (72,799,537) (62,577,057)
------------- -------------
Total (20,568,086) (4,568,356)
------------- -------------
CLASS B
Proceeds from sales of shares (83,659
and 85,000 shares, respectively) 1,329,444 1,421,465
Net asset value of shares issued from
reinvestment of distributions
(50,302 and 112,967 shares,
respectively) 813,797 1,704,113
Cost of shares repurchased (156,318
and 105,293 shares, respectively) (2,499,565) (1,781,004)
------------- -------------
Total (356,324) 1,344,574
------------- -------------
DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS (20,924,410) (3,223,782)
------------- -------------
NET INCREASE IN NET ASSETS 11,064,255 183,318
NET ASSETS
Beginning of period 319,455,081 319,271,763
------------- -------------
END OF PERIOD [INCLUDING UNDISTRIBUTED
NET INVESTMENT INCOME
OF $641,746 AND $445,183,
RESPECTIVELY] $ 330,519,336 $ 319,455,081
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Phoenix Strategic Allocation Fund, Inc.
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.43 $ 15.52 $ 15.98 $ 14.82 $ 15.48
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income (loss) 0.25 0.30 0.31 0.45 0.34
Net realized and unrealized gain
(loss) 2.80 2.81 1.10 2.22 (0.69)
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 3.05 3.11 1.41 2.67 (0.35)
----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.24) (0.30) (0.29) (0.52) (0.31)
Dividends from net realized gains (1.21) (2.90) (1.58) (0.99) (0.001)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (1.45) (3.20) (1.87) (1.51) (0.311)
----- ----- ----- ----- -----
Change in net asset value 1.60 (0.09) (0.46) 1.16 (0.66)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 17.03 $ 15.43 $ 15.52 $ 15.98 $ 14.82
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Total return(1) 20.38% 20.68% 8.78% 18.23% (2.26)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $318,847 $308,524 $309,678 $361,526 $335,177
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.17%(6) 1.17% 1.21% 1.21% 1.24%
Net investment income 1.51% 1.68% 1.78% 2.67% 2.18%
Portfolio turnover 144% 355% 275% 184% 225%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 10/24/94
------------------------------------------------------- TO
1998 1997 1996 1995 12/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.30 $ 15.43 $ 15.89 $ 14.79 $ 14.98
INCOME FROM INVESTMENT OPERATIONS(5)
Net investment income (loss) 0.12 0.18 0.19 0.30(2) 0.07
Net realized and unrealized gain
(loss) 2.78 2.77 1.09 2.22 (0.09)
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS 2.90 2.95 1.28 2.52 (0.02)
----- ----- ----- ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income (0.12) (0.18) (0.16) (0.43) (0.17)
Dividends from net realized gains (1.21) (2.90) (1.58) (0.99) --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (1.33) (3.08) (1.74) (1.42) (0.17)
----- ----- ----- ----- -----
Change in net asset value 1.57 (0.13) (0.46) 1.10 (0.19)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 16.87 $ 15.30 $ 15.43 $ 15.89 $ 14.79
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Total return(1) 19.53% 19.74% 7.95% 17.31% (0.12)%(4)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $11,673 $10,931 $9,594 $8,046 $1,328
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.92%(6) 1.92% 1.96% 1.97% 2.26%(3)
Net investment income 0.75% 0.92% 1.01% 1.88% 1.74%(3)
Portfolio turnover 144% 355% 275% 184% 225%
</TABLE>
(1) Maximum sales load is not reflected in total return calculation.
(2) Computed using average shares outstanding.
(3) Annualized
(4) Not annualized
(5) Distributions are made in accordance with the prospectus; however, class
level per share income from investment operations may vary from anticipated
results depending on the timing of share purchases and redemptions.
(6) For the year ended December 31, 1998, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
14
See Notes to Financial Statements
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Phoenix Strategic Allocation Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to achieve the
highest total return consistent with reasonable risk by investing in stocks,
bonds and money market instruments. The Fund offers both Class A and Class B
shares. Class A shares are sold with a front-end sales charge of up to 4.75%.
Class B shares are sold with a contingent deferred sales charge which declines
from 5% to zero depending on the period of time the shares are held. Both
classes of shares have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. Income and expenses of the Fund are borne pro rata by the
holders of both classes of shares, except that each class bears distribution
expenses unique to that class.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.
A. SECURITY VALUATION:
Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the basis of
broker quotations or valuations provided by a pricing service which utilizes
information with respect to recent sales, market transactions in comparable
securities, quotations from dealers, and various relationships between
securities in determining value. Short-term investments having a remaining
maturity of 60 days or less are valued at amortized cost which approximates
market. All other securities and assets are valued at fair value as determined
in good faith by or under the direction of the Directors.
B. SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date or, in the case of certain foreign securities,
as soon as the Fund is notified. Interest income is recorded on the accrual
basis. The Fund does not amortize premiums but does amortize discounts using the
effective interest method. Realized gains or losses are determined on the
identified cost basis.
C. INCOME TAXES:
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code (the Code), applicable to regulated investment companies, and to
distribute all of its taxable income to its shareholders. In addition, the Fund
intends to distribute an amount sufficient to avoid the imposition of any excise
tax under Section 4982 of the Code. Therefore, no provision for federal income
taxes or excise taxes has been made.
D. DISTRIBUTIONS TO SHAREHOLDERS:
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include the treatment of non-taxable dividends, expiring
capital loss carryforwards, foreign currency gain/loss, partnerships, and losses
deferred due to wash sales and excise tax regulations. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications to paid in capital.
E. FOREIGN CURRENCY TRANSLATION:
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at the
trade date. The gain or loss resulting from a change in currency exchange rates
between the trade and settlement dates of a portfolio transaction is treated as
a gain or loss on foreign currency. Likewise, the gain or loss resulting from a
change in currency exchange rates between the date income is accrued and paid is
treated as a gain or loss on foreign currency. The Fund does not separate that
portion of the results of operations arising from changes in exchange rates and
that portion arising from changes in the market prices of securities.
F. OPTIONS:
The Fund may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
The Fund will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported separately
in the Statement of Operations. When a written option is exercised, the proceeds
on sales or amounts paid are adjusted by the amount of premium received. Options
written are reported as a liability in the Statement of Assets and Liabilities
and subsequently marked-to-market to reflect the current value of the option.
The risk associated with written options is that the change in value of options
contracts may not correspond to the change in value
15
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
of the hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, or if a liquid secondary market does not
exist for the contracts.
The Fund may purchase options which are included in the Fund's Schedule of
Investments and subsequently marked-to-market to reflect the current value of
the option. When a purchased option is exercised, the cost of the security is
adjusted by the amount of premium paid. The risk associated with purchased
options is limited to the premium paid.
G. LOAN AGREEMENTS:
The Fund may invest in direct debt instruments which are interests in amounts
owed by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of participations
in loans or assignments of all or a portion of loans from third parties. A loan
is often administered by a bank or other financial institution (the lender) that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. When investing in a loan participation, the
Fund has the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the loan agreement and only
upon receipt by the lender of payments from the borrower. The Fund generally has
no right to enforce compliance with the terms of the loan agreement with the
borrower. As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a risk
that the government entities responsible for the repayment of the debt may be
unable, or unwilling to pay the principal and interest when due.
H. SECURITY LENDING:
The Fund loans securities to qualified brokers through an agreement with State
Street Bank and Trust Company (State Street). Under the terms of the agreement,
the Fund receives collateral with a market value not less than 100% of the
market value of loaned securities. Collateral consists of cash, securities
issued or guaranteed by the U.S. Government or its agencies and the sovereign
debt of foreign countries. Interest earned on the collateral and premiums paid
by the borrower are recorded as income by the Fund net of fees charged by State
Street for its services in connection with this securities lending program.
Lending portfolio securities involves a risk of delay in the recovery of the
loaned securities or in the foreclosure on collateral. At December 31, 1998, the
Fund had loaned securities with a market value of $6,497,370 and received
collateral of $6,710,176 of which $2,427,748 is cash collateral.
I. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS:
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains collateral for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis begin earning interest on the settlement date.
2. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
As compensation for its services to the Fund, the Investment Adviser, Phoenix
Investment Counsel, Inc., an indirect majority-owned subsidiary of Phoenix Home
Life Mutual Insurance Company ("PHL"), is entitled to a fee at an annual rate of
0.65% of the average daily net assets of the Fund for the first $1 billion;
0.60% of such value between $1 billion and $2 billion; and 0.55% of such value
in excess of $2 billion.
As Distributor of the Fund's shares, Phoenix Equity Planning Corp. ("PEPCO"),
an indirect majority-owned subsidiary of PHL, has advised the Fund that it
retained net selling commissions of $15,764 for Class A shares and deferred
sales charges of $20,989 for Class B shares for the year ended December 31,
1998. In addition, the Fund pays PEPCO a distribution fee at an annual rate of
0.25% for Class A shares and 1.00% for Class B shares of the average daily net
assets of the Fund. The Distributor has advised the Fund that of the total
amount expensed for the year ended December 31, 1998, $189,599 was retained by
the Distributor, $629,696 was paid to unaffiliated participants and $49,755 was
paid to W.S. Griffith, an indirect subsidiary of PHL.
As Financial Agent of the Fund, PEPCO received a fee for bookkeeping,
administration, and pricing services through May 31, 1998 at an annual rate of
0.05% of average daily net assets up to $100 million, 0.04% of average daily net
assets of $100 million to $300 million, 0.03% of average daily net assets of
$300 million through $500 million, and 0.015% of average daily net assets
greater than $500 million; a minimum fee applied. Effective June 1, 1998, PEPCO
receives a financial agent fee equal to the sum of (1) the documented cost of
fund accounting and related services provided by PFPC, Inc. (subagent to PEPCO),
plus (2) the documented cost to PEPCO to provide financial reporting, tax
services and oversight of subagent's performance. The current fee schedule of
PFPC, Inc. ranges from 0.085% to 0.0125% of the average daily net asset values
of the Fund. Certain minimums and waivers may apply.
PEPCO serves as the Fund's Transfer Agent with State Street Bank and Trust
Company as sub-transfer agent. For the year ended December 31, 1998, transfer
agent fees were $455,400 of which PEPCO retained $168,459 which is net of the
fees paid to State Street.
16
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (CONTINUED)
At December 31, 1998, PHL and affiliates held 65 Class A shares and 10,834
Class B shares of the Fund with a combined value of $183,877.
3. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1998, purchases and sales of investments,
excluding short-term securities and U.S. Government and agency securities,
amounted to $339,145,810 and $390,899,105, respectively. Purchases and sales of
long-term U.S. Government and agency securities amounted to $66,562,615 and
$42,279,409, respectively.
4. CREDIT RISK
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as a fund's ability to
repatriate such amounts.
5. RECLASSIFICATION OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Fund has recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Fund and are designed generally to present
undistributed income and realized gains on a tax basis which is considered to be
more informative to the shareholder. During the year ended December 31, 1998,
the Fund increased undistributed net investment income by $666 and decreased
accumulated net realized gains by $666.
TAX INFORMATION NOTICE (UNAUDITED)
LONG-TERM CAPITAL GAINS
The Fund hereby designates $694,414 as a long-term capital gain dividend.
For federal income tax purposes, 5.88% of the ordinary income dividends paid
by the Fund qualify for the dividends received deduction for corporate
shareholders.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO]
To the Board of Directors and Shareholders of
Phoenix Strategic Allocation Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for bond ratings), and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Phoenix Strategic Allocation Fund, Inc. (the "Fund") at December 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards 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, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 1999
18
<PAGE>
RESULTS OF SHAREHOLDER MEETING (UNAUDITED)
A special meeting in lieu of the Annual Meeting of shareholders of the Phoenix
Strategic Allocation Fund, Inc. was held on September 10, 1998 to approve the
following matters:
1. Fix the number of directors at twelve and elect such number as detailed
below.
2. Ratify selection of PricewaterhouseCoopers LLP, independent accountants,
as auditors for the fiscal year ending December 31, 1998.
On the record date for this meeting, there were 19,455,157 shares
outstanding and 56.93% of the shares outstanding and entitled to vote were
present by proxy.
NUMBER OF VOTES
<TABLE>
<CAPTION>
FOR WITHHELD
--------- ---------
<S> <C> <C>
1. Election of Directors
Robert Chesek 10,688,931 387,124
E. Virgil Conway 10,701,072 374,983
Harry Dalzell-Payne 10,701,962 374,093
Francis E. Jeffries 10,701,035 375,020
Leroy Keith, Jr. 10,702,162 373,893
Philip R. McLoughlin 10,702,162 373,893
Everett L. Morris 10,703,323 372,732
James M. Oates 10,703,323 372,732
Calvin J. Pedersen 10,703,323 372,732
Herbert Roth, Jr. 10,703,323 372,732
Richard E. Segerson 10,703,323 372,732
Lowell P. Weicker, Jr. 10,703,323 372,732
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- --------- ---------
<S> <C> <C> <C>
2. PricewaterhouseCoopers LLP 10,611,650 85,650 378,754
</TABLE>
19
<PAGE>
PHOENIX STRATEGIC ALLOCATION FUND, INC.
101 Munson Street
Greenfield, Massachusetts 01301
DIRECTORS
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
OFFICERS
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
John F. Sharry, Executive Vice President
James D. Wehr, Senior Vice President
Christopher J. Kelleher, Vice President
William R. Moyer, Vice President
Leonard J. Saltiel, Vice President
Pierre G. Trinque, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary and Clerk
INVESTMENT ADVISER
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
PRINCIPAL UNDERWRITER
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
TRANSFER AGENT
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO CONTACT US
The Fund Connection 1-800-243-1574
Customer Service 1-800-243-1574
(option 0)
Investment Strategy Hotline 1-800-243-4361
(option 2)
Marketing Department 1-800-243-4361
(option 3)
Text Telephone 1-800-243-1926
Internet access:
www.phoenixinvestments.com
This report is not authorized for distribution to prospective investors in the
Phoenix Strategic Allocation Fund, Inc. unless preceded or accompanied by an
effective prospectus which includes information concerning the sales charge, the
Fund's record and other pertinent information.
<PAGE>
PHOENIX EQUITY PLANNING CORPORATION PRSRT STD
PO Box 2200 U.S. Postage
Enfield CT 06083-2200 PAID
Springfield, MA
[LOGO] PHOENIX Permit No. 444
INVESTMENT PARTNERS
PXP 454 (2/99)
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