As filed with the Securities and Exchange Commission on May 14, 1997
Registration Nos. 33-5033
811-4642
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 21 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 24 [X]
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
THE PHOENIX EDGE SERIES FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
---------------------
101 MUNSON STREET, GREENFIELD, MASSACHUSETTS 01301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
C/O VARIABLE PRODUCTS OPERATIONS
PHOENIX HOME LIFE MUTUAL INS. COMPANY
(800) 447-4312
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
COPIES TO:
PHILIP R. MCLOUGHLIN RICHARD J. WIRTH, ESQ.
THE PHOENIX EDGE SERIES FUND C/O PHOENIX HOME LIFE MUTUAL
C/O PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
INSURANCE COMPANY ONE AMERICAN ROW
ONE AMERICAN ROW HARTFORD, CT 06115
HARTFORD, CONNECTICUT 06115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
It is proposed that this filing will become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On May 1, 1997 pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] On ( ) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] On ( ) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
-------------------
DECLARATION REQUIRED BY RULE 24F-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has chosen to register an indefinite number or amount of securities under the
Securities Act of 1933. On February 21, 1997, the Registrant filed its Rule
24f-2 Notice for the Registrant's most recent fiscal year.
-------------------
================================================================================
<PAGE>
THE PHOENIX EDGE SERIES FUND
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS (PART A) AND
STATEMENT OF ADDITIONAL INFORMATION (PART B)
OF INFORMATION REQUIRED BY FORM N-1A
PURSUANT TO RULE 495(A)
<TABLE>
<CAPTION>
PART A
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Introduction
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Introduction; Investment Objectives and Policies; Other
Special Investment Methods; The Fund and Its Management
5. Management of the Fund..................................... The Fund and Its Management; Custodian, Transfer Agent
and Dividend Paying Agent
6. Capital Stock and Other Securities......................... The Fund and Its Management; Shares of Beneficial Interest;
Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered....................... Purchase of Shares; Net Asset Value; Redemption of Shares
8. Redemption or Repurchase................................... Purchase of Shares; Net Asset Value; Redemption of Shares
9. Pending Legal Proceedings.................................. Not Applicable
PART B
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------- -------------------------------------------
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Table of Contents
12. General Information and History............................ The Phoenix Edge Series Fund; Investing in the Fund
13. Investment Objectives and Policies......................... Investment Policies; Investment Restrictions;
Portfolio Turnover
14. Management of the Fund..................................... Management of the Fund
15. Control Persons and Principal Holders of Securities........ Management of the Fund
16. Investment Advisory and Other Services..................... Management of the Fund; The Investment Adviser
17. Brokerage Allocation and Other Practices................... Brokerage Allocation
18. Capital Stock and Other Securities......................... Investing In the Fund; Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered.................................. Determination of Net Asset Value; Investing in the Fund;
Redemption of Shares
20. Tax Status................................................. Taxes
21. Underwriters............................................... Not Applicable
22. Calculation of Yield Quotations of Money
Market Funds.............................................. Money Market Series
23. Financial Statements....................................... Financial Statements
</TABLE>
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS:
101 Munson Street P.O. Box 8027
Greenfield, MA Boston, MA 02266-8027
PROSPECTUS
July 28, 1997
The Phoenix Edge Series Fund (formerly "The Big Edge Series Fund"), a
Massachusetts business trust (the "Fund"), is an open-end management investment
company which is intended to meet a wide range of investment objectives with its
ten separate Series. Generally, each Series operates as if it were a
separate fund.
The shares of the Fund are not directly offered to the public. You can
invest in the Fund only by buying a Variable Accumulation Annuity Contract from
Phoenix Home Life Mutual Insurance Company ("Phoenix"), or by buying a Variable
Universal Life Insurance Policy, also offered by Phoenix, or by buying a
Variable Accumulation Annuity Contract offered by PHL Variable Insurance Company
("PHL Variable"), or by buying a Variable Universal Life Insurance Policy
offered by Phoenix Life and Annuity Company ("PLAC"), and directing the
allocation of your payment or payments to the Subaccount(s) corresponding to the
Series in which you wish to invest. The Subaccounts will, in turn, invest in
shares of the Fund. Not all Series may be offered through a particular Contract
or Policy. The Fund also offers its shares through other Phoenix products.
The investment objectives of the Series are as follows:
Multi-Sector Fixed Income ("Multi-Sector") Series. The investment objective
of the Multi-Sector Series is to seek long-term total return by investing in a
diversified portfolio of fixed income securities market sectors encompassing
high yield (high risk) and high quality fixed income securities. THE RISKS OF
INVESTING IN THESE SECURITIES ARE OUTLINED IN SECTION "INVESTMENT OBJECTIVES AND
POLICIES" OF THIS PROSPECTUS.
Money Market Series. The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity. The Money Market Series invests exclusively in high quality money
market instruments. AN INVESTMENT IN THE MONEY MARKET SERIES IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE.
Growth Series. The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
Strategic Allocation ("Allocation") Series. The investment objective of the
Allocation Series (formerly the "Total Return Series") is to realize as high a
level of total rate of return over an extended period of time as is considered
consistent with prudent investment risk. The Allocation Series invests in
stocks, bonds and money market instruments in accordance with the Adviser's
appraisal of investments most likely to achieve the highest total rate of
return.
Balanced Series. The investment objectives of the Balanced Series are
reasonable income, long-term capital growth and conservation of capital. It is
intended that this Series will invest in common stocks and fixed income
securities, with emphasis on income-producing securities which appear to have
some potential for capital enhancement.
International Series. The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions (see "Other Special Investment Methods"). The
International Portfolio provides a means for investors to invest a portion of
their assets outside the United States.
Real Estate Securities ("Real Estate") Series. The investment objective of
the Real Estate Series is to seek capital appreciation and income with
approximately equal emphasis. The Real Estate Series intends under normal
circumstances to invest in marketable securities of publicly traded real estate
investment trusts (REITs) and companies that operate, develop, manage and/or
invest in real estate located primarily in the United States.
Strategic Theme ("Theme") Series. The investment objective of the Theme
Series is to seek long-term appreciation of capital. This Series seeks to
identify securities benefiting from long-term trends present in the United
States and abroad. The Series intends to invest primarily in common stocks
believed by the Adviser to have substantial potential for capital growth. Since
many trends may be early in their development and no history of industry growth
patterns are available, securities owned may present a high degree of risk.
Aberdeen New Asia ("Asia") Series. This Series seeks as its investment
objective long-term capital appreciation. It is intended that this Series will
invest primarily in a diversified portfolio of equity securities of issuers
located in at least three different countries throughout Asia, other than Japan.
Research Enhanced Index ("Enhanced Index") Series. The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500"). It is intended that the
Series will invest in a portfolio of undervalued common stocks and other equity
securities which appear
2-1
<PAGE>
to offer growth potential and an overall volatility of return similar to that
of the S&P 500.
There can be no assurance that any Series will achieve its objectives. See
"Investment Objectives and Policies."
This Prospectus gives you the facts about the Fund and each of its Series
that you should know before directing investment in the Fund, and it should be
read and kept for future reference. A Statement of Additional Information dated
July 28, 1997, which contains further information about the Fund, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. A free copy of the Statement of Additional
Information may be obtained by calling Variable Products Operations of Phoenix
at (800) 447-4312, or by writing to Phoenix Variable Products Mail Operations at
PO Box 8027, Boston, Massachusetts 02266-8027.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus should be read and retained
for future reference.
2-2
<PAGE>
THE PHOENIX EDGE SERIES FUND
TABLE OF CONTENTS
Heading Page
- ----------------------------------------------------------------
Fund Expenses............................................ 2-4
Financial Highlights..................................... 2-5
Introduction............................................. 2-10
Investment Objectives and Policies....................... 2-11
Multi-Sector Series.................................. 2-11
Money Market Series.................................. 2-12
Growth Series........................................ 2-13
Allocation Series.................................... 2-13
International Series................................. 2-13
Balanced Series...................................... 2-15
Real Estate Series................................... 2-15
Theme Series......................................... 2-17
Asia Series.......................................... 2-17
Enhanced Index Series................................ 2-18
Other Special Investment Methods......................... 2-18
Convertible Securities............................... 2-18
Repurchase Agreements................................ 2-18
Options.............................................. 2-18
Financial Futures and Related Options................ 2-19
Foreign Securities................................... 2-19
Leverage............................................. 2-20
Private Placements & Rule 144A Securities............ 2-20
Mortgage-backed Securities........................... 2-20
Lending of Portfolio Securities...................... 2-21
When-Issued Securities............................... 2-21
Investment Restrictions.................................. 2-21
Portfolio Turnover....................................... 2-21
The Fund and Its Management.............................. 2-22
Investment Advisers.................................. 2-22
Portfolio Managers................................... 2-22
Balanced Series.................................. 2-22
Allocation Series................................ 2-22
Multi-Sector Series.............................. 2-23
Growth Series.................................... 2-23
International Series............................. 2-23
Money Market Series.............................. 2-23
Real Estate Series............................... 2-23
Theme Series..................................... 2-23
Asia Series...................................... 2-23
Enhanced Index Series............................ 2-23
Advisory Fees........................................ 2-23
Financial Agent...................................... 2-24
Expenses............................................. 2-24
Portfolio Transactions and Brokerage................. 2-24
Performance History.................................. 2-24
Shares of Beneficial Interest............................ 2-25
Purchase of Shares....................................... 2-26
Net Asset Value.......................................... 2-26
Redemption of Shares..................................... 2-26
Dividends and Distributions.............................. 2-26
Taxes ................................................. 2-27
Custodian, Transfer Agent and
Dividend Paying Agent................................ 2-27
Other Information........................................ 2-27
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
and if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund, the Investment Advisers or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not be lawfully made.
2-3
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder in
each Series of the Fund will incur. Expenses borne by these separate accounts
and by the owners of the contracts and policies are not reflected in the table.
Please refer to the applicable Variable Contract prospectus for such charges.
The expenses and fees set forth in the table are for the fiscal year ended
December 31, 1996.
SHAREHOLDER TRANSACTION EXPENSES
ALL SERIES
----------
Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends.......................... None
Deferred Sales Load................................................. None
Redemption Fees..................................................... None
Exchange Fees....................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets for the year ending Dec. 31, 1996)
<TABLE>
<CAPTION>
ALLO- MONEY ENHANCED
GROWTH MULTI-SECTOR CATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME ASIA INDEX
------ ------------ ------ ------ ------------- -------- ----------- ----- ---- -----
Management Fees
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees ...... .63% .50% .58% .40% .75% .55% .75% .75% 1.00% .45%
12b-1 Fees......................... None None None None None None None None None None
Other Operating Expenses
(After Reimbursement).......... .09%(1) .15%(1) .12%(1) .15%(1) .29%(1) .13%(1) .25%(2) .25%(3) .25%(4) .15%(1)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses. .72% .65% .70% .55% 1.04% .68% 1.00% 1.00% 1.25% .60%
</TABLE>
EXAMPLE:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. As noted above, the Fund charges
no redemption fees of any kind.
<TABLE>
<CAPTION>
ALLO- MONEY ENHANCED
GROWTH MULTI-SECTOR CATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME ASIA INDEX
------ ------------ ------ ------ ------------- -------- ----------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.................. $ 7 $ 7 $ 7 $ 6 $ 11 $ 7 $ 10 $ 10 $ 13 $ 6
3 Years................. $23 $21 $22 $18 $ 33 $22 $ 32 $ 32 $ 40 $19
5 Years................. $40 $36 $39 $31 $ 57 $38 $ 55 $ 55 $ 69 N/A
10 Years................ $89 $81 $87 $69 $127 $85 $122 $122 $151 N/A
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR PERFORMANCE. ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE PURPOSE OF THE TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR WILL BEAR DIRECTLY OR INDIRECTLY AT
THE FUND LEVEL. SEE "THE FUND AND ITS MANAGEMENT."
(1) Phoenix Investment Counsel, Inc. ("PIC") has agreed to reimburse the Series
(except the International) for the amount, if any, by which each Series'
operating expenses other than the management fee for any fiscal year exceed
.15% of the average net assets of the Series. PIC has agreed to reimburse
the International Series for the amount, if any, by which the Series'
operating expenses other than the management fee for any fiscal year exceed
.40% of the average net assets of the Series. If these reimbursements had
not been in place for the fiscal year ended December 31, 1996, total
operating expenses for the Multi-Sector Series would have been approximately
.67% of the average net assets of such Series. Without reimbursement, the
total operating expenses are estimated to be approximately ___% of the
average net assets of the Enhanced Index Series for the fiscal year ending
December 31, 1997.
(2) Phoenix Realty Securities, Inc. and/or Phoenix and/or PHL Variable have
agreed to reimburse the Real Estate Series' operating expenses for the
amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ended December 31, 1996, total operating expenses for the Real Estate Series
would have been approximately 1.43% of average net asset of such Series.
(3) Phoenix Investment Counsel, Inc. and/or Phoenix and/or PHL Variable have
agreed to reimburse the Theme Series' operating expenses for the amount, if
any, by which such Series' operating expenses other than the management fees
for any fiscal year exceed .25% of the average net assets of such Series. If
this reimbursement had not been in place for the fiscal year ending December
31, 1996, total operating expenses for the Theme Series would have been
approximately 1.28% of the average net assets of such Series.
(4) Phoenix-Aberdeen International Advisors, LLC and/or Phoenix and/or PHL
Variable have agreed to reimburse the Asia Series' operating expenses for
the amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ending December 31, 1996, total operating expenses for the Asia Series would
have been approximately 2.87% of the average net assets of such Series.
2-4
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
The following tables set forth certain financial information for the
respective fiscal years of the Fund. The annual information has been extracted
from the Fund's audited financial statements for the respective periods. The
financial information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders dated December 31, 1996, which is included in the Statement of
Additional Information. The Statement of Additional Information and the Fund's
most recent Annual Report (which contains a discussion of the Fund's
performance) are available at no charge upon request.
MONEY MARKET SERIES
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income.... 0.50 0.56 0.38(1) 0.28(1) 0.35 0.58 0.79 0.88 0.72 0.63
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations............. 0.50 0.56 0.38 0.28 0.35 0.58 0.79 0.88 0.72 0.63
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. - - - - - - - - - -
--- --- --- --- --- --- --- --- --- ---
Net asset value,
end of period.............. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return(2)............ 4.98% 5.55% 3.77% 2.80% 3.50% 5.80% 7.90% 8.80% 7.20% 6.30%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $131,361 $102,943 $ 94,586 $ 72,946 $ 69,962 $ 51,692 $ 38,709 $ 28,808 $ 22,294 $ 10,749
Ratio to average net assets of:
Operating expenses....... .55% 0.53%(3) 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 4.89% 5.57% 3.85% 2.84% 3.49% 5.76% 7.87% 8.96% 7.24% 6.30%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $.003
and $0.01 per share, respectively.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) For the year ended December 31, 1995, 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.
GROWTH SERIES
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81 $ 9.84
Income from investment operations
Net investment income.... 0.19 0.20 0.23(1,3) 0.16(3) 0.22(3) 0.39(3) 0.35(3) 0.27(3) 0.32(3) 0.19(3)
Net realized and
unrealized gain.......... 2.10 4.60 0.02 2.77 1.25 4.64 0.10 2.88 0.02 0.45
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations............. 2.29 4.80 0.25 2.93 1.47 5.03 0.45 3.15 0.34 0.64
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.18) (0.17) (0.23) (0.15) (0.23) (0.37) (0.35) (0.27) (0.32) (0.21)
Dividends from net realized
gains.................... (1.35) (2.19) (0.92) (1.20) (0.66) (1.95) - (0.09) - (1.46)
------ ------ ------ ------ ------ ------ --- ------ --- ------
Total distributions.... (1.53) (2.36) (1.15) (1.35) (0.89) (2.32) (0.35) (0.36) (0.32) (1.67)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.76 2.44 (0.90) 1.58 0.58 2.71 0.10 2.79 0.02 (1.03)
---- ---- ------ ---- ---- ---- ---- ---- ---- ------
Net asset value,
end of period.............. $ 18.89 $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81
========== ======== ======== ======== ======= ======== ======== ======== ======== ========
Total Return(2)............ 12.58% 30.85% 1.48% 19.69% 10.29% 43.83% 3.98% 36.06% 3.83% 7.05%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $1,235,395 $985,389 $616,221 $446,368 $245,565 $102,259 $ 40,061 $ 29,931 $ 18,051 $ 18,860
Ratio to average net assets of:
Operating expenses....... 0.72% 0.75%(4) 0.80% 0.79% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 1.03% 1.12% 1.38% 0.97% 1.66% 2.14% 3.19% 2.51% 3.64% 2.34%
Portfolio turnover rate.... 1.67% 173% 185% 185% 214% 237% 272% 285% 326% 251%
Average commission
rate paid(5)............... $ 0.0455 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $.003
per share.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, 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.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-5
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
(formerly known as the Bond Series)
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08 $ 10.07
Income from investment operations
Net investment income.... 0.79(1) 0.83(1,3) 0.72(1,3) 0.66(1,3) 0.66(3) 0.74(3) 0.80(3) 0.99(3) 0.92(3) 1.06(3)
Net realized and unrealized
gain (loss).............. 0.43 1.22 (1.28) 0.84 0.25 0.85 (0.37) (0.25) (0.01) (0.93)
---- ---- ------ ---- ---- ---- ------ ------ ------ ------
Total from investment
operations............. 1.22 2.05 (0.56) 1.50 0.91 1.59 0.43 0.74 0.91 0.13
---- ---- ------ ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.78) (0.81) (0.73) (0.66) (0.66) (0.74) (0.80) (1.00) (0.88) (1.12)
Dividends from net realized
gains.................... (0.32) - - (0.15) - - - - - -
------ --- --- ------ --- --- --- --- --- ---
Total distributions.... (1.10) (0.81) (0.73) (0.81) (0.66) (0.74) (0.80) (1.00) (0.88) (1.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.12 1.24 (1.29) 0.69 0.25 0.85 (0.37) (0.26) 0.03 (0.99)
---- ---- ------ ---- ---- ---- ------ ------ ---- ------
Net asset value,
end of period.............. $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08
======== ======== ======== ======= ======= ======= ====== ======== ======= ========
Total Return(2)............ 12.42% 23.54% (5.47%) 15.90% 10.03% 19.41% 5.14% 8.30% 10.36% 1.12%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $145,044 $109,046 $74,686 $79,393 $43,090 $21,957 $13,558 $ 13,947 $ 11,081 $ 8,389
Ratio to average net assets of:
Operating expenses...... 0.65% 0.65%(4) 0.66% 0.65% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income... 7.80% 8.55% 7.62% 6.71% 7.47% 8.65% 9.26% 10.99% 10.37% 10.90%
Portfolio turnover rate..... 191% 147% 181% 169% 166% 269% 318% 340% 262% 67%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.002, $.007, $.006 and $.005 per share, respectively.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, 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.
STRATEGIC ALLOCATION SERIES
(formerly known as the Total Return Series)
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87 $ 9.85
Income from investment operations
Net investment income.... 0.32 0.45 0.36(1,3) 0.23(3) 0.37(3) 0.42(3) 0.58(3) 0.51(3) 0.46(3) 0.34(3)
Net realized and unrealized
gain (loss).............. 0.91 1.84 (0.56) 1.17 0.99 2.76 0.02 1.38 (0.24) 0.91
---- ---- ------ ---- ---- ---- ---- ---- ------ ----
Total from investment
operations............. 1.23 2.29 (0.20) 1.40 1.36 3.18 0.60 1.89 0.22 1.25
---- ---- ------ ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.31) (0.45) (0.37) (0.23) (0.37) (0.42) (0.58) (0.52) (0.41) (0.40)
Dividends from net realized
gains.................... (0.90) (0.89) (0.46) (0.32) (1.10) (0.86) - - - (0.83)
------ ------ ------ ------ ------ ------ --- --- --- ------
Total distributions.... (1.21) (1.34) (0.83) (0.55) (1.47) (1.28) (0.58) (0.52) (0.41) (1.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.02 0.95 (1.03) 0.85 (0.11) 1.90 0.02 1.37 (0.19) 0.02
---- ---- ------ ---- ------ ---- ---- ---- ------ ----
Net asset value,
end of period.............. $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87
======== ======== ======== ======== ======== ======== ======== ======== ======= ========
Total Return(2)............ 9.05% 18.22% (1.45%) 11.02% 10.67% 29.44% 5.62% 19.88% 2.33% 12.58%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $374,244 $353,838 $289,083 $256,011 $163,628 $ 98,415 $ 62,839 $ 57,901 $ 59,109 $ 68,099
Ratio to average net assets of:
Operating expenses....... 0.70% 0.67%(4) 0.74% 0.74% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 2.26% 3.28% 2.71% 1.82% 2.90% 3.48% 5.39% 4.73% 4.62% 3.67%
Portfolio turnover rate.... 287% 170% 220% 269% 326% 255% 302% 302% 314% 359%
Average commission
rate paid(5)............... $ 0.0530 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, 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.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-6
<PAGE>
INTERNATIONAL SERIES
<TABLE>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- --------
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C>
beginning of period....................... $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07 $ 10.00
Income from investment operations
Net investment income(4)................ 0.11 0.12 0.08 0.07(2) 0.09 0.24(2) 0.07(2)
Net realized and unrealized gain (loss). 2.25 1.02 (0.07) 3.32 (1.40) 1.53 (0.88)
---- ---- ------ ---- ------ ---- ------
Total from investment operations...... 2.36 1.14 0.01 3.39 (1.31) 1.77 (0.81)
---- ---- ---- ---- ------ ---- ------
Less distributions:
Dividends from net investment income.... (0.19) (0.04) (0.03) - (0.04) (0.24) (0.07)
Dividends from net realized gains....... (0.33) (0.25) (0.34) - - (0.41) -
Distributions from paid in capital...... - - - - - (0.02) (0.05)
In excess of net investment income...... (0.02) - - - - - -
------ --- --- --- --- --- ---
Total distributions................... (0.54) (0.29) (0.37) - (0.04) (0.67) (0.12)
------ ------ ------ --- ------ ------ ------
Change in net asset value................. 1.82 0.85 (0.36) 3.39 (1.35) 1.10 (0.93)
----- ----- ------ ---- ------ ---- ------
Net asset value, end of period............ $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07
======== ======== ======== ========= ======== ======= ========
Total Return(3)........................... 18.65% 9.59% 0.03% 38.44% (12.89%) 19.78% (8.10%)
Ratios/supplemental data:
Net assets, end of period (thousands)... $172,668 $134,455 $134,627 $ 61,242 $ 13,772 $ 6,119 $ 2,010
Ratio to average net assets of:
Operating expenses...................... 1.04% 1.07% 1.10% 1.15% 1.50% 1.50% 1.50%(1)
Net investment income................... 0.80% 0.95% 0.64% 0.49% 1.13% 2.44% 1.82%(1)
Portfolio turnover rate................... 142% 249% 172% 193% 74% 104% 48%(1)
Average commission rate paid(5)........... $ 0.0213 N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.05,
$0.02 and $0.07, respectively.
(3) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(4) Computed using average shares outstanding.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
BALANCED SERIES
<TABLE>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/92 TO
<CAPTION>
1996 1995 1994 1993 12/31/92
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................... $ 12.30 $ 10.53 $ 11.31 $ 10.77 $ 10.00
Income from investment operations
Net investment income.......................................... 0.36 0.40(4) 0.38(2,4) 0.32(2,4) 0.19(4)
Net realized and unrealized gain (loss)........................ 0.89 2.02 (0.70) 0.60 0.77
---- ---- ------ ---- ----
Total from investment operations............................ 1.25 2.42 (0.32) 0.92 0.96
---- ---- ------ ---- ----
Less distributions:
Dividends from net investment income........................... (0.35) (0.40) (0.36) (0.32) (0.19)
Dividends from net realized gains.............................. (1.14) (0.25) (0.10) (0.06) -
------ ------ ------ ------ ---
Total distributions........................................ (1.49) (0.65) (0.46) (0.38) (0.19)
------ ------ ------ ------ ------
Change in net asset value.......................................... (0.24) 1.77 (0.78) 0.54 0.77
------ ------ ------ ---- ----
Net asset value, end of period..................................... $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77
======== ======== ======== ======== ========
Total Return(3).................................................... 10.56% 23.28% (2.80%) 8.57% 9.72%(7)
Ratios/supplemental data:
Net assets, end of period (thousands).......................... $204,285 $193,302 $161,105 $158,144 $ 54,467
Ratio to average net assets of:
Operating expenses............................................. 0.68% 0.65%(5) 0.69% 0.70% 0.50%(1)
Net investment income.......................................... 2.93% 3.44% 3.44% 3.16% 3.59%(1)
Portfolio turnover rate............................................ 229% 223% 171% 161% 110%(1)
Average commission rate paid(6).................................... $ 0.0641 N/A N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.001
and $0.001 per share, respectively.
(3) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(4) Computed using average shares outstanding.
(5) For the year ended December 31, 1995, 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.
(6) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
(7) Not annualized.
2-7
<PAGE>
REAL ESTATE SECURITIES SERIES
<TABLE>
<CAPTION>
FROM
YEAR INCEPTION
ENDED 5/1/95 TO
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................ $ 11.33 $ 10.00
Income from investment operations
Net investment income....................................................... 0.50(2) 0.33(2)
Net realized and unrealized gain............................................ 3.14 1.42
---- ----
Total from investment operations........................................ 3.64 1.75
---- ----
Less distributions:
Dividends from net investment income........................................ (0.50) (0.33)
Dividends from net realized gains........................................... (0.15) (0.06)
Tax return of capital....................................................... - (0.03)
--- ------
Total distributions..................................................... (0.65) (0.42)
------ ------
Change in net asset value....................................................... 2.99 1.33
---- ----
Net asset value, end of period.................................................. $ 14.32 $ 11.33
========= ========
Total Return(4)................................................................. 33.09% 17.79%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)....................................... $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses.......................................................... 1.00% 1.00%(1)
Net investment income....................................................... 4.36% 4.80%(1)
Portfolio turnover rate......................................................... 21% 10%(3)
Average commission rate paid(5)................................................. $ 0.0468 N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.05
and $0.07 per share, respectively.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
1/29/96 TO
12/31/96
--------
<S> <C>
Net asset value, beginning of period........................................................... $ 10.00
Income from investment operations
Net investment income...................................................................... 0.04(2)
Net realized and unrealized gain........................................................... 0.99
----
Total from investment operations....................................................... 1.03
----
Less distributions:
Dividends from net investment income....................................................... (0.04)
Tax return of capital...................................................................... (0.01)
------
Total distributions.................................................................... (0.05)
------
Change in net asset value...................................................................... 0.98
----
Net asset value, end of period................................................................. $ 10.98
========
Total Return(4)................................................................................ 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)...................................................... $ 25,972
Ratio to average net assets of:
Operating expenses......................................................................... 1.00%(1)
Net investment income...................................................................... 0.64%(1)
Portfolio turnover rate........................................................................ 391%(3)
Average commission rate paid(5)................................................................ $ 0.0587
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.02
per share.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-8
<PAGE>
ABERDEEN NEW ASIA SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
9/17/96 TO
12/31/96
--------
<S> <C>
Net asset value, beginning of period........................................................... $ 10.00
Income from investment operations
Net investment income...................................................................... 0.05(2)
Net realized and unrealized gain (loss).................................................... (0.04)
------
Total from investment operations....................................................... 0.01
----
Less distributions:
Dividends from net investment income....................................................... (0.05)
------
Total distributions.................................................................... (0.05)
------
Change in net asset value...................................................................... (0.04)
------
Net asset value, end of period................................................................. $ 9.96
=========
Total Return(4)................................................................................ 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)...................................................... $ 11,585
Ratio to average net assets of:
Operating expenses......................................................................... 1.25%(1)
Net investment income...................................................................... 2.40%(1)
Portfolio turnover rate........................................................................ 2%(3)
Average commission rate paid(5)................................................................ $ 0.0109
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.03
per share.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
RESEARCH ENHANCED INDEX SERIES
This Series commenced operations as of July 28, 1997; accordingly,
data for this Series is not yet available.
2-9
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
This Prospectus describes the shares offered by and the operations of The
Phoenix Edge Series Fund (the "Fund"). The Fund is an open-end management
investment company established as a business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated February 18, 1986
(the "Declaration of Trust"). The Declaration of Trust, as amended authorizes
the assets and shares of the Fund to be divided into series (the "Series"). Each
Series has a different investment objective, as described on the cover page of
this Prospectus, and is designed to meet different investment needs. In many
respects, each Series operates as if it were a separate mutual fund.
Shares of the Fund are sold to the Phoenix Home Life Variable Accumulation
Account (the "VA Account") to fund the benefits under Variable Accumulation
Annuity Contracts ("Contracts") issued by Phoenix; to the Phoenix Home Life
Variable Universal Life Account (the "VUL Account") to fund the benefits under
Variable Universal Life Insurance Policies ("Policies") also issued by Phoenix;
to the PHL Variable Accumulation Account ("PHL VA Account") to fund benefits
under Contracts issued by PHL Variable; and to the Phoenix Life and Annuity
Variable Universal Life Account (the "PLAC Account") to fund benefits under
Policies issued by PLAC. The VA Account, PHL VA Account, VUL Account and PLAC
VUL Account (collectively the "Accounts") invest in shares of the Fund in
accordance with allocation instructions received from Contract Owners and
Policyowners. Such allocation rights are further described in the accompanying
Prospectus for the Contracts or Policies. Phoenix redeems shares to the extent
necessary to provide benefits under the Contracts and Policies. Phoenix may
establish other separate accounts which may purchase shares in the Fund.
When making allocations from time to time, a Contract Owner or Policyowner
should understand that investment return will affect benefits and the value of
the Contract or Policy. The accompanying Prospectus for the respective Accounts
contains a description of the relationship between increases or decreases in the
net asset value of Fund shares and any distributions on such shares, and the
benefits provided under the Contract or Policy.
The Trustees have authority to issue an unlimited number of shares of
beneficial interest of each Series. An interest in the Fund is limited to the
assets of the Series in which shares are held, and shareholders are entitled to
a pro rata share of all dividends and distributions arising from the net income
and capital gains on the investments of such Series.
PHOENIX, PHL VARIABLE AND PLAC
Shares of the Fund are currently sold to the Accounts as the investment base
for Variable Accumulation Annuity Contracts and Variable Universal Life
Insurance Policies issued by Phoenix, PHL Variable and PLAC. Phoenix is a mutual
life insurance company whose Executive Office is at One American Row, Hartford,
Connecticut 06102-5056, and its main administrative office is at 100 Bright
Meadow Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office
is at 99 Troy Road, East Greenbush, New York 12061. Phoenix is the nation's 14th
largest mutual life insurance company and has total assets of approximately
$15.5 billion. Phoenix sells insurance policies and annuity contracts through
its own field force of full time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
PHL Variable is a wholly-owned indirect subsidiary of Phoenix. Its Executive
Office is at One American Row, Hartford, Connecticut 06102-5056 and its main
administrative office is at 100 Bright Meadow Boulevard, Enfield, Connecticut
06083-1900. PHL Variable is a Connecticut stock company. On December 31, 1996,
it had assets of $189.5 million.
PLAC is an indirect wholly-owned subsidiary of Phoenix. Its Executive Office
is at One American Row, Hartford, Connecticut 06102-5056, and its main
administrative office is at 100 Bright Meadow Boulevard, Enfield, Connecticut
06083-1900. PLAC is a Connecticut stock company originally chartered in Missouri
in March 1996 as Savers Life Insurance Company of America and redomiciled to
Connecticut in April 1997. On December 31, 1996, it had admitted assets of $11.5
million.
The interests and rights of a Contract Owner or Policyowner in the shares is
subject to the terms of the Contract or Policy and is described in the
accompanying Prospectus for that particular product. The rights of the Accounts
as shareholders should be distinguished from the rights of Contract Owners and
Policyowners described in the accompanying Prospectus and in the Contract or
Policy for that particular product. As long as shares of the Fund are sold only
to the Accounts, the terms "shareholder" or "shareholders" in this Prospectus
refer to the Accounts.
THE INVESTMENT ADVISERS
The investment adviser of the Money Market, Multi-Sector, Balanced,
Allocation, Growth, International, Enhanced Index and Theme Series is Phoenix
Investment Counsel ("PIC" or "Adviser"). PIC is an indirect, less than
wholly-owned subsidiary of Phoenix. For its services, PIC is paid an investment
advisory fee based on the assets of each Series of the Fund as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
Rate for
Rate for First Rate for Next Excess Over
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market..... .40% .35% .30%
Multi-Sector..... .50% .45% .40%
Balanced......... .55% .50% .45%
Allocation....... .60% .55% .50%
Growth........... .70% .65% .60%
International.... .75% .70% .65%
Theme............ .75% .70% .65%
Enhanced Index... .45% .45% .45%
The total advisory fee of 0.75% of the aggregate net assets of the
International and Theme Series is greater than that paid by most mutual funds;
however, the Board of Trustees of the Fund has determined that it is similar to
fees charged by other mutual funds whose investment objectives are similar to
those of the International and Theme Series. Each Series (except the
International, Real Estate, Theme and Asia Series) pays a portion or all of its
other operating expenses, up to .15% of its average net assets. The
International and
2-10
<PAGE>
Theme Series pay other operating expenses up to .40% and .25% of their average
net assets, respectively.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the Enhanced Index
Series to J.P. Morgan Investment Management, Inc. ("J.P. Morgan" or
"Subadviser") for which it is paid a fee by PIC. In accordance with the
subadvisory agreement between the Fund and J.P. Morgan, J.P. Morgan is paid a
monthly fee at the annual rate of 0.25% of the average aggregate daily net asset
values of the Enhanced Index Series up to $100 million; and 0.20% of such value
in excess of $100 million. The subadvisory agreement relating to the Enhanced
Index Series provides, among other things, that J.P. Morgan shall effectuate the
purchase and sale of securities for the Series and provide related advisory
services.
The investment adviser for the Real Estate Series is Phoenix Realty
Securities, Inc. ("PRS" or "Adviser"). PRS is a wholly-owned indirect subsidiary
of Phoenix. For its services, PRS is paid an investment advisory fee based on
the assets of the Series of the Fund as follows:
PHOENIX REALTY SECURITIES, INC.
-------------------------------
Rate for
Rate for First Rate for Next Excess Over
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate...... .75% .70% .65%
The Real Estate Series pays a portion or all of its other expenses up to
.25% of its total net assets. Pursuant to a subadvisory agreement with the Fund,
PRS delegates certain investment decisions and research functions to
ABKB/LaSalle Securities Limited Partnership ("ABKB") for which ABKB is paid a
fee by PRS. In accordance with the subadvisory agreement between the Fund and
ABKB, ABKB is paid a monthly fee at the annual rate of 0.45% of the average
aggregate daily net asset values of the Series up to $1 billion; 0.35% of such
value between $1 billion and $2 billion; and 0.30% of such value in excess of $2
billion. The subadvisory agreement relating to the Real Estate Series provides,
among other things, that ABKB shall effectuate the purchase and sale of
securities for the Series and provide related advisory services.
The Asia Series is managed by Phoenix-Aberdeen International Advisors, LLC
("PAIA" or "Adviser"). PAIA is a joint venture between PM Holdings, Inc., a
direct subsidiary of Phoenix, and Aberdeen Fund Managers, Inc., a wholly-owned
subsidiary of Aberdeen Asset Management plc. For its services, PAIA is paid an
investment advisory fee based on the assets of the Series of the Fund as
follows:
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series...... 1.00%
The Asia Series pays a portion or all of its other operating expenses up to
.25% of its total net assets.
OFFERING PRICES
Shares in each of the Series of the Fund are offered to the Accounts
continuously at the net asset value determined at the close of business on the
day the application is accepted and paperwork is complete and in good working
order. For information on pricing for initial and subsequent purchase payments
under Contracts or Policies, see the accompanying prospectus.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
To the extent that shares are sold to the Accounts in order to fund the
benefits under the Contracts or Policies, the structure of the Fund permits
Contract Owners and Policyowners, within the limitations described in the
Contracts or Policies, to allocate their investments in response to or in
anticipation of changes in market or economic conditions.
Each Series has a different investment objective and is designed to meet
different investment needs. The differences in objectives and policies among the
Series can be expected to affect the investment return of each Series and the
degree of market and financial risk to which each Series is subject. The
investment objective of each Series is deemed to be a fundamental policy which
may not be changed without the approval of a vote of a majority of the
outstanding shares of that Series. Since certain risks are inherent in the
ownership of any security, there can be no assurance that any Series will
achieve its investment objective. The investment policies of each Series also
will affect the rate of portfolio turnover. A high rate of portfolio turnover
generally involves correspondingly greater transaction costs, which must be
borne directly by each Series. The portfolio turnover rate for each Series,
except the Money Market Series (which does not normally pay brokerage
commissions), is included under "Financial Highlights." The rate for several
Series has been, and is expected to be, in excess of 100%; accordingly, such
Series will pay more in brokerage commissions than would be the case if they had
lower portfolio turnover rates. (See "Portfolio Transactions and Brokerage.")
MULTI-SECTOR SERIES
The Multi-Sector Series' investment objective is to seek long-term total
return by investing in a diversified portfolio of high yield (high risk) and
high quality fixed income securities. Distributions of income are reinvested to
purchase additional shares. The Series will seek to achieve its objective by
investing, under normal conditions, at least 80% of the value of the total
assets of the Series in the following sectors of the fixed income securities
markets: high yield (high risk) fixed income securities, (sometimes referred to
as "junk bonds"), high quality fixed income securities, fixed income securities
including preferred stocks, convertible securities, debt obligations, foreign
debt obligations, certificates of deposit, commercial paper, bankers'
acceptances, and government obligations issued or guaranteed by federal, state
or municipal governments or their agencies or instrumentalities. The Series'
remaining assets may be invested in common stock and other equity securities
when such investments are consistent with its primary investment objective or
are acquired as part of a unit consisting of a combination of fixed income
securities and equity securities (see "Other Special Investment Methods").
Higher yields are available ordinarily from securities in the lower rated
categories of recognized rating agencies (Ba to Ca by Moody's Investors Service,
Inc. ("Moody's") or BB to CC by Standard & Poor's Corporation ("S&P")) and from
unrated securities of comparable quality. However, the Multi-Sector Series will
not invest in securities in the two lowest rating categories (Ca and C for
Moody's and CC and
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C for S&P) unless PIC believes that the financial condition of the issuer,
or the protections afforded to the particular securities, is stronger than
otherwise would be indicated by the low ratings. When the investment objective
of this Series can be met by investing in securities in higher rating
categories, such investments will be made. Moreover, the Series may retain
securities whose ratings have changed. The Appendix contains a more detailed
description of such ratings.
When a more conservative investment strategy is necessary for temporary
defensive purposes, the Series may retain cash or invest part or all of its
assets in cash equivalents or in other fixed income securities deemed by
management to be consistent with a temporary defensive posture.
Risk Factors. While the Multi-Sector Series' management will seek to
minimize risk through diversification and continual evaluation of current
developments in interest rates and economic conditions, the market prices of
lower rated securities generally fluctuate more than those of higher rated
securities, and using credit ratings helps to evaluate the safety of principal
and interest but does not assess market risk. Economic downturns and interest
rate increases may cause a higher incidence of lower-rated securities' defaults.
Such fluctuations in the market value of portfolio securities subsequent to
their acquisition by the Multi-Sector Series will not normally affect cash
income from such securities but will be reflected in the Series' net asset
value. Additionally, with lower rated securities there is a greater possibility
that an adverse change in the financial condition of the issuer, particularly a
highly leveraged issuer, may affect its ability to make payments of income and
principal. Also, because the Series intends to invest primarily in securities in
the lower rating categories, the achievement of its goals will be more dependent
on management's credit analysis ability than would be the case if the Series
were investing in securities in the higher rated categories. Lower-rated
securities may be thinly traded and therefore harder to value and more
susceptible to adverse publicity concerning the issuer. In addition, legislation
may be enacted in the future that could depress the price of lower-rated
securities.
The Multi-Sector Series may invest in debt obligations that do not make any
interest payments for a specified period of time prior to maturity or until
maturity ("deferred coupon" or "zero coupon" obligations). The value of these
obligations may fluctuate more in response to interest rate changes than would
the value of debt obligations that make current interest payments. In addition,
because the Series will accrue income on these securities prior to the receipt
of each payment, it may have to dispose of portfolio securities to distribute
income to the Accounts for tax purposes. (See the Statement of Additional
Information.)
MONEY MARKET SERIES
The investment objective of the Money Market Series is to provide maximum
current income consistent with capital preservation and liquidity. The Series
seeks to achieve its objective by investing in a managed portfolio of the
following high quality money market instruments:
(a) obligations issued or guaranteed as to principal and interest
by the United States Government or its agencies, authorities
or instrumentalities;
(b) obligations issued by U.S. banks and savings and loan associations (such
as bankers' acceptances, certificates of deposit and time deposits,
including dollar-denominated obligations of foreign branches of U.S.
banks and U.S. branches of foreign banks) and dollar-denominated
obligations unconditionally guaranteed as to payment by such banks or
savings and loan associations, which at the date of investment have
capital, surplus, and undivided profits in excess of $100,000,000 as of
the date of their most recently published financial statements; and
obligations of other banks or savings and loan associations if such
obligations are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation;
(c) commercial paper which at the date of investment is issued or guaranteed
by a company whose commercial paper is rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., or F-1 by Fitch's
Investors Service or, if not rated, is issued or guaranteed by a company
which at the date of the investment has an outstanding debt issue rated
AA or higher by Standard & Poor's or Aa or higher by Moody's;
(d) other corporate obligations maturing in one year or less which at the
date of investment are rated AA or higher by Standard & Poor's or Aa or
higher by Moody's; and
(e) repurchase agreements with recognized securities dealers and member
banks of the Federal Reserve System with respect to any of the foregoing
obligations.
All of the Money Market Series investments will mature in 397 days or less.
In addition, the average maturity of the Series' portfolio securities based on
their dollar value will not exceed 90 days. By limiting the maturity of its
investments, the Money Market Series seeks to lessen the changes in the value of
its assets caused by market factors.
Generally, investments will be limited to securities rated in the two
highest short-term rating categories by at least two nationally recognized
statistical rating organizations, or by one such organization if only one has
rated the security, and comparable unrated securities. In addition, no more than
5% of the Series' total assets will be invested in securities of any one issuer
or in securities not rated in the highest short-term rating category. Moreover,
no more than the greater of 1% of the Series' total assets or $1 million will be
invested in the securities of any one issuer that are not in the highest
short-term rating category.
This Series, consistent with its investment objective, will attempt to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. It is
expected that the Series' portfolio transactions will be generally with issuers
or dealers acting as principal. Accordingly, this Series will normally not pay
any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the
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period of time remaining to maturity of the security. Long-term obligations may
fluctuate more in value than short-term obligations. If interest rates increase
after a security is purchased, the security, if sold, could be sold for a loss.
On the other hand, if interest rates decline after a purchase, the security, if
sold, could be sold at a profit. If, however, the security is held to maturity,
no gain or loss will be realized as a result of interest rate fluctuations,
although the day-to-day valuation of the portfolio could fluctuate. Substantial
withdrawals of the amounts held in the Money Market Series could require it to
sell portfolio securities at a time when a sale might not be favorable. The
value of a portfolio security also may be affected by other factors, including
factors bearing on the creditworthiness of its issuer.
GROWTH SERIES
The investment objective of the Growth Series is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. The
Series seeks to achieve its investment objective by investing principally in
common stocks of corporations believed by PIC to offer growth potential over
both the intermediate and the long term. In pursuing capital growth, emphasis is
placed on the selection of securities of well-established corporations with
aggressive and experienced managements. This Series may invest not more than 20%
of the market value of its total assets in convertible securities, that is, debt
securities and preferred stocks which are convertible into, or carry the right
to purchase, common stock or other equity securities. It is not intended at this
time that this Series will invest in warrants.
Although the Growth Series will not make a practice of short-term trading,
purchases and sales of securities will be made whenever necessary to achieve the
investment objective of the Series without regard to the resulting brokerage
costs.
PIC intends to diversify investments of the Series among a number of
corporations without concentration in any particular industry. When, in the
opinion of the Fund management, a temporary defensive position is warranted, the
Series may maintain part or all of its assets in cash or short-term investments
such as United States Treasury bills and commercial paper; it may also invest in
preferred stocks, nonconvertible bonds, notes, government securities or other
fixed-income securities for temporary defensive purposes.
ALLOCATION SERIES
The investment objective of the Allocation Series (formerly designated the
"Total Return Series") is to realize as high a level of total rate of return
over an extended period of time as is considered consistent with prudent
investment risk. The Series seeks to achieve its investment objective by
investing in three market segments: stocks, bonds, and money market instruments.
In addition to trading techniques described fully in the Statement of Additional
Information, the Series has retained the flexibility to write (sell) covered
call options, to purchase call and put options and to enter into financial
futures contracts.
The Allocation Series will adjust the mix of investments among the three
market segments to capitalize on perceived variations in return potential
produced by the interaction of changing financial markets and economic
conditions. It is expected that such adjustments normally will be made in a
gradual manner over a period of time. THERE ARE NO MINIMUM OR MAXIMUM
PERCENTAGES AS TO THE AMOUNT OF THE SERIES' ASSETS WHICH MAY BE INVESTED IN EACH
OF THE MARKET SEGMENTS. MAJOR CHANGES IN INVESTMENT MIX MAY OCCUR SEVERAL TIMES
A YEAR OR OVER SEVERAL YEARS, DEPENDING UPON MARKET AND ECONOMIC CONDITIONS AND
EXCEPT FOR RESTRICTIONS NOTED HEREIN AND UNDER "INVESTMENT RESTRICTIONS," THE
INVESTMENT ADVISER HAS COMPLETE FLEXIBILITY IN DETERMINING THE AMOUNT AND NATURE
OF COMMON STOCK, DEBT OR MONEY MARKET INSTRUMENTS IN WHICH THE SERIES MAY
INVEST.
Investments in one of the three market segments will be made with a specific
purpose in mind. Investments in the stock segment will be for the purpose of
attempting to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Investments in the bond
segment will be for the purpose of attempting to achieve as high a total rate of
return on an annual basis as is considered consistent with the preservation of
capital values and may include investments of up to 5% of the Series' total
assets in high risk fixed income securities (commonly referred to as "junk
bonds"). Investments in the money market segment will be for the purpose of
attempting to achieve high current income, the preservation of capital, and
liquidity. The types of securities in each of these three market segments in
which the Allocation Series will invest are listed in the Statement of
Additional Information.
Cash may be held to provide for expenses and anticipated redemption payments
and so that orderly redemption payments may be carried out in accordance with
the Allocation Series' investment policies.
See Multi-Sector Series and Money Market Series for a description of risks
generally associated with investing in the Allocation Series.
INTERNATIONAL SERIES
The International Series seeks as its investment objective a high total
return consistent with reasonable risk. It intends to achieve its objective by
investing primarily in an internationally diversified portfolio of equity
securities. It intends to reduce its risk by engaging in hedging transactions
involving options, futures contracts and foreign currency transactions (see
"Other Special Investment Methods"). Investments may be made for capital growth
or for income or any combination thereof for the purpose of achieving a high
overall return.
There is no limitation on the percentage or amount of the International
Series assets which may be invested for capital growth or income, and therefore
at any particular time the investment emphasis may be placed solely or primarily
on growth of capital or on income. In determining whether the International
Series will be invested for capital growth or income, the Adviser will analyze
the international equity and fixed income markets and seek to assess the degree
of risk and level of return that can be expected from each market. The
International Series will invest primarily in non-United States issuers, and
under normal circumstances, more than 80% of the International Series' total
assets will be invested in non-United States issuers located in not less than
three foreign countries.
In pursuing its objective, the International Series will invest primarily in
common stocks of established non-United States companies believed to have
potential for capital growth, income or both. However, there is no requirement
that the International Series
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invest exclusively in common stocks or other equity securities. The
International Series may invest in other types of securities including, but not
limited to, convertible securities, preferred stocks, bonds, notes and other
debt securities of companies (including Euro-currency instruments and
securities) or obligations of domestic or foreign governments and their
political subdivisions, and in foreign currency transactions. The Series may
invest up to 10% of its total assets in bonds (sometimes referred to as "junk
bonds") considered to be less than investment grade (but which are not in
default at the time of investment), which may subject the Series to risks
attendant to such bonds (see "Risk Factors" below). When the Adviser believes
that the total return potential in debt securities equals or exceeds the
potential return on equity securities, the Series may substantially increase its
holdings in debt securities. The International Series may establish and maintain
part or all of its assets in reserves for temporary defensive purposes or to
enable it to take advantage of buying opportunities. The International Series
reserves may be invested in domestic as well as foreign short-term money market
instruments including, but not limited to, government obligations, certificates
of deposit, bankers' acceptances, time deposits, commercial paper, short-term
corporate debt securities and repurchase agreements. The International Series
may also engage in certain options transactions, and enter into futures
contracts and related options for hedging purposes, invest in repurchase
agreements and lend portfolio securities (see "Other Special Investment
Methods").
The International Series also may invest in the securities of other
investment companies subject to the limitations contained in the 1940 Act (see
"Investment Restrictions" in the Statement of Additional Information). In
certain countries, investments may be made only by investing in other investment
companies that, in turn, are authorized to invest in the securities that are
issued in such countries. The Fund's purchase of securities of such other
investment companies may result in the layering of expenses such that
shareholders indirectly bear a proportionate part of the expenses for such
investment companies including operating costs and investment advisory and
administrative fees.
The International Series makes investments in various countries. Under
normal circumstances, business activities in a number of different foreign
countries will be represented in the International Series' investments. The
International Series may, from time to time, have more than 25% of its assets
invested in any major industrial or developed country which in the view of the
Adviser poses no unique investment risk. The International Series may purchase
securities of companies, wherever organized, which have their principal
activities and interests outside the United States. Under exceptional economic
or market conditions abroad, the International Series may, for temporary
defensive purposes, invest all or a major portion of its assets in U.S.
government obligations or securities of companies incorporated in and having
their principal activities in the United States. The International Series also
may invest its reserves in domestic short-term money-market instruments as
described above.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily will consider the
following factors: prospects for relative economic growth among foreign
countries; expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; the
outlook for currency relationships and the range of individual investment
opportunities available to the international investor.
The International Series may make investments in developing countries, which
involve exposure to economic structures that are generally less diverse and
mature than in the United States, and to political systems which may be less
stable. A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. In the past, markets of
developing countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of return to
investors. The Adviser believes that these characteristics can be expected to
continue in the future.
Generally, the Series will not trade in securities for short-term profits
but, when circumstances warrant, securities may be sold without regard to the
length of time held.
Risk Factors. There are substantial and different risks involved which
should be carefully considered by any investor considering foreign investments.
For example, there is generally less publicly available information about
foreign companies than is available about companies in the United States.
Foreign companies are generally not subject to uniform audit and financial
reporting standards, practices and requirements comparable to those in the
United States. In addition, if it should become necessary, the Fund could
encounter difficulties involving legal processes abroad.
Foreign securities involve currency risks. Exchange rates are determined by
forces of supply and demand in the foreign exchange markets, and these forces
are in turn affected by a range of economic, political, financial, governmental
and other factors. Exchange rate fluctuations can affect the Portfolio's net
asset value and dividends either positively or negatively depending upon whether
foreign currencies are appreciating or depreciating in value relative to the
U.S. dollar. Exchange rates fluctuate over both the short and long term. The
U.S. dollar value of a foreign security tends to decrease when the value of the
dollar rises against the foreign currency in which the security is denominated
and tends to increase when the value of the dollar falls against such currency.
Fluctuations in exchange rates also may affect the earning power and asset value
of the foreign entity issuing the security. Dividend and interest payments may
be repatriated based on the exchange rate at the time of disbursement, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as those
in the United States. In most foreign markets, volume and liquidity are less
than in the United States and, at times, volatility of price can be greater than
in the United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on United States exchanges. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the United States.
There also is the possibility of adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, political or social instability, or diplomatic
developments which could adversely affect
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investments, assets or securities transactions of the International Series in
some foreign countries. The International Series is not aware of any investment
or exchange control regulations which might substantially impair the operations
of the Series as described, although this could change at any time.
Particular risks are posed by investments in third world countries or
so-called "emerging markets." These securities may be especially volatile based
on relative economic, political and market conditions present in these
countries. The economics of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade. Certain emerging market countries are either comparatively
undeveloped or are in the process of becoming developed and may consequently be
economically based on a relatively few or closely interdependent industries. A
high proportion of the shares of many emerging market issuers also may be held
by a limited number of large investors trading significant blocks of securities.
While the Adviser will strive to be sensitive to publicized reversals of
economic conditions, political unrest and adverse changes in trading status,
unanticipated political and social developments may affect the values of a
Portfolio's investments in such countries and the availability of additional
investments in such countries.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts ("ADRs"), which are traded in the United States on exchanges
or over the counter and are sponsored and issued by domestic banks. ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. ADRs do not eliminate all the risk
inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, the
International Series can avoid currency risks during the settlement period for
either purchases or sales. In general, there is a large, liquid market in the
United States for many ADRs. The information available for ADRs is subject to
the accounting, auditing and financial reporting standards of the domestic
market or exchange on which they are traded, which standards are more uniform
and more exacting than those to which many foreign issuers may be subject. The
International Series also may invest in European Depository Receipts ("EDRs"),
which are receipts evidencing an arrangement with a European bank similar to
that for ADRs and are designed for use in the European securities markets. EDRs
are not necessarily denominated in the currency of the underlying security.
The dividends and interest payable on certain of the International Series'
foreign securities may be subject to foreign withholding taxes, thus reducing
the net amount available for distribution to the International Series'
shareholders. Investors should understand that the expense ratio of the
International Series can be expected to be higher than those of investment
companies investing in domestic securities since the costs of operation are
higher.
Since the International Series may invest up to 10% of its total assets in
bonds considered to be less than investment grade, it may be exposed to greater
risks than if it did not invest in such bonds. With lower rated bonds, there is
a greater possibility that an adverse change in the financial condition of the
issuer may affect its ability to pay principal and interest. See "Risk Factors"
described in connection with the Multi-Sector Series for additional information
regarding investing in lower rated securities.
BALANCED SERIES
The Balanced Series seeks as its investment objectives reasonable income,
long-term capital growth and conservation of capital. The Balanced Series
intends to invest based on combined considerations of risk, income, capital
enhancement and protection of capital value.
The Balanced Series may invest in any type or class of security. Normally,
the Balanced Series will invest in common stocks and fixed income securities;
however, it also may invest in securities convertible into common stocks. At
least 25% of the value of its assets will be invested in fixed income senior
securities. The overall economic and financial outlook determines the allocation
of assets between fixed income and common stock investments. Fixed income
investments are typically made in high quality, lower risk securities. Common
stock investments are made in companies with intermediate and long-term earnings
growth potential such as are invested in by the Growth Series. The Series
attempts to invest in common stocks belonging to fundamentally attractive
sectors and industries and strives to be overweighted in these areas relative to
their representation in broad market indices such as the Standard & Poor's 500.
The current outlook and the asset allocation are continuously reviewed.
The Series may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes and may
invest in deferred or zero coupon debt obligations. (See "Other Special
Investment Methods" and the Statement of Additional Information.)
In implementing the investment objectives of this Series, management will
select securities believed to have potential for the production of current
income, with emphasis on securities that also have potential for capital
enhancement. In an effort to protect its assets against major market declines,
or for other temporary defensive purposes, the Balanced Series may actively
pursue a policy of retaining cash or investing part or all of its assets in cash
equivalents, such as government securities and high grade commercial paper.
REAL ESTATE SERIES
The Real Estate Series seeks as its investment objective capital
appreciation and income with approximately equal emphasis. It intends under
normal circumstances to invest in marketable securities of publicly traded real
estate investment trusts ("REITs") and companies that are principally engaged in
the real estate industry. Under normal circumstances, the Series intends to
invest at least 75% of the value of its assets in these securities.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. Generally,
REITs can be classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of
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their assets in real estate mortgages and derive income from the collection of
interest payments. Hybrid REITs combine the characteristics of both equity REITs
and mortgage REITs. The Series intends to emphasize investment in equity REITs.
In determining whether an issuer is "principally engaged" in the real estate
industry, PRS seeks companies which derive at least 50% of their gross revenues
or net profits from the ownership, development, construction, financing,
management or sale of commercial, industrial or residential real estate. The
equity securities of real estate companies considered for purchase by the Series
will consist of shares of beneficial interest, marketable common stock, rights
or warrants to purchase common stock, and securities with common stock
characteristics such as preferred stock and debt securities convertible into
common stock.
The Real Estate Series also may invest up to 25% of its total assets in (a)
marketable debt securities of companies principally engaged in the real estate
industry; (b) mortgage-backed securities such as mortgage pass-through
certificates, real estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs"); or (c) short-term investments
listed below.
The Real Estate Series invests in debt securities only if, at the date of
investment, they are rated within the four highest grades as determined by
Moody's (Aaa, Aa, A or Baa) or by S&P (AAA, AA, A or BBB) or, if not rated or
rated under a different system, are judged by PRS to be of equivalent quality to
debt securities so rated. Securities rated Baa or BBB are medium grade
investment obligations that may have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments in the case of such obligations
than is the case for higher grade securities. The Series may, but is not
obligated to, dispose of debt securities whose credit quality falls below
investment grade. Unrated debt securities may be less liquid than comparable
rated debt securities and may involve somewhat greater risk than rated debt
securities.
For temporary defensive purposes (as when market conditions in real estate
securities are extremely adverse such that PRS believes there are extraordinary
risks associated with investment therein), the Series may invest up to 100% of
its total assets in short-term investments such as money market instruments
consisting of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; repurchase agreements; certificates of deposit
and bankers' acceptances issued by banks or savings and loan associations having
net assets of at least $500 million as of the end of their most recent fiscal
year; high-grade commercial paper rated at time of purchase, in the top two
categories by a national rating agency or determined to be of comparable quality
by PRS at the time of purchase; and other long- and short-term instruments
which are rated A or higher by S&P or Moody's at the time of purchase.
Risk Factors. The Real Estate Series is non-diversified under the federal
securities laws. As a non-diversified portfolio, there is no restriction under
the Investment Company Act of 1940 (the "1940 Act") on the percentage of assets
that may be invested at any time in the securities of any one issuer. To the
extent that the Real Estate Series is not fully diversified, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified. In
addition, investments by the Real Estate Series in securities of companies
providing mortgage servicing will be subject to the risks associated with
refinancings and their impact on servicing rights.
Although the Real Estate Series does not invest directly in real estate, it
does invest primarily in real estate securities and accordingly, the value of
shares of the Real Estate Series will fluctuate in response to changes in
economic conditions within the real estate industry. Risks associated with the
direct ownership of real estate and with the real estate industry in general
include, among other things, possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; over-building; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability to third
parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from flood, earthquakes or other natural
disasters; limitations on and variations in rents; dependency on property
management skill; the appeal of properties to tenants; and changes in interest
rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to the risks of financing projects. The Series may invest in new or
unseasoned REIT issuers and it may be difficult or impossible for PRS to
ascertain the value of each of such REIT's underlying assets, management
capabilities and growth prospects. In addition, REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation, and the possibilities
of failing to qualify for the exemption from tax or distributed income under the
Internal Revenue Code of 1986, as amended (the "Code") and failing to maintain
their exemptions from the 1940 Act. REITs whose underlying assets include
long-term health care properties, such as nursing, retirement and assisted
living homes may be impacted by federal regulations concerning the health care
industry. The Series will indirectly bear its proportionate share of any
expenses paid by the Series itself.
REITs (especially mortgage REITs) are subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations usually rises. Conversely, when interest rates rise, the value of a
REIT's investment in fixed rate obligations can be expected to decline. In
contrast, as interest rates on adjustable rate mortgage loans are reset
periodically, yields on a REIT's investment in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
In addition, investing in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be more subject to abrupt or erratic price movements than larger capitalization
stocks included in the S&P 500 Index.
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THEME SERIES
The Theme Series seeks as its investment objective long-term appreciation of
capital through investing in securities of companies that the Adviser believes
are particularly well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide. Examples of thematic
investing would include investing in oil and gas exploration companies during
the energy shortage years of the late 1970s, owning companies which benefited
from lower inflation trends during the early 1980s, investing in companies
acquiring cellular franchises in the late 1980s and technology companies during
the 1990s.
The Adviser will not concentrate its investments in amounts greater than 25%
of the assets of the Series in any particular "industry(ies)" or group(s) of
"industries" without shareholder approval. In determining when and whether to
invest in particular industries, the Adviser will establish strategic (major
changes affecting markets for prolonged periods) and tactical (focused,
short-term) investment themes. Investment themes shall generally reflect trends
which appear likely to drive stocks with similar technologies and products or
which embody broad social, economic, political and technological considerations;
offer substantial appreciation potential; present a visionary idea or creative
solution; and exhibit some independence from economic cycles. The Adviser may
change investment themes once it has determined that an investment theme has
become saturated or fully exploited. The Adviser may pursue one or more
investment themes at any time.
The Adviser will seek to identify companies which, in addition to being
considered well positioned to benefit from investment themes identified, are
also believed to possess attributes such as, but not limited to, good financial
resources, satisfactory return on capital, enhanced industry position and
superior management skills.
The Theme Series also may invest in preferred stocks, investment grade bonds
(Moody's Investors Service, Inc. rating Baa or higher or Standard & Poor's
Ratings Group rating BBB or higher), convertible preferred stocks and
convertible debentures if in the judgment of the Adviser the investment would
further its investment objective. The Series may also engage in certain options
transactions and enter into financial futures contracts and related options for
hedging purposes. The Series also may invest up to 35% of its assets in the
securities of foreign issuers. See "Other Special Investment Methods." Each
security held will be monitored to determine whether it is contributing to the
basic objective of long-term appreciation of capital.
For temporary defensive purposes (as when market conditions for growth
stocks are adverse), investments may be made in fixed income securities with or
without warrants or conversion features. In addition, for such temporary
defensive purposes, the Series may pursue a policy of retaining cash or
investing part or all of its assets in cash equivalents. When the Series' assets
are held in cash or cash equivalents, it is not investing in securities intended
to meet the Series' investment objective.
Risk Factors. To the extent that the Series invests in a single investment
theme, it may be more susceptible to adverse economic, political or regulatory
developments than would be the case if it invested in a broader spectrum of
themes. In addition, the Series' investments in common stocks of companies with
limited operating history may result in higher volatility in returns. Further,
the successful effectuation of the thematic investment strategy used by the
Adviser is dependent upon the Adviser's ability to anticipate emerging market
trends, exploit such investment opportunities and to thereafter divest of such
securities upon saturation. No assurances can be given that the investment
strategies utilized will positively correlate with any or all such marketplace
trends or that other, possibly more profitable, investment trends could be
overlooked.
ASIA SERIES
The investment objective of the Asia Series is to provide long term capital
appreciation. It is intended that this Series will achieve its objective by
investing under normal market conditions at least 65% of its total assets in a
diversified portfolio of common stocks, convertible securities and preferred
stocks of issuers organized and principally operating in Asia, excluding Japan
(i.e., companies which derive a significant proportion (at least 50%) of their
revenues or profits from goods produced or sold, investments made or services
performed in such countries or which have at least 50% of their assets situated
in such countries) and whose principal securities are actively traded on
recognized stock exchanges of such countries. The Series does not intend to
invest in securities which are traded in markets in Japan or in countries
organized under the laws of Japan.
The Series will invest in countries having more established markets in
regions of Asian countries. The Asian countries to be represented in the Series
ordinarily will consist of three or more of the following countries: China, Hong
Kong, India, Indonesia, South Korea, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan and Thailand. From time to time, the Series may
invest in South Pacific nations such as Australia and New Zealand. There is no
requirement that the Series, at any given time, invest in any one particular
country or in all of the countries listed above or in any other Asian countries
or other developing markets that are open to foreign investment. In determining
the appropriate distribution of investments among various countries and
geographic regions, the Adviser ordinarily will consider the following factors:
prospects for relative economic growth among Asian countries; expected levels of
inflation; relative price levels of the various capital markets; governmental
policies influencing business conditions; the outlook for currency relationships
and the range of individual investment opportunities available to the
international investor. The Series may make investments in developing or
emerging market countries, which involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. A developing country can be
considered to be a country which is in the initial stages of its
industrialization cycle. In the past, markets of developing countries have been
more volatile than the markets of developed countries; however, such markets
often have provided higher rates of return to investors.
In certain countries, investments may be made only by investing in other
investment companies that, in turn, are authorized to invest in the securities
that are issued in such countries. The Series may therefore invest in the
securities of other investment companies subject to the limitations contained in
the 1940 Act (see "Investment Restrictions" in the Statement of Additional
Information). The Series' purchase of the securities of other investment
companies (and closed-end companies) results in the layering of expenses
including operating costs, investment advisory and administrative fees.
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The Series may establish and maintain reserves of up to 100% of its assets
for temporary defensive purposes under abnormal market or economic conditions.
The Series' reserves may be invested in domestic as well as foreign short-term
money market instruments including, but not limited to, government obligations,
certificates of deposit, bankers' acceptances, time deposits, commercial paper,
short-term corporate debt securities and repurchase agreements. When the Series'
assets are held in cash or cash equivalents, it is not investing in securities
intended to meet the Series' investment objective.
See International Series for a description of risks associated with foreign
investments.
Additional discussion regarding risks involved in investing in the Series
are described in the "Other Special Investment Methods" section below.
ENHANCED INDEX SERIES
The investment objective of the Enhanced Index Series is to seek high total
return by investing in a broadly diversified portfolio of equity securities of
large and medium capitalization companies within market sectors reflected in the
S&P 500. Under normal market conditions, the Series shall invest at least 80% of
its net assets in common stocks and other equity securities. The Series seeks to
achieve its investment objective by investing in a portfolio of undervalued
common stock and other equity securities which appear to offer growth potential
and an overall volatility of return similar to that of the S&P 500.
The S&P 500 is a market weighted compilation of 500 common stocks selected
on a statistical basis by Standard & Poor's Corporation. The S&P 500 is
typically composed of issues in the industrial, financial, public utilities and
transportation sectors. Most stocks that comprise the S&P 500 are traded on the
New York Stock Exchange, although some are traded on the American Stock Exchange
and in the over-the-counter market.
The Adviser and/or Subadviser will seek to reduce the Series' volatility
relative to the S&P 500 by attempting to generally match the Series' equities
holdings to various risk characteristics of the S&P 500 such as market
capitalization, weightings, and diversification. The Subadviser uses fundamental
analysis and systematic stock valuation to exclude stocks within economic
sectors which appear to be extremely overvalued. See "Other Special Investment
Methods."
The Series may retain cash or invest part or all of its assets in money
market instruments and cash equivalents for temporary or defensive purposes.
Money market instruments sought for investment for such purposes include
obligations issued or guaranteed by the U.S. Government or any of its
instrumentalities or agencies, commercial paper, bank obligations, repurchase
agreements and other debt obligations of the U.S. Government and foreign
issuers.
Risk Factors. While the Adviser shall seek to reduce volatility relative to
the S&P 500 through diversification and continual evaluation of index equities,
the value of the Series assets are expected to positively correlate with changes
in the S&P 500 and the stock market generally. Consequently, economic downturns
and interest rate increases may cause a precipitous decrease in the value of the
Series holdings.
The Series commenced operations on July 28, 1997 based upon an initial
capitalization of $15 million provided by Phoenix. The ability of the Series to
raise additional capital for investment purposes may directly affect the
spectrum of portfolio holdings and performance.
OTHER SPECIAL INVESTMENT METHODS
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CONVERTIBLE SECURITIES
Each Series may invest in convertible securities. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics such as
(1) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (2) a lesser degree of fluctuation in value than the
underlying stock since they have fixed income characteristics and (3) the
potential for capital appreciation if the market price of the underlying common
stock increases. Up to 5% of each Series' assets may be invested in convertible
securities that are rated below investment grade (commonly referred to as "junk"
securities). Such securities present greater credit and market risks than
investment grade securities. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by a Series is
called for redemption, the Series may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
REPURCHASE AGREEMENTS
The Money Market, Real Estate, International, Theme, Enhanced Index and Asia
Series may invest in repurchase agreements. However, no more than 10% of a
Series' net assets will be invested in repurchase agreements having maturities
of more than seven days. A repurchase agreement is a transaction where a Series
buys a security at one price and the seller simultaneously agrees to buy that
same security back at a higher price. Repurchase agreements will be entered into
with commercial banks, brokers and dealers considered by the Board of Trustees
and the Adviser acting at the Board's direction, to be creditworthy. In
addition, the repurchase agreements are always fully collateralized by the
underlying instrument and are marked to market every business day. However, the
use of repurchase agreements involves certain risks such as default by, or
insolvency of, the other party to the transaction.
OPTIONS
The Multi-Sector, Money Market, Growth, Allocation, Balanced, International,
Theme, Enhanced Index and Asia Series may write (sell) covered call options on
securities owned by them, including securities into which convertible securities
are convertible, provided that such call options are listed on a national
securities exchange. Generally, when a Series writes a covered call option, it
will acquire the underlying security or will have absolute and immediate right
to acquire that security without additional consideration upon conversion or
exchange of other securities held by the Series. The Money Market,
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Growth and Multi-Sector Series may only purchase call options for the purpose of
terminating a call option previously written. The Allocation, Balanced,
International and Theme Series also may buy exchange-traded call and put options
on equity and debt securities and on stock market indexes. The International,
Enhanced Index and Theme Series also may write or buy Over-the-Counter (OTC)
options, buy put options on securities indices and enter into options
transactions on a foreign currency. Generally, a put option on a securities
index is similar to a put option on an individual security, except that the
value of the option depends on the weighted value of the group of securities
comprising the index and all settlements are made in cash. The International,
Theme, Enhanced Index and Asia Series also may invest up to 5% of its net assets
in warrants and stock rights, which are almost identical to call options except
that they are issued by the issuer of the underlying security rather than an
option writer. However, no more than 2% of its net assets will be invested in
warrants and stock rights not traded on the New York Stock Exchange or American
Stock Exchange. A complete description of options, warrants and stock rights,
and their associated risks is contained in the Statement of Additional
Information. Options are forms of "derivatives" in that their value is dependent
on fluctuations in the value of other securities.
The Fund understands the position of the staff of the Securities and
Exchange Commission (the "SEC") to be that purchased OTC options and the assets
used as "cover" for written OTC options are illiquid securities. The Fund has
adopted procedures for engaging in OTC options transactions for the purpose of
reducing any potential adverse effect of such transactions upon the liquidity of
the International Series. A brief description of these procedures and related
limitations appears in the Statement of Additional Information.
FINANCIAL FUTURES AND RELATED OPTIONS
The Allocation and Balanced Series may enter into financial futures
contracts for the purchase or sale of debt obligations traded on exchanges
regulated by the Commodity Futures Trading Commission to hedge against
anticipated changes in interest rates that would otherwise have an adverse
effect upon the value of debt securities in its portfolio. A futures contract on
a debt obligation is a binding contractual commitment which, if held until
maturity, will result in an obligation to make or accept delivery of obligations
having a standard face value and rate of return. Hedging is the initiation of an
offsetting position in the futures market which is intended to minimize the risk
associated with a position's underlying securities in the cash market. The
purchase of such futures contracts will not be for speculation but will be
solely for protection of the Series against declines in value. Immediately after
entering into a futures contract for the receipt or delivery of a security, the
value of the securities called for by all of the Allocation or Balanced Series'
futures contracts (both receipts and delivery) will not exceed 10% of such
Series' total assets.
The International, Theme, Enhanced Index and Asia Series also may enter into
financial futures contracts and related options to hedge against anticipated
changes in the market value of its portfolio securities or securities which it
intends to purchase or in the exchange rate of foreign currencies. The
International, Theme and Asia Series will not purchase or sell any financial
futures contract or related option if, immediately thereafter, the sum of the
cash or U.S. Treasury bills committed with respect to its existing futures and
related options positions and the premiums paid for related options would exceed
5% of the market value of the Series' total assets.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or a
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There is also the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
even though the purchase or sale of the contract would not have resulted in a
loss. Futures are forms of derivatives.
A complete description of financial futures and related options is contained
in the Statement of Additional Information.
FOREIGN SECURITIES
The International and Asia Series will purchase foreign securities as
discussed above. In addition, the other Series may invest up to 25% (or 35% as
to the Theme Series) of total net asset value in foreign securities. The
Multi-Sector Series may invest up to 35% of total net asset value in foreign
debt securities. The Series, other than the International, Theme and Asia
Series, will purchase foreign debt securities only if issued in U.S. dollar
denominations. The Enhanced Index Series may invest in securities of foreign
corporations, provided that such securities are included in the S&P 500 or
traded on a U.S. exchange. Investments in foreign securities, particularly those
of non-governmental issuers, involve considerations which are not ordinarily
associated with investing in domestic issuers. Those considerations are
discussed under "International Series."
Foreign Currency Transactions. The value of the assets of the Series
invested in foreign securities, as measured in United States dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Series may incur costs in connection
with conversions between various currencies. The Series will conduct foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. At the time of the purchase of a forward
foreign currency exchange contract, any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily equal to the market value of the contract, minus the
Series' initial margin deposit with respect thereto, will be deposited in a
segregated account with the Fund's custodian bank to collateralize fully the
position and thereby ensure that it is not leveraged.
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When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. A
Series also may hedge its foreign currency exchange rate risk by engaging in
currency financial futures and options transactions. For more information about
foreign currency transactions, see the Statement of Additional Information.
LEVERAGE
The Theme and Enhanced Index Series may, from time to time, increase its
ownership of securities holdings above the amounts otherwise possible by
borrowing from banks at fixed amounts of interest and investing the borrowed
funds. The Fund will borrow only from banks, and only if immediately after such
borrowing the value of the assets of the Series (including the amount borrowed),
less its liabilities (not including any borrowings) is at least three times the
amount of funds borrowed for investment purposes. The Fund may borrow up to 25%
of the net assets of such Series, not including the proceeds of any such
borrowings. However, the amount of the borrowings will be dependent upon the
availability and cost of credit from time to time. If, due to market
fluctuations or other reasons, the value of such Series' assets computed as
provided above become less than three times the amount of the borrowings for
investment purposes, the Fund, within three business days, is required to reduce
bank debt to the extent necessary to meet the required 300% asset coverage.
Interest on money borrowed will be an expense of those Series with respect
to which the borrowing has been made. Because such expense otherwise would not
be incurred, the net investment income of such Series is not expected to be as
high as it otherwise would be during periods when borrowings for investment
purposes are substantial.
Bank borrowings for investment purposes must be obtained on an unsecured
basis. Any such borrowing also must be made subject to an agreement by the
lender that any recourse is limited to the assets of such Series with respect to
which the borrowing has been made.
Any investment gains made with the additional monies borrowed in excess of
interest paid will cause the net asset value of such Series' shares to rise
faster than otherwise would be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover its cost
(including any interest paid on the monies borrowed) to such Series, the net
asset value of the Series will decrease faster than otherwise would be the case.
PRIVATE PLACEMENTS AND RULE 144A SECURITIES
Each Series may purchase securities which have been privately issued and are
subject to legal restrictions on resale or which are issued to qualified
institutional investors under special rules adopted by the SEC. Such securities
may offer higher yields than comparable publicly traded securities. Such
securities ordinarily can be sold by the Series in secondary market transactions
to certain qualified investors pursuant to rules established by the SEC, in
privately negotiated transactions to a limited number of purchasers or in a
public offering made pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"). Public sales of such
securities by the Fund may involve significant delays and expense. Private sales
often require negotiation with one or more purchasers and may produce less
favorable prices than the sale of similar unrestricted securities. Public sales
generally involve the time and expense of the preparation and processing of a
registration statement under the 1933 Act (and the possible decline in value of
the securities during such period) and may involve the payment of underwriting
commissions. In some instances, the Series may have to bear certain costs of
registration in order to sell such shares publicly. Except in the case of
securities sold to qualifying institutional investors under special rules
adopted by the SEC for which the Trustees determine the secondary market is
liquid, Rule 144A Securities will be considered illiquid. Trustees may determine
the secondary market is liquid based upon the following factors which will be
reviewed periodically as required pursuant to procedures adopted by the Series:
the number of dealers willing to purchase or sell the security; the frequency of
trades; dealer undertakings to make a market in the security; and the nature of
the security and its market. Investing in Rule 144A Securities could have the
effect of increasing the level of these Series' illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Each Series may invest up to 15% of its net assets in illiquid
securities.
MORTGAGE-BACKED SECURITIES
The Real Estate Series also may invest in mortgage-backed securities such as
mortgage pass-through certificates, real estate mortgage investment conduit
("REMIC") certificates and collateralized mortgage obligations ("CMOs"). CMOs
are hybrid instruments with characteristics of both mortgage-backed and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal on a
CMO are paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by Government National Mortgage Association
(GNMA), or Federal National Mortgage Association. CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired. REMICs
are similar to CMOs and are fixed pools of mortgages with multiple classes of
interests held by investors.
The Series also may invest in pass-through securities that are derived from
mortgages. A pass-through security is formed when mortgages are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
The Series may purchase pass-through securities at a premium or at a
discount. The value of pass-through securities in which the Series may invest
will fluctuate with changes in interest rates. The value of such securities
varies inversely with interest rates, except that when interest rates decline,
the value of pass-through securities may not
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increase as much as other debt securities because of the prepayment feature.
Changes in the value of such securities will not affect interest income from
those obligations but will be reflected in the Series' net asset value.
A particular risk associated with pass-through securities involves the
volatility of prices in response to changes in interest rates, or prepayment
risk. Prepayment rates are important because of their effect on the yield and
price of securities. Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages' scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Although the
pattern of prepayments is estimated and reflected in the price paid for
pass-through securities at the time of purchase, the actual prepayment behavior
of mortgages cannot be known at that time. Therefore, it is not possible to
predict accurately the realized yield or average life of a particular issue of
pass-through securities. Prepayments that occur faster than estimated adversely
affect yields for pass-throughs purchased at a premium (that is, a price in
excess of principal amount) and may cause a loss of principal because the
premium may not have been fully amortized at the time the obligation is repaid.
The opposite is true for pass-throughs purchased at a discount. Furthermore, the
proceeds from prepayments usually are reinvested at current market rates, which
may be higher than, but usually are lower than, the rates earned on the original
pass-through securities. Prepayments on a pool of mortgage loans are influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors,
net equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed rate mortgage loans will increase during a period
of falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities or
decline in value from declining interest rates because of risk of prepayment.
Pass-through securities are forms of derivatives.
LENDING OF PORTFOLIO SECURITIES
Subject to certain investment restrictions, a Series may, from time to time,
lend securities from its portfolio to brokers, dealers and financial
institutions deemed creditworthy and receive, as collateral, cash or cash
equivalents which at all times while the loan is outstanding will be maintained
in amounts equal to at least 100% (except the Asia Series which will maintain an
amount equal to at least 102%) of the current market value of the loaned
securities. Any cash collateral will be invested in short-term securities which
will increase the current income of the Series lending its securities. A Series
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights and subscription rights. While a
securities loan is outstanding, the Series is to receive an amount equal to any
dividends, interest or other distributions with respect to the loaned
securities. A Series may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans.
Even though securities lending usually does not impose market risks on the
lending Series, a Series would be subject to risk of loss due to an increase in
value if the borrower fails to return the borrowed securities for any reason
(such as the borrower's insolvency). Moreover, if the borrower of the securities
is insolvent, under current bankruptcy law, a Series could be ordered by a court
not to liquidate the collateral for an indeterminate period of time. If the
borrower is the subject of insolvency proceedings and the collateral held may
not be liquidated, the result could be a material adverse impact on the
liquidity of the lending Series.
WHEN-ISSUED SECURITIES
The Enhanced Index Series may commit to purchase new issues of securities on
a when-issued or forward delivery basis for payment and delivery on a later
date. The price and yield are generally fixed on the commitment to purchase
date. During the period between purchase and settlement, the Series does not
earn interest. Upon settlement, the security's market value may become more or
less than the purchase price.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund may not invest more than 25% of the assets of any one Series in any
one industry (except that the Money Market and Allocation Series may invest more
than 25% of their assets in the banking industry and the Real Estate Series may
invest at least 75% of its assets in the real estate industry). If the Fund
makes loans of the portfolio securities of any Series, the market value of the
securities loaned may not exceed 25% of the market value of the total assets of
such Series. The Fund may borrow money from a bank provided such borrowing does
not exceed 10% of the net asset value, not considering any such borrowings as
liabilities.
In addition to the investment restrictions described above, each Series'
investment program is subject to further restrictions which are described in the
Statement of Additional Information. The restrictions for each Series are
fundamental and may not be changed without shareholder approval.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Each Series pays brokerage commissions for purchases and sales of portfolio
securities. A high rate of portfolio turnover involves a correspondingly greater
amount of brokerage commissions and other costs which must be borne directly by
a Series and thus indirectly by its shareholders. It also may result in the
realization of larger amounts of short-term capital gains, which are taxable to
shareholders as ordinary income. The rate of portfolio turnover is not a
limiting factor when the Adviser deems changes appropriate. It is anticipated
that the turnover rate for the Enhanced Index Series generally will not exceed
100%. Although securities for the Theme Series are not purchased for the
short-term, the Adviser's strict sell discipline may result in rates of
portfolio turnover equivalent to those identified by the SEC as appropriate for
capital appreciation funds with substantial short-term trading. The Adviser's
approach dictates that underperforming securities and securities not consistent
with prevailing themes will be sold. Portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Series' securities
(excluding short-term securities). The turnover rate may vary greatly from year
to year and may be affected by cash requirements for redemptions of shares
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of a Series and by compliance with provisions of the Internal Revenue Code,
relieving investment companies which distribute substantially all of their net
income from federal income taxation on the amounts distributed. The rates of
portfolio turnover for each Series (other than the Money Market and Enhanced
Index Series) are set forth under "Financial Highlights." For more information
regarding the consequences related to a high portfolio turnover rate, see
"Portfolio Transactions and Brokerage" and "Dividends, Distributions and Taxes"
in the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
The Fund is a mutual fund, technically known as an open-end, diversified
investment company. The Board of Trustees supervises the business affairs and
investments of the Fund, which is managed on a daily basis by the Fund's
investment advisers. The Fund was organized as a Massachusetts Business Trust on
February 18, 1986. The Fund issues shares of beneficial interest in nine Series.
The Statement of Additional Information contains a list of the members of the
Board of Trustees and the officers of the Fund.
INVESTMENT ADVISERS
The Fund's investment advisers are Phoenix Investment Counsel,
Inc. ("PIC"), Phoenix Realty Securities, Inc. ("PRS") and Phoenix-
Aberdeen International Advisors, LLC ("PAIA," collectively, the
"Advisers"). PIC is located at 56 Prospect Street, Hartford, Connecticut
06115. PRS is located at 38 Prospect Street, Hartford, Connecticut
06115. PAIA is located at One American Row, Hartford, Connecticut
06102.
PIC was originally organized in 1932 as John P. Chase, Inc. In addition to
the Fund, it serves as investment adviser to the Phoenix Series Fund, Phoenix
Strategic Allocation Fund, Inc., Phoenix Strategic Equity Series Fund (all
series other than Equity Opportunities Series), Phoenix Duff & Phelps
Institutional Mutual Funds (all portfolios other than the Real Estate Equity
Securities Portfolio) and Phoenix Multi-Portfolio Fund (all portfolios other
than the Real Estate Securities Portfolio) and as subadviser to Chubb America
Fund, Inc. and Sun America Series Trust. PIC also serves as subadviser to the
Asia Series.
All of the outstanding stock of PIC is owned by Phoenix Equity Planning
Corporation ("PEPCO"), a subsidiary of Phoenix Duff & Phelps Corporation
("PD&P"). Phoenix owns a controlling interest in PD&P. PEPCO also performs
bookkeeping, pricing and administrative services for the Fund. PEPCO is
registered as a broker-dealer in 50 states. The executive offices of Phoenix are
located at One American Row, Hartford, Connecticut 06102; the executive offices
of PD&P are located at 56 Prospect Street, Hartford, Connecticut 06115, and
the principal offices of PEPCO are located at 100 Bright Meadow Boulevard, P.O.
Box 2200, Enfield, Connecticut 06083-2200.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, serves as subadviser to the
Enhanced Index Series. J.P. Morgan's principal place of business is located at
522 Fifth Avenue, New York, New York 10036. J.P. Morgan presently serves as an
investment manager for corporate, public and union employee benefit funds,
foundations, endowments, insurance companies, government agencies and the
accounts of other institutional investors. J.P. Morgan was founded in 1984 and
as of March 31, 1997 had approximately $184 billion in assets under
management.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. In addition to
the Fund, it serves as investment adviser to the Real Estate Securities
Portfolio of the Phoenix Multi-Portfolio Fund, the Real Estate Equity Securities
Portfolio of the Phoenix Duff & Phelps Institutional Mutual Funds and to the
American Phoenix Investment Portfolio. As of December 31, 1996, PRS had $1.4
billion in assets under management.
PAIA, a Delaware limited liability company formed in 1996 and jointly
owned and managed by PM Holdings, Inc., is a direct subsidiary of Phoenix and
Aberdeen Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset
Management plc. Aberdeen Asset Management is a partially-owned subsidiary of
Phoenix. Aberdeen Fund Managers, Inc. has its principal offices located at 1
Financial Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394.
While many of the officers and directors of the Adviser and subadviser have
extensive experience as investment professionals, due to its recent formation,
the Adviser has no prior operating history. Aberdeen Fund Managers, Inc. also
serves as subadviser to the Asia Series.
Aberdeen Asset Management was founded in 1983, and through subsidiaries
operating from offices in Aberdeen, Scotland; London, England; Singapore; and
Fort Lauderdale, Florida, provides investment management services to unit and
investment trusts, segregated pension funds and other institutional and private
portfolios. As of February 28, 1997, Aberdeen Asset Management and its
advisory subsidiaries, had approximately $4.8 billion in assets under
management.
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. All costs and
expenses (other than those specifically referred to as being borne by the
Advisers) incurred in the operation of the Account and the Fund are borne by the
Fund, Phoenix, PHL Variable or PLAC. A more detailed discussion of the Advisers
and the Investment Advisory Agreements and Investment Subadvisory Agreements is
contained in the Statement of Additional Information.
PORTFOLIO MANAGERS
Balanced Series. Mr. C. Edwin Riley, Jr. serves as portfolio manager of the
Balanced Series and as such is primarily responsible for the day-to-day
management of the Series' portfolio. Mr. Riley is also vice president of Phoenix
Series Fund and portfolio manager of the Balanced Series of that Fund. Mr. Riley
is a managing director, Equities, of Phoenix Investment Counsel, Inc. and
National Securities & Research Corporation. From 1988 to 1995, Mr. Riley served
as senior vice president and director of Equity Management for Nationsbank
Investment Management.
Allocation Series. Ms. Mary E. Canning serves as portfolio manager of the
Allocation Series and, as such, is primarily responsible for the day-to-day
management of the Series' investments. Ms. Canning has served as manager since
August 1996 and as co- manager since June 1996. She has been a vice president of
Phoenix Investment Counsel, Inc. since 1991 and also is a vice president of the
Fund (since 1987) and of Phoenix Series Fund (since 1987). From June 1991 to
November 1995, Ms. Canning was associate portfolio
2-22
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manager, Common Stock, Phoenix Home Life Mutual Insurance Company and held
various other positions with Phoenix Home Life from 1982 to 1991.
Multi-Sector Series. Mr. Curtiss O. Barrows has served as portfolio manager
of the Multi-Sector Series since 1986 and, as such, is primarily responsible for
the day-to-day management of the Series' portfolio. Mr. Barrows also is
portfolio manager of the High Yield Series of the Phoenix Series Fund and is a
vice president of PIC. Mr. Barrows also is portfolio manager, Public Bonds,
Phoenix Home Life Mutual Insurance Company.
Growth Series. Mr. Jean Claude Gruet has served as portfolio manager of the
Growth Series since 1996 and, as such, is primarily responsible for the
day-to-day management of the Series' portfolio. He also is vice president of the
Fund. Mr. Gruet previously was vice president and portfolio manager of Atalanta
Sosnoff Capital Corporation from 1994 to 1996, and was vice president and senior
analyst of UBS Securities from 1989 to 1994.
International Series. Ms. Jeanne Dorey and Mr. David Lui are the coportfolio
managers of the International Series and, as such, are primarily responsible for
the day-to-day management of the Series' investments. Ms. Dorey also is
coportfolio manager of the International Portfolio of Phoenix Multi-Portfolio
Fund and of Phoenix Worldwide Opportunities Fund. Ms. Dorey has served as vice
president of PIC since April 1993, and as vice president of the Fund and
portfolio manager of the Fund, Phoenix Worldwide Opportunities Fund and Phoenix
International Portfolio since February 1993. Since May 1993, she also has served
as vice president of National Securities & Research Corporation, an affiliate of
PIC. From 1990 to 1992, Ms. Dorey was an investment analyst and portfolio
manager with Pioneer Group, Inc. Mr. Lui also is coportfolio manager of Phoenix
Worldwide Opportunities Fund and the International Series of The Phoenix Edge
Series Fund. Mr. Lui previously served as associate portfolio manager of such
funds since June 1995. From 1993 to 1995, Mr. Lui was vice president of Asian
Equities at Alliance Capital Management, and from 1990 to 1993, he was an
associate, Capital Markets, at Bankers Trust.
Money Market Series. Ms. Dorothy J. Skaret has served as the portfolio
manager of the Money Market Series since 1990 and, as such, is primarily
responsible for the day-to-day management of the Series' portfolio. Ms. Skaret
also is the portfolio manager of the Money Market Series of the Phoenix Series
Fund. Ms. Skaret also is director, Public Fixed Income, Phoenix Home Life Mutual
Insurance Company, and a vice president of National Securities & Research
Corporation.
Real Estate Series. Ms. Barbara Rubin, president of PRS and William K.
Morrill, Jr., managing director of ABKB have shared primary responsibility for
managing the assets of the Real Estate Series from its inception. Ms. Rubin has
over 20 years real estate experience and has been associated with Phoenix for
the past 14 years. Mr. Morrill has over 15 years of investment experience and
has been a portfolio manager with ABKB since 1985.
Theme Series. Mr. William J. Newman serves as portfolio manager of the Theme
Series and, as such, is primarily responsible for the day-to-day management of
the Series' portfolio. Mr. Newman joined Phoenix in March 1995 as chief
investment strategist and managing director for Phoenix Investments. Mr. Newman
also is executive vice president of PIC. Most recently, Mr. Newman was chief
investment strategist for Kidder Peabody in New York from May 1993 to December
1994. He was managing director at Bankers Trust from March 1991 to May 1993.
Asia Series. Mr. Hugh Young is the portfolio manager of the Asia Series and,
as such, is primarily responsible for the day-to-day management of the Series'
portfolio. Mr. Young has been employed as an investment director for Abtrust
Fund Managers (Singapore) Limited since 1988. From 1985 to 1988, Mr. Young was
the Far East investment director for Sentinel Funds Management Ltd. From 1984 to
1985, he was an investment manager with Fidelity International Ltd. From 1981 to
1984, he served as investment analyst-overseas investment manager with MGM
Assurance; and from 1980 to 1981, he was an investment analyst with Beardsley
Bishop Escombe, Stockbrokers.
Enhanced Index Series. Mr. Timothy Devlin is primarily responsible for
managing the assets of the Enhanced Index Series. Mr. Devlin has served as a
Vice President of J. P. Morgan since July 1996 and is a member of the Structured
Equity Group where he has the dual responsibilities of client servicing and
portfolio management. From 1987 to 1996, he served as First Vice President of
Mitchell Hutchins where he managed quantitatively-driven equity portfolios for
institutional and retail investors.
ADVISORY FEES
As compensation for its services for all Series, the Advisers are entitled
to a fee at an annual rate of the average daily net assets of the Series,
payable monthly, as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market..... .40% .35% .30%
Multi-Sector..... .50% .45% .40%
Balanced......... .55% .50% .45%
Allocation....... .60% .55% .50%
Growth........... .70% .65% .60%
International.... .75% .70% .65%
Theme............ .75% .70% .65%
Enhanced Index... .45% .45% .45%
The total advisory fee of 0.75% of the aggregate net assets of the
International and Theme Series, is greater than that paid by most mutual funds;
however, the Board of Trustees of the Fund has determined that it is similar to
fees charged by other mutual funds whose investment objectives are similar to
those of the International and Theme Series.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the Enhanced Index
Series to J.P. Morgan for which it is paid a fee by PIC. In accordance with the
subadvisory agreement between the Fund and J.P. Morgan, J.P. Morgan is paid a
monthly fee at the annual rate of 0.25% of the average aggregate daily net asset
values of the Enhanced Index Series up to $100 million and 0.20% of such value
in excess of $100 million. The subadvisory agreement relating to the Enhanced
Index Series provides, among other things, that J.P.
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Morgan shall effectuate the and sale of securities for the Series and provide
related advisory services.
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate...... .75% .70% .65%
The total advisory fee of 0.75% of the aggregate net assets of the Real
Estate Series is greater than that paid by most mutual funds; however, the Board
of Trustees of the Fund has determined that it is similar to fees charged by
other mutual funds whose investment objectives are similar to that of the Real
Estate Series. Pursuant to a subadvisory agreement with the Fund, PRS delegates
certain investment decisions and research functions to ABKB/LaSalle Securities
Limited Partnership ("ABKB") for which ABKB is paid a fee by PRS. In accordance
with the subadvisory agreement between the Fund and ABKB, ABKB is paid a monthly
fee at the annual rate of 0.45% of the average aggregate daily net asset values
of the Series up to $1 billion; 0.35% of such value between $1 billion and $2
billion; and 0.30% of such value in excess of $2 billion. The subadvisory
agreement relating to the Real Estate Series provides, among other things, that
ABKB shall maintain certain records for the Series and effectuate the purchase
and sale of securities for the Series. ABKB is not affiliated with PRS, PIC,
Phoenix, PHL Variable or PLAC. The Real Estate Series pays other operating
expenses up to .25% of its average net assets.
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series...... 1.00%
The total advisory fee of 1.00% of the aggregate net assets of the Asia
Series is greater than that paid by most mutual funds; however, the Board of
Trustees of the Fund has determined that it is similar to fees charged by other
mutual funds whose investment objectives are similar to those of the Asia
Series. The Investment Advisory Agreement with the Fund provides that PAIA will
reimburse the Fund for the amount, if any, by which the total operating expenses
(including PAIA's compensation, but excluding interest, taxes, brokerage fees
and commissions and extraordinary expenses) for any fiscal year exceed the level
of expenses which the Series is permitted to bear under the most restrictive
expense limitation.
For providing research and other domestic advisory services to the Series,
PAIA pays to PIC, Inc. a monthly subadvisory fee at an annual rate equivalent to
0.30% of the average aggregate daily net asset value of the Series. For
implementing certain portfolio transactions and providing research and other
services to the Series, PAIA also pays a monthly subadvisory fee to Aberdeen
Fund Managers Inc. equivalent to 0.40% of the average aggregate daily net asset
value of the Series. For implementing certain portfolio transactions, providing
research and other services with regard to investments in particular geographic
areas, Aberdeen Fund Managers Inc. shall engage the services of its affiliates
Abtrust Fund Managers Ltd. and Abtrust Fund Managers (Singapore) Limited for
which such entities shall be paid a fee by Aberdeen Fund Managers Inc.
FINANCIAL AGENT
Under a Financial Agent Agreement, PEPCO acts as financial agent of the Fund
and as such is responsible for certain administrative functions and the
bookkeeping and pricing functions for the Fund. For its services as financial
agent, PEPCO receives a fee based on the average of the aggregate daily net
asset values of the Fund at the annual rate per each $1,000,000 of $600.
EXPENSES
Each Series (except the International, Real Estate, Theme and Asia Series)
pays a portion or all of its total operating expenses other than the management
fee, up to .15% of its total average net assets. The International, Real Estate,
Theme and Asia Series pay total operating expenses other than the management fee
up to .40%, .25%, .25% and .25%, respectively, of its total average net assets.
Expenses above these limits are paid by the Advisers, Phoenix, PHL Variable or
PLAC.
PORTFOLIO TRANSACTIONS AND BROKERAGE
No Series has any obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to the Statement
of Policy on Brokerage Allocation adopted by the Board of Trustees, the Advisers
are primarily responsible for the portfolio decisions of each Series and the
placing of its portfolio transactions. In placing orders, it is the policy of
each Series to obtain the most favorable net results, taking into account
various factors, including price, dealer spread or commission, if any, size of
the transaction and difficulty of execution. While the Advisers generally seek
reasonably competitive spreads or commissions, the Series will not necessarily
be paying the lowest spread or commission available. The Statement of
Additional Information contains more information on brokerage allocation.
PERFORMANCE HISTORY
From time to time, the Fund may include the performance history of any or
all of the Series (along with applicable separate account performance history)
in advertisements, sales literature or reports. Performance information about
each Series is based on that Series' past performance only and is not an
indication of future performance. Performance information may be expressed as
yield and effective yield of the Money Market Series, as yield of the
Multi-Sector Series and as total return of any Series. Current yield for the
Money Market Series will be based on the income earned by the Series over a
given 7-day period (less a hypothetical charge reflecting deductions for
expenses taken during the period) and then annualized, i.e., the income earned
in the period is assumed to be earned every seven days over a 52-week period
and is stated in terms of an annual percentage return on the investment.
Effective yield is calculated similarly but reflects the compounding effect of
earnings on reinvested dividends.
For the Multi-Sector Series, quotations of yield will be based on all
investment income per share earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per share on the last day of the period.
When a Series advertises its total return, it usually will be calculated for
one year, five years, and ten years or since inception if the Series has not
been in existence for at least ten years. Total return
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<PAGE>
is measured by comparing the value of a hypothetical $1,000 investment in the
Series at the beginning of the relevant period to the value of the investment at
the end of the period, assuming the reinvestment of all distributions at net
asset value and the deduction of the maximum sales charge applicable at the
beginning of the relevant period.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDING 12/31/96
----------------------------------------------------------
COMMENCEMENT LIFE OF
SERIES DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ------ ---- ------ ------- -------- ----
Multi-Sector.... 1/1/83 12.42% 10.86% 9.77% 10.89%
Balanced........ 5/1/92 10.56% N/A N/A 10.26%
Allocation...... 9/17/84 9.05% 9.32% 11.40% 12.91%
Growth.......... 1/1/83 12.58% 14.56% 16.13% 18.87%
International... 5/1/90 18.65% 9.44% N/A 8.53%
Real Estate .... 5/1/95 33.09% N/A N/A 30.87%
Theme........... 1/29/96 N/A N/A N/A 10.33%
Asia Series..... 9/17/96 N/A N/A N/A 0.16%
Enhanced Index.. 7/28/97 N/A N/A N/A N/A
ANNUAL TOTAL RETURNS
--------------------
YEAR MULTI-SECTOR BALANCED ALLOCATION GROWTH
- ---- ------------ -------- ---------- ------
1986......... 19.45% N/A 15.61% 20.15%
1987......... 1.12% N/A 12.58% 7.05%
1988......... 10.36% N/A 2.33% 3.83%
1989......... 8.30% N/A 19.88% 36.06%
1990......... 5.14% N/A 5.62% 3.98%
1991......... 19.41% N/A 29.44% 43.83%
1992......... 10.03% 9.72% 10.67% 10.29%
1993......... 15.90% 8.57% 11.02% 19.69%
1994......... (5.47%) (2.80%) (1.45%) 1.48%
1995......... 23.54% 23.28% 18.22% 30.85%
1996......... 12.42% 10.56% 9.05% 12.58%
REAL ENHANCED
YEAR INTERNATIONAL ESTATE THEME ASIA SERIES INDEX
- ---- ------------- ------ ----- ----------- -----
1986........ N/A N/A N/A N/A N/A
1987........ N/A N/A N/A N/A N/A
1988........ N/A N/A N/A N/A N/A
1989........ N/A N/A N/A N/A N/A
1990........ (8.10%) N/A N/A N/A N/A
1991........ 19.78% N/A N/A N/A N/A
1992........ (12.89%) N/A N/A N/A N/A
1993........ 38.44% N/A N/A N/A N/A
1994........ 0.03% N/A N/A N/A N/A
1995........ 9.59% 17.79% N/A N/A N/A
1996........ 18.65% 33.09% 10.33%* 0.16%* N/A
*Since inception
Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Principal and investment return
(except Money Market Series) will vary and you may have a gain or loss when you
withdraw your money. The Multi-Sector Series includes high yielding, lower-rated
securities which are subject to greater price volatility and may involve greater
risk of default. The market for these securities may be less liquid. While Money
Market Series seeks to maintain a stable value of $10.00 per share, there is no
assurance that it will be able to do so.
Yield calculations of the Money Market Series used for illustration purposes
are based on the consideration of a hypothetical investment account having a
balance of exactly one Share at the beginning of a seven-day period, which
period will end on the date of the most recent financial statements. The yield
for the Series during this seven-day period will be the change in the value of
the hypothetical investment account's original Share. The following is an
example of this yield calculation for the Money Market Series based on a
seven-day period ending December 31, 1996.
Assumptions:
Value of hypothetical pre-existing account with
exactly one share at the beginning of the period:. 10.000000
Value of the same account (excluding capital
changes) at the end of the seven-day period:...... 10.009537
Calculation:
Ending account value.............................. 10.009537
Less beginning account value...................... 10.000000
Net change in account value....................... 0.009537
Base period return:
(adjusted change/beginning account value)......... 0.000954
Current yield = return x (365/7) =................... 4.97%
Effective yield = [(1 + return)365/7]-1 =............ 5.10%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time.
The Advisers have voluntarily agreed to reimburse certain expenses as
described under "Expenses" above. If the Advisers had not reimbursed certain
expenses during the periods shown, the returns for these funds would have been
lower. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
The Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of each Series and a comparison of that
performance to a securities market index.
SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The Fund currently has ten Series of shares of beneficial interest. Shares
(including fractional shares) of each Series have equal rights with regard to
voting, redemptions, dividends, distributions, and liquidations with respect to
that Series. All voting rights of the Accounts as shareholders are passed
through to the Contract Owners and Policyowners. Shareholders of all Series
currently vote on the election of Trustees and other matters. On matters
affecting an individual Series (such as approval of an Investment Advisory
Agreement or a change in fundamental investment policies), a separate vote of
that Series is required.
Fund shares attributable to any Phoenix, PHL Variable or PLAC assets and
Fund shares for which no timely instructions from Contract Owners or
Policyowners are received will be voted by Phoenix, PHL Variable and PLAC in the
same proportion as those shares in that Series for which instructions are
received.
Shares are fully paid, nonassessable, redeemable and fully transferable when
they are issued. Shares do not have cumulative voting rights, preemptive rights
or subscription rights.
The assets received by the Fund for the issue or sale of shares of each
Series, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such Series, and
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<PAGE>
constitute the underlying assets of such Series. The underlying assets of each
Series are required to be segregated on the books of account, and are to be
charged with the expenses of the Series and with a share of the general expenses
of the Fund. Any general expenses of the Fund not readily identifiable as
belonging to a particular Series shall be allocated by or under the direction of
the Trustees in such manner as the Trustees determine to be fair and equitable.
Unlike the stockholders of a corporation, there is a possibility that the
Accounts as shareholders of a business trust such as the Fund may be liable for
debts or claims against the Fund. The Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, undertaking or
obligation made or issued by the Fund shall contain a provision to that effect.
The Declaration of Trust provides for indemnification out of the Fund's property
for all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of the Accounts, as shareholders,
incurring loss because of shareholder liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations. Phoenix, PHL
Variable and PLAC, as the sole shareholders, have a fiduciary duty to bear this
risk and Contract Owners and Policyowners should be fully and completely
insulated from risk.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares, without sales charge, for purchase by the
Accounts as an investment medium for the Variable Accumulation Annuity Contracts
and Variable Universal Life Insurance Policies issued by Phoenix, PHL Variable
and PLAC. It is contemplated that in the future other separate accounts of
Phoenix, PHL Variable, PLAC or other insurance companies may purchase shares of
the Fund. Shares of the Fund will not be sold to the public. The Fund
continuously offers shares in each Series to the Accounts at prices equal to the
respective net asset values of those Series. Net asset value is determined in
the manner set forth below under "Net Asset Value."
It is conceivable that, in the future, it may be disadvantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in the Fund simultaneously. Although Phoenix, PHL Variable, PLAC or
the Fund currently do not foresee any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Fund's Board
of Trustees intends to monitor events in order to identify any material
conflicts between such Policyowners and Contract Owners and to determine what
action, if any, including withdrawal by the Separate Account from the Fund,
should be taken in response thereto. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in federal income tax
laws, (3) changes in the investment management of any portfolio of the Fund or
(4) differences in voting instructions between those given by Policyowners and
those given by Contract Owners.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The net asset value per share of a Series is
determined by adding the values of all securities and other assets of the
Series, subtracting liabilities and dividing by the total number of outstanding
shares of the Series.
The Series' investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by the
Trustees or their delegates. Foreign and domestic debt securities (other than
short-term investments) are valued on the basis of broker quotations or
valuations provided by a pricing service approved by the Trustees when such
prices are believed to reflect the fair value of such securities. Foreign and
domestic equity securities are valued at the last sale price or, if there has
been no sale that day, at the last bid price, generally. Short-term investments
having a remaining maturity of less than 61 days are valued at amortized cost,
which the Trustees have determined approximates market. For further information
about security valuations, see the Statement of Additional Information.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem all full and fractional shares of the Fund presented
for redemption. The Fund may, at the discretion of the Trustees and to the
extent consistent with state and federal law, make payment for shares of a
particular Series redeemed in whole or in part in securities or other assets of
such Series taken at current values. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption.
The right to redeem shares or to receive payment with respect to any
redemption only may be suspended for more than seven days for any period during
which trading on the New York Stock Exchange is restricted as determined by the
SEC or such Exchange is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists as defined by the SEC
as a result of which disposal of portfolio securities or determination of the
net asset value of each Series is not reasonably practicable, and for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of shareholders of each Series.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
All dividends and distributions with respect to the shares of any Series
will be payable in shares of such Series at net asset value or, at the option of
the Account as shareholder, in cash.
The net investment income of the Money Market Series will be declared as
dividends daily. Dividends will be distributed and reinvested in additional
shares on the last business day of every month. The net income of the Money
Market Series for Saturdays, Sundays and other days on which the New York Stock
Exchange is closed will be declared as dividends on the next business day.
The Multi-Sector, Growth, Allocation, Balanced, International, Enhanced
Index and Theme Series will distribute substantially all net investment income
and net realized capital gains, if any, to shareholders at least annually,
although it is anticipated that these distributions will be made on a quarterly
basis. The Real Estate Series will distribute its net investment income to its
shareholders quarterly and net realized capital gains, if any, to its
shareholders annually. The Asia Series will distribute its net investment income
to its shareholders on a semi-
2-26
<PAGE>
annual basis and net realized capital gains, if any, to its shareholders
on an annual basis.
TAXES
- --------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code") and so qualified for its last
taxable year. In addition, the Fund intends to comply with the investment
diversification requirements for variable contracts contained in the Code.
Moreover, the Fund will distribute sufficient income to avoid imposition of any
Federal excise tax. Dividends derived from interest and distributions of any
realized capital gains are taxable, under Subchapter M, to the Fund's
shareholders, which in this case are the Accounts. The International and Asia
Series may incur liability for foreign income and withholding taxes on
investment income. The International and Asia Series intend to qualify for, and
may make an election permitted under, the Code to enable the shareholder
Accounts (and therefore Phoenix) to claim a credit or deduction on Phoenix's
income tax return for the Accounts' pro rata share of the income and withholding
taxes paid by the International and Asia Series to foreign countries. Phoenix
also will treat the foreign income taxes paid by the Series as income. Contract
Owners and Policyowners will not be required to treat the foreign income taxes
paid by the Series as income or be able to claim a credit or deduction for these
taxes on their income tax returns. For a discussion of the taxation of the
Accounts, see "Federal Tax Considerations" included in the Accounts'
prospectuses.
Although the Real Estate Series may be a non-diversified portfolio, the Fund
intends to comply with the diversification and other requirements of the Code
applicable to "regulated investment companies" so that it will not be subject to
U.S. federal income tax on income and capital gain distributions to
shareholders. Accordingly, the Real Estate Series will insure that no more than
25% of its total assets would be invested in the securities of a single issuer
and that at least 50% of its total assets is represented by cash and cash items
and other securities limited in respect of any one issuer to an amount no
greater than 5% of the total value of the assets of the Series.
In addition, if the Real Estate Series has rental income or income from the
disposition of real property acquired as a result of a default on securities the
Real Estate Series may own, the receipt of such income may adversely affect its
ability to retain its tax status as a regulated investment company.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
- --------------------------------------------------------------------------------
The Custodian of the assets of all Series of the Fund, except the
International, Real Estate, Enhanced Index and Asia Series, is The Chase
Manhattan Bank, N.A., 1 Chase Manhattan Plaza, Floor 3B, New York, NY 10081. The
Custodian of the assets of the International and Asia Series is Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, Attention:
Manager, Securities Division. The Custodian of the assets of the Real Estate and
Enhanced Index Series is State Street Bank & Trust, 1 Heritage Drive, P2N, North
Quincy, Massachusetts 02171. The Fund has authorized the Custodian to appoint
one or more subcustodians of the assets of the Fund held outside the United
States. The securities and other assets of each Series will be held by the
Custodians or any subcustodian separate from the securities and assets of each
other Series.
The Transfer Agent and the Dividend Paying Agent for the Fund's shares is
Phoenix Equity Planning Corporation, 100 Bright Meadow Boulevard, PO Box 2200,
Enfield, Connecticut 06083-2200.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund and audits its financial
statements annually.
Inquiries and requests for the Statement of Additional Information and the
Annual Report to Shareholders should be directed in writing to Phoenix Variable
Products Mail Operations, PO Box 8027, Boston, Massachusetts 02266-8027, or by
telephoning Variable Products Operations at (800) 447-4312.
2-27
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS:
101 Munson Street P.O. Box 8027
Greenfield, MA Boston, MA 02266-8027
STATEMENT OF ADDITIONAL INFORMATION
July 28, 1997
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Prospectus. Accordingly, this Statement should be read
together with the Fund's current Prospectus, dated July 28, 1997, which may be
obtained by calling Variable Products Operations at (800) 447-4312, or by
writing to Phoenix Variable Products Mail Operations at P.O. Box 8027, Boston,
Massachusetts 02266-8027.
------------------
TABLE OF CONTENTS*
PAGE
The Phoenix Edge Series Fund (2-1).................................. 2
Investment Policies (2-11).......................................... 2
Investment Restrictions (2-21)...................................... 12
Portfolio Turnover (2-21)........................................... 13
Management of the Fund (2-22)....................................... 13
Investment Advisers (2-22).......................................... 21
Brokerage Allocation (2-24)......................................... 22
Determination of Net Asset Value (2-26)............................. 23
Investing In the Fund (2-26)........................................ 24
Redemption of Shares (2-26)......................................... 24
Taxes (2-27)........................................................ 24
Custodian (2-27).................................................... 24
Independent Accountants............................................. 25
Financial Statements................................................ 25
Appendix............................................................ 25
* Numbers in parentheses are cross-references to related sections of the
Prospectus.
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THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
The Phoenix Edge Series Fund (the "Fund") is an open-end investment company
as defined in the Investment Company Act of 1940. It was formed on February 18,
1986 as a Massachusetts Business Trust and commenced operations on December 5,
1986. The Phoenix Home Life Variable Accumulation Account is a separate account
of Phoenix Home Life Mutual Insurance Company ("Phoenix") created on June 21,
1982. The Phoenix Home Life Variable Universal Life Account is a separate
account of Phoenix created on June 17, 1985. The PHL Variable Accumulation
Account is a separate account of PHL Variable Insurance Company ("PHL Variable")
formed on December 7, 1994. The Phoenix Life and Annuity Variable Universal Life
Account is a separate account of Phoenix Life and Annuity Company ("PLAC")
formed in March 1996. The executive offices of the Accounts, Phoenix, PHL
Variable and PLAC are located at One American Row, Hartford, Connecticut. The
Accounts own the majority of the shares of the Fund.
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The investment objectives and policies of each Series are described in the
"Investment Objectives and Policies" section of the Prospectus. The following
specific policies supplement the information contained in that section of the
Prospectus.
MONEY MARKET INSTRUMENTS
Certain money market instruments used extensively by the Money Market and
Allocation Series are described below. They also may be used by the
International, Real Estate, Theme, Enhanced Index and Asia Series and may be
used by the other Series to a very limited extent to invest otherwise idle cash,
or on a temporary basis for defensive purposes.
Repurchase Agreements. Repurchase Agreements are agreements by which a
Series purchases a security and obtains a simultaneous commitment from the
seller (a member bank of the Federal Reserve System or, to the extent permitted
by the Investment Company Act of 1940, a recognized securities dealer) that the
seller will repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. In fact, such a
transaction is a loan of money to the seller of the securities.
A repurchase transaction is usually accomplished either by crediting the
amount of securities purchased to the account of the custodian of the Fund
maintained in a central depository or book-entry system or by physical delivery
of the securities to the Fund's custodian in return for delivery of the purchase
price to the seller. Repurchase transactions are intended to be short-term
transactions with the seller repurchasing the securities, usually within seven
days.
Even though repurchase transactions usually do not impose market risks on
the purchasing Series, if the seller of the repurchase agreement defaults and
does not repurchase the underlying securities, the Series might incur a loss if
the value of the underlying securities declines, and disposition costs may be
incurred in connection with liquidating the underlying securities. In addition,
if bankruptcy proceedings are commenced regarding the seller, realization upon
the underlying securities may be delayed or limited, and a loss may be incurred
if the underlying securities decline in value.
U.S. Government Obligations. Securities issued or guaranteed as to principal
and interest by the United States Government include a variety of Treasury
securities, which differ only in their interest rates, maturities, and times of
issuance. Treasury bills have a maturity of one year or less. Treasury notes
have maturities of one to seven years, and Treasury bonds generally have
maturity of greater than five years.
Agencies of the United States Government which issue or guarantee
obligations include, among others, Export-Import Banks of the United States,
Farmers Home Administration, Federal Housing Administration, Government National
Mortgage Association, Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by, among others, the
Federal National Mortgage Association, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Banks for
Cooperatives and the U.S. Postal Service. Securities issued or guaranteed by the
Export-Import Bank of the United States, Farmer's Home Administration, Federal
Housing Administration, Government National Mortgage Association, Maritime
Administration and Small Business Administration are supported by the full faith
and credit of the U.S. Treasury. Securities issued or guaranteed by Federal
National Mortgage Association and Federal Home Loan Banks are supported by the
right of the issuer to borrow from the Treasury. Securities issued or guaranteed
by the other agencies or instrumentalities listed above are supported only by
the credit of the issuing agency.
Certificates of Deposit. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
Time Deposits. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received.
Bankers' Acceptances. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods). The borrower, as well as the bank, is liable for payment, and the bank
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are traded as
money market securities.
All of the Money Market Series' investments will mature in 397 days or less
and will have a weighted average age of not more than 90 days. By limiting the
maturity of its investments, the Series seeks to
2
<PAGE>
lessen the changes in the value of its assets caused by market factors. This
Series, consistent with its investment objective, will attempt to maximize yield
through portfolio trading. This may involve selling portfolio instruments and
purchasing different instruments to take advantage of disparities of yields in
different segments of the high grade money market or among particular
instruments within the same segment of the market. It is expected that the
Series' portfolio transactions generally will be with issuers or dealers in
money market instruments acting as principal. Accordingly, this Series will
normally not pay any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the period of time remaining to
maturity of the security. Long-term obligations may fluctuate more in value than
short-term obligations. If interest rates increase after a security is
purchased, the security, if sold, could be sold at a loss. On the other hand, if
interest rates decline after a purchase, the security, if sold, could be sold at
a profit. If, however, the security is held to maturity, no gain or loss will be
realized as a result of interest rate fluctuations, although the day-to-day
valuation of the portfolio could fluctuate. Substantial withdrawals of the
amounts held in the Money Market Series could require it to sell portfolio
securities at a time when a sale might not be favorable. The value of a
portfolio security also may be affected by other factors, including factors
bearing on the credit-worthiness of its issuer. A more detailed discussion of
amortized cost is contained under "Determination of Net Asset Value."
ALLOCATION SERIES: MARKET SEGMENT INVESTMENTS AND TRADING
Market Segment Investments. The Allocation Series seeks to achieve its
investment objective by investing in the three market segments of stocks, bonds,
and money market instruments described below.
(1) STOCK--common stocks and other equity-type securities such as
preferred stocks, securities convertible into common stock and
warrants;
(2) BONDS--bonds and other debt securities with maturities generally
exceeding one year, including:
(a) publicly offered straight debt securities having a rating within
the four highest grades as determined by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's
Corporation (AAA, AA, A or BBB) or, if unrated, those publicly
offered straight debt securities which are judged by the Account
to be of equivalent quality to securities so rated;
(b) obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities;
(c) obligations (payable in U.S. dollars) issued or guaranteed as to
principal and interest by the Government of Canada or of a
Province of Canada or any instrumentality or political
subdivision thereof, provided such obligations have a rating
within the highest grades as determined by Moody's (Aaa, Aa or
A) or Standard & Poor's (AAA, AA or A) and do not exceed 25% of
the Allocation Series' total assets;
(d) publicly offered straight debt securities issued or guaranteed
by a national or state bank or bank holding company (as defined
in the Federal Bank Holding Company Act, as amended) having a
rating within the three highest grades as determined by Moody's
(Aaa, Aa or A) or Standard & Poor's (AAA, AA or A), and
certificates of deposit of such banks; and
(e) high yield, high risk fixed income securities (commonly referred
to as "junk bonds") having a rating below Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Corporation
or unrated securities of comparable quality provided such
securities do not exceed 5% of the Allocation Series' total
assets.
(3) MONEY MARKET--money market instruments and other debt securities with
maturities generally not exceeding one year, including:
(a) those money market instruments described in this Statement of
Additional Information; and
(b) reverse repurchase agreements with respect to any of the
foregoing obligations. Reverse repurchase agreements are
agreements in which the Series, as the seller of the securities,
agrees to repurchase them at an agreed time and price. This
transaction constitutes a borrowing of money by the seller of
the securities. The Series will maintain sufficient funds in a
segregated account with its Custodian to repurchase securities
pursuant to any outstanding reverse repurchase agreement. The
Series is required to maintain at all times asset coverage of at
least 300% for all obligations under reverse repurchase
agreements.
Trading. In order to achieve the Series' investment objective, the timing
and amounts of purchases and sales of particular securities and particular types
of securities (i.e., common stock, debt, money market instruments) will be of
significance. As a result, the Allocation Series intends to use trading as a
means of managing the portfolio of the Series in seeking to achieve its
investment objective. Trading is used primarily in anticipation of, or in
response to, market developments or to take advantage of yield disparities. The
Investment Adviser will engage in trading when it believes that the trade, net
of transaction costs, will improve interest income or capital appreciation
potential, or will lessen capital loss potential. Whether these goals will be
achieved through trading depends on the Investment Adviser's ability to evaluate
particular securities and anticipate relevant market factors, including interest
rate trends and variations. Such trading places a premium on the Investment
Adviser's ability to obtain relevant information, evaluate it properly and take
advantage of its evaluations by completing transactions on a favorable basis. If
the Investment Adviser's evaluations and expectations prove to be incorrect, the
Series' income or capital appreciation may be reduced and its capital losses may
be increased. Portfolio trading involves transaction costs, but, as explained
above, will be engaged in when the Investment Adviser believes that the result
of the trading, net of transaction costs, will benefit the Series. Purchases and
sales of securities will be made,
3
<PAGE>
whenever necessary in the Investment Adviser's view, to achieve the total return
investment objective of the Series without regard to the resulting brokerage
costs.
In addition to the traditional investment techniques for purchasing and
selling, and engaging in trading, the Allocation Series may enter into financial
futures and options contracts.
ENHANCED INDEX SERIES
The investment strategy of the Enhanced Index Series is to earn a total
return modestly in excess of the total return performance of the S&P 500
(including the reinvestment of dividends) while maintaining a volatility of
return similar to the S&P 500. The Series is appropriate for investors who seek
a modestly enhanced total return relative to that of large and medium sized U.S.
companies typically represented in the S&P 500. The Portfolio intends to invest
in securities of approximately 350 issuers, which securities are rated by the
Series' Subadviser to have above average expected returns.
The Series' seeks to achieve its investment objective through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
o Fundamental research: The Series' Subadviser's approximately 25 domestic
equity analysts, each an industry specialist with an average of
approximately 12 years experience, follow over 900 predominantly large and
medium sized U.S. companies--approximately 550 of which form the universe
for the Series' investments. A substantial majority of these companies are
issuers of securities which are included in the S&P 500. The analysts'
research goal is to forecast normalized, longer term earnings and dividends
for the companies that they cover.
o Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by a dividend discount model, which calculates those
expected returns by solving for the rate of return that equates the
company's current stock price to the present value of its estimated
long-term earnings power. Within each sector, companies are ranked by their
expected return and grouped into quintiles; those with the highest expected
returns (Quintile 1) are deemed the most undervalued relative to their
long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
o Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Sector weightings will generally
approximate those of the S&P 500. The Series will normally be principally
comprised, based on the dividend discount model, of stocks in the first
four quintiles. Finally, the Series holds a large number of stocks to
enhance its diversification.
Under normal market circumstances, the Series' Adviser will invest at least
80% of its net assets in equity securities consisting of common stocks and other
securities with equity characteristics such as trust interests, limited
partnership interests, preferred stocks, warrants, rights and securities
convertible into common stock. The Series' primary equity investments will be
the common stock of large and medium sized U.S. companies with market
capitalizations above $1 billion. Such securities will be listed on a national
securities exchange or traded in the over-the-counter market. The Series may
invest in similar securities of foreign corporations, provided that the
securities of such corporations are included in the S&P 500.
The Series intends to manage its portfolio actively in pursuit of its
investment objective. Since the Series has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its objective.
FINANCIAL FUTURES AND RELATED OPTIONS
Allocation Series. The Allocation Series may enter into financial futures
contracts for the purchase or sale of debt obligations which are traded on
exchanges that are licensed and regulated by Commodity Futures Trading
Commission.
A futures contract on a debt obligation is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of obligations having a standard face value
and rate of return. By entering into a futures contract for the purchase of a
debt obligation, the Series will legally obligate itself to accept delivery of
the underlying security and pay the agreed price. Futures contracts are valued
at the most recent settlement price, unless such price does not reflect the fair
value of the contract, in which case such positions will be valued by or under
the direction of the Board of Trustees of the Fund.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or loss. While futures positions taken by the Series usually would be
liquidated in this manner, it may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to do
so.
The purpose of hedging in debt obligations is to establish more certainty
than otherwise would be possible in the effective rate of return on portfolio
securities. The Series might, for example, take a "short" position in the
futures markets by entering into contracts for the future delivery of securities
held by it in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of such securities. When hedging of this type
is successful, any depreciation in the value of securities will be substantially
offset by appreciation in the value of the futures position. On the other hand,
the Series might take a "long" position by entering into contracts for the
future purchase of securities. This could be done when the Series anticipated
the future purchase of particular debt securities but expects the rate of return
then available in the securities market to be less favorable than rates that are
currently available in the futures markets.
The Allocation Series will incur brokerage fees in connection with its
financial futures transactions, and will be required to deposit and maintain
funds with its custodian in its own name as margin to guarantee performance of
its future obligations.
While financial futures would be traded to reduce certain risks, futures
trading itself entails certain other risks. One risk arises because of the
imperfect correlation between movements in the price of the futures contracts
and movements in the price of the debt securities which are the subject of such
contracts. In addition, the market price
4
<PAGE>
of futures contracts may be affected by certain factors, such as the closing out
of futures contracts by investors through offsetting transactions, margin,
deposit and maintenance requirements, and the participation of speculators in
the futures market. Another risk is that there may not be a liquid secondary
market on an exchange or board of trade for a given futures contract or at a
given time, and in such event it may not be possible for the Series to close a
futures position. Finally, successful use of futures contracts by the Series is
subject to the Investment Adviser's ability to predict correctly movements in
the direction of interest rates and other factors affecting the market for debt
securities. Thus, while the Series may benefit from the use of such contracts,
the operation of these risk factors may result in a poorer overall performance
for the Series than if it had not entered into any futures contract.
The Allocation Series is required to maintain at all times an asset coverage
of at least 300% for all of its borrowings, which include obligations under any
financial futures contract on a debt obligation or reverse repurchase agreement.
In addition, immediately after entering into a futures contract for the receipt
or delivery of a security, the value of the securities called for by all of the
Series' futures contracts (both for receipts and delivery) will not exceed 10%
of its total assets. A futures contract for the receipt of a debt obligation
will be offset by any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily held in a segregated account with the custodian bank for the Series in an
amount sufficient to cover the cost of purchasing the obligation.
International, Enhanced Index and Asia Series. The International, Enhanced
Index and Asia Series may enter into financial futures contracts and related
options as a hedge against anticipated changes in the market value of its
portfolio securities or securities which it intends to purchase or in the
exchange rate of foreign currencies. Hedging is the initiation of an offsetting
position in the futures market which is intended to minimize the risk associated
with a position's underlying securities in the cash market.
Financial futures contracts consist of interest rate futures contracts,
foreign currency futures contracts and securities index futures contracts. An
interest rate futures contract obligates the seller of the contract to deliver,
and the purchaser to take delivery of, the interest rate securities called for
in the contract at a specified future time and at a specified price. A foreign
currency futures contract obligates the seller of the contract to deliver, and
the purchaser to take delivery of, the foreign currency called for in the
contract at a specified future time and at a specified price. A securities index
assigns relative values to the securities included in the index, and the index
fluctuates with changes in the market values of the securities so included. A
securities index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. An option on a financial futures contract gives the purchaser
the right to assume a position in the contract (a long position if the option is
a call and a short position if the option is a put) at a specified exercise
price at any time during the period of the option.
The Series may purchase and sell financial futures contracts which are
traded on a recognized exchange or board of trade and may purchase or exchange
board-traded put and call options on financial futures contracts.
The Series will engage in transactions in financial futures contracts and
related options only for hedging purposes and not for speculation. In addition,
it will not purchase or sell any financial futures contract or related option
if, immediately thereafter, the sum of the cash or U.S. Treasury bills committed
with respect to its existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of its
total assets. At the time of the purchase of a futures contract or a call option
on a futures contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the futures contract, minus the initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged. The extent to which the Series may enter into
financial futures contracts and related options also may be limited by
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There also is the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
while the purchase or sale of the contract would not have resulted in a loss.
Theme Series. The Theme Series may use financial futures contracts and
related options to hedge against changes in the market value of its portfolio
securities which it intends to purchase. Hedging is accomplished when an
investor takes a position in the futures market opposite to his cash market
position. There are two types of hedges--long (or buying) and short (or selling)
hedges. Historically, prices in the futures market have tended to move in
concert with cash market prices, and prices in the futures market have
maintained a fairly predictable relationship to prices in the cash market. Thus,
a decline in the market value of securities in a Series' portfolio may be
protected against to a considerable extent by gains realized on futures
contracts sales. Similarly, it is possible to protect against an increase in the
market price of securities which a Series may wish to purchase in the future by
purchasing futures contracts.
The Theme Series may purchase or sell any financial futures contracts which
are traded on a recognized exchange or board of trade. Financial futures
contracts consist of interest rate futures contracts and securities index
futures contracts. A public market presently exists in interest rate futures
contracts covering long-term U.S. Treasury bonds, U.S. Treasury notes,
three-month U.S. Treasury bills and GNMA certificates. Securities index futures
contracts are
5
<PAGE>
currently traded with respect to the S&P 500. A clearing corporation
associated with the exchange or board of trade on which a financial futures
contract trades assumes responsibility for the completion of transactions and
also guarantees that open futures contracts will be performed.
In contrast to the situation when such Series purchases or sells a security,
no security is delivered or received by the Series upon the purchase or sale of
a financial futures contract. Initially, this Series will be required to deposit
in a segregated account with its custodian bank an amount of cash, U.S. Treasury
bills or liquid high grade debt obligations. This amount is known as initial
margin and is in the nature of a performance bond or good faith deposit on the
contract. The current initial deposit required per contract is approximately 5%
of the contract amount. Brokers may establish deposit requirements higher than
this minimum. Subsequent payments, called variation margin, will be made to and
from the account on a daily basis as the price of the futures contract
fluctuates. This process is known as marking to market.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. For more information regarding options, see below.
Although financial futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Theme Series will pay commissions on financial futures contracts and
related options transactions. These commissions may be higher than those which
would apply to purchases and sales of securities directly.
OPTIONS
MONEY MARKET, GROWTH, BALANCED, INTERNATIONAL, MULTI-SECTOR, ALLOCATION,
THEME, ENHANCED INDEX AND ASIA SERIES:
Writing Covered Call Options. The Money Market, Growth, Balanced,
Allocation, Theme, Enhanced Index and Asia Series may write (sell) covered call
options on securities owned by them, including securities into which convertible
securities are convertible, provided that such call options are listed on a
national securities exchange.
A call option gives the holder the right to buy a security at a specified
price (the exercise price) for a stated period of time. Prior to the expiration
of the option, the seller of the option has an obligation to sell the underlying
security to the holder of the option at the original price specified regardless
of the market price of the security at the time the option is exercised. The
seller of the call option receives a cash payment (premium) at the time of sale,
which premium is retained by the seller whether or not the option is exercised.
The premium represents consideration to the seller for undertaking the
obligations under the option contract and thereby foregoing the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price (except insofar as the premium represents such a profit).
A call option may be purchased to terminate a call option previously
written. The premium paid in connection with the purchase of a call option may
be more than, equal to or less than the premium received upon writing the call
option which is being terminated.
When a Series writes a covered call option, an amount equal to the premium
received by it is included in assets of the Series offset by an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. Market value is the last
sale price of the options on the exchange on which it is traded, or in absence
of a sale, the mean between last bid and offer prices. If an option which the
Series has written either expires or enters into a closing purchase transaction,
the Series realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished.
In order to maintain its qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, the Fund intends to limit gains
from the sale of securities held or deemed held for less than three months to
less than 30% of annual gross income. Accordingly, the Fund may be restricted in
the selling of securities which have been held less than three months, in the
writing of options on securities into which convertible securities are
convertible, in the writing of options on securities which have been held for
six months or less, in the writing of options which expire in less than three
months and in purchasing options to terminate options which it wrote within the
preceding three months. In this regard, the Fund can minimize the possibility of
a suspended holding period for purposes of the 30 percent rule to the extent the
Fund limits its covered call writing to options with more than 30 days to
expiration that are not "deep in the money" and that satisfy certain other
requirements such that they will constitute "qualified covered call options" as
defined in Section 1092(c)(4)(B) of the Code, as recently enacted.
An option is generally considered to be "in the money" if the striking price
under the option is less than the currently prevailing price of the stock
covered by the option so that there is a built-in discount or intrinsic value to
the option. Section 1092(c)(4) of the Internal Revenue Code sets forth complex
rules defining options which are "deep in the money." These rules vary in their
application depending upon the prevailing stock price and the stock price under
option contracts available in the market, but are designed to provide
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objective rules to classify as "deep in the money" options those options whose
primary value is attributable to their built-in discount or intrinsic value.
Premium income earned with respect to a qualified covered call option
contract which lapses or experiences gain or loss from such an option contract
which is closed out (other than by exercise) generally will be short-term
capital gain or loss. Further, gain or loss with respect to the exercise of such
an option contract generally will be short-term or long-term depending upon the
actual or deemed holding period of the underlying security. However, any loss
realized from writing a "qualified covered call option" which has a strike price
that is less than the applicable security price as defined in Section
1092(c)(4)(G) of the Code will be treated as a long-term capital loss, if gain
from the sale of the underlying security at the time the loss is realized would
be long-term capital gain. Also, with respect to such options, the holding
period of the underlying security will not include any period during which the
Fund has a written option outstanding.
Buying Call and Put Options. The Allocation, Balanced, Enhanced Index and
Theme Series may buy national exchange-traded call and put options on equity and
debt securities and on various stock market indexes. The Money Market, Growth
and Multi-Sector Series may purchase a call option only to terminate a call
option previously written. (See "Writing Covered Call Options" above for a
description of call options.)
A put option on equity or debt securities gives the holder the right to sell
such a security at a specified price (the exercise price) for a stated period of
time. Prior to the expiration of the option, the seller of the option has an
obligation to buy the underlying security from the holder of the option at the
original price specified regardless of the market price of the security at the
time the option is exercised.
Call and put options on stock market indexes operate the same way as call
and put options on equity or debt securities except that they are settled in
cash. In effect, the holder of a call option on a stock market index has the
right to buy the value represented by the index at a specified price for a
stated period of time. Conversely, the holder of a put option on a stock market
index has the right to sell the value represented by the index for a specified
price for a stated period of time. To be settled in cash means that if the
option is exercised, the difference in the current value of the stock market
index and the exercise value must be paid in cash. For example, if a call option
was bought on the XYZ stock market index with an exercise price of $100
(assuming the current value of the index is 110 points, with each point equal to
$1.00), the holder of the call option could exercise the option and receive $10
(110 points minus 100 points) from the seller of the option. If the index equals
90 points, the holder of the option receives nothing.
The seller of an option receives a cash payment (premium) at the time of
sale, which premium is retained by the seller whether or not the option is
exercised. The premium represents consideration to the seller for undertaking
the obligation under the option contract. In the case of call options, the
premium compensates the seller for the loss of the opportunity to profit from
any increase in the value of the security or the index. The premium to a seller
of a put option compensates the seller for the risk assumed in connection with a
decline in the value of the security or index.
A Series may close an open call or put option position by selling a call
option, in the case of an open call position, or a put option, in the case of an
open put option, which is the same as the option being closed. The Series will
receive a premium for selling such an option. The premium received may be more
than, equal to or less than the premium paid by the Series when it bought the
option which is being closed.
Immediately after entering into an opening option position the total value
of all open option positions based on exercise price will not exceed ten percent
(10%) of the Allocation or Balanced Series' total assets. The premium paid by
the Series for the purchase of a call or a put option and the expiration or
closing sale transaction with respect to such options are treated in a manner
analogous to that described above, except there is no liability created to the
Series. The premium paid for any such option is included in assets and marked to
the market value on a current basis. If the options expire the Series will
realize a short-term loss on the amount of the cost of the option. If a
purchased put or call option is closed out by the Series entering into a closing
sale transaction, the Series will realize a short-term gain or loss, depending
upon whether the sale proceeds from the closing sale transaction are greater or
less than cost of the put or call option.
INTERNATIONAL, THEME, ENHANCED INDEX AND ASIA SERIES:
In furtherance of its objectives, the International, Theme, Enhanced
Index and Asia Series may write covered call options and purchase call and put
options on securities. In addition, the Series may write secured put options and
enter into option transactions on foreign currency.
Writing (Selling) Call and Put Options. A call option on a security or a
foreign currency gives the purchaser of the option, in return for the premium
paid to the writer (seller), the right to buy the underlying security or foreign
currency at the exercise price at any time during the option period. Upon
exercise by the purchaser, the writer of a call option has the obligation to
sell the underlying security or foreign security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index and all settlements are made in cash. A call option may be terminated by
the writer (seller) by entering into a closing purchase transaction in which it
purchases an option of the same series as the option previously written.
A put option on a security or foreign currency gives the purchaser of the
option, in return for the premium paid to the writer (seller), the right to sell
the underlying security or foreign currency at the exercise price at any time
during the option period. Upon exercise by the purchaser, the writer of a put
option has the obligation to purchase the underlying security or foreign
currency at the exercise price. A put option on a securities index is similar to
a put option on an individual security, except that the value of the options
depends on the weighted value of the group of securities comprising the index
and all settlements are made in cash.
The Series may write exchange-traded call options on its securities. Call
options may be written on portfolio securities and on securities indices, and on
foreign currencies. The Series may, with respect to securities and foreign
currencies, write call and put options on an exchange or over the counter. Call
options on portfolio securities will be covered since the Series will own the
underlying securities or other securities that are acceptable for escrow at all
times
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during the option period. Call options on securities indices will be written
only to hedge in an economically appropriate way portfolio securities which are
not otherwise hedged with options or financial futures contracts and will be
"covered" by identifying the specific portfolio securities being hedged. Call
options on foreign currencies and put options on securities and foreign
currencies will be covered by securities acceptable for escrow. The Series may
not write options on more than 50% of its total assets. Management presently
intends to cease writing options if and as long as 25% of such total assets are
subject to outstanding options contract.
The Series will write call and put options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of portfolio
securities or foreign currencies will be offset to the extent of the premiums
received (net of transaction costs). If an option is exercised, the premium
received on the option will effectively increase the exercise price or reduce
the difference between the exercise price and market value.
During the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of loss should the price
of the underlying security or foreign currency decline. Writing call options
also involves risks relating to the Series' ability to close out options it has
written.
During the option period, the writer of a put option has assumed the risk
that the price of the underlying security or foreign currency will decline below
the exercise price. However, the writer of the put option has retained the
opportunity for any appreciation above the exercise price should the market
price of the underlying security or foreign currency increase. Writing put
options also involves risks relating to a Portfolio's ability to close out
options it has written.
Purchasing Call and Put Options, Warrants and Stock Rights. The
International, Theme, Enhanced Index and Asia Series may invest up to an
aggregate of 5% of its total assets in exchange-traded or over-the-counter call
and put options on securities and securities indices and foreign currencies.
Purchases of such options may be made for the purpose of hedging against changes
in the market value of the underlying securities or foreign currencies. The
Series will invest in call and put options whenever, in the opinion of the
Adviser or Subadviser, a hedging transaction is consistent with its investment
objectives. The Series may sell a call option or a put option which it has
previously purchased prior to the purchase (in the case of a call) or the sale
(in the case of a put) of the underlying security or foreign currency. Any such
sale would result in a net gain or loss depending on whether the amount received
on the sale is more or less than the premium and other transaction costs paid on
the call or put which is sold. Purchasing a call or put option involves the risk
that the Series may lose the premium it paid plus transaction costs.
Warrants and stock rights are almost identical to call options in their
nature, use and effect except that they are issued by the issuer of the
underlying security, rather than an option writer, and they generally have
longer expiration dates than call options. The International, Theme and Asia
Series intend to invest up to 5% of its net assets in warrants and stock rights,
but no more than 2% of its net assets in warrants and stock rights not listed on
the New York Stock Exchange or the American Stock Exchange.
Over-the-Counter ("OTC") Options. OTC options differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. However, the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and foreign currencies, and in a
wider range of expiration dates and exercise prices than exchange-traded
options. Since there is no exchange, pricing is normally done by reference to
information from a market maker, which information is carefully monitored or
caused to be monitored by the Adviser or Subadviser and verified in appropriate
cases.
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the International Series
may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Series writes an OTC option, it generally can
close out that option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which it originally wrote the option. If
a covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it otherwise might be
advantageous to do so. Likewise, the writer of a secured OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option also might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund understands the position of the staff of the Securities and
Exchange Commission (the "SEC") to be that purchased OTC options and the assets
used as "cover" for written OTC options are illiquid securities. Although the
Subadviser has found that dealers with which they will engage in OTC options
transactions are generally agreeable to and capable of entering into closing
transactions, the Fund has adopted procedures for engaging in OTC options
transactions for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the International Series.
The Fund will engage in OTC options transactions only with dealers that meet
certain credit and other criteria established by the Board of Trustees of the
Fund. The Fund and the Adviser believe that the approved dealers present minimal
credit risks to the Fund and, therefore, should be able to enter into closing
transactions if necessary. The Fund currently will not engage in OTC options
transactions if the amount invested by the Fund in OTC options, plus a
"liquidity charge" related to OTC options written by the Fund in illiquid
securities plus any other portfolio securities considered to be illiquid, would
exceed 10% of the Fund's total assets. The "liquidity charge" referred to above
is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge"
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referred to above for a specific OTC option transaction will be the Repurchase
Price related to the OTC option less the intrinsic value of the OTC option. The
intrinsic value of an OTC call option for such purposes will be the amount by
which the current market value of the underlying security exceeds the exercise
price. In the case of an OTC put option, intrinsic value will be the amount by
which the exercise price exceeds the current market value of the underlying
security. If there is no such agreement requiring a dealer to allow the Fund to
repurchase a specific OTC option written by the Fund, the "liquidity charge"
will be the current market value of the assets serving as "cover" for such OTC
option.
FOREIGN CURRENCY TRANSACTIONS
For each Series investing in foreign securities, the value of the assets
of such Series as measured in United States dollars may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and a Series may incur costs in connection with conversions
between various currencies. A Series will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. At the time of the purchase of a forward foreign currency
exchange contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the contract, minus the Series' initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged.
When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. The
International and Asia Series also may hedge its foreign currency exchange rate
risk by engaging in currency financial futures and options transactions.
When the Adviser believes that the currency of a particular foreign country
may suffer a substantial decline against the United States dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of a Series' portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a contract. Accordingly, it may be necessary for
a Series to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Series is obligated to deliver when a decision is
made to sell the security and make delivery of the foreign currency in
settlement of a forward contract. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Series
is obligated to deliver.
If the Series retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If the Series engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline during the
period between the Series' entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Series would realize gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Series
would suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell. Although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which might result
should the value of such currency increase. The Series will have to convert
holdings of foreign currencies into United States dollars from time to time.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
ZERO AND DEFERRED COUPON DEBT SECURITIES
The Multi-Sector Series may invest in debt obligations that do not make any
interest payments for a specified period of time prior to maturity ("deferred
coupon" obligations) or until maturity ("zero coupon" obligations). Because
deferred and zero coupon bonds do not make interest payments for a certain
period of time, they are purchased by the Series at a deep discount and their
value fluctuates more in response to interest rate changes than does the value
of debt obligations that make current interest payments. The degree of
fluctuation with interest rate changes is greater when the deferred period is
longer. Therefore, there is a risk that the value of the Series' shares may
decline more as a result of an increase in interest rates than would be the case
if the Series did not invest in deferred or zero coupon bonds.
REAL ESTATE INVESTMENT TRUSTS
As described in the Prospectus, the Real Estate Series intends under normal
conditions to invest in real estate investment trusts ("REITs"). REITs pool
investors' funds for investment primarily in income-producing commercial real
estate or real estate related loans. A REIT is not taxed on income distributed
to shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it distribute
to its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year.
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REITs generally can be classified as follows:
--Equity REITs, which invest the majority of their assets directly in real
property and derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in
value.
--Mortgage REITs, which invest the majority of their assets in real estate
mortgages and derive their income primarily from interest payments.
--Hybrid REITs, which combine the characteristics of both equity REITs and
mortgage REITs.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments. A shareholder in the Real Estate Series should realize that by
investing in REITs indirectly through the Series, he will bear not only his
proportionate share of the expenses of the Series, but also, indirectly similar
expenses of underlying REITs.
DEBT SECURITIES
Up to 25% of the Real Estate Series total assets may be invested in debt
securities (which include for purposes of this investment policy convertible
debt securities which PRS believes have attractive equity characteristics).
The Real Estate Series may invest in debt securities rated BBB or better by
Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investor
Service, Inc. ("Moody's") or, if not rated, are judged to be of comparable
quality as determined by PRS. In choosing debt securities for purchase by the
Portfolio, PRS will employ the same analytical and valuation techniques utilized
in managing the equity portion of the Real Estate Series holdings (see
"Investment Advisory and Other Services") and will invest in debt securities
only of companies that satisfy PRS' investment criteria.
The value of the Real Estate Series investments in debt securities will
change as interest rates fluctuate. When interest rates decline, the values of
such securities generally can be expected to increase and when interest rates
rise, the values of such securities generally can be expected to decrease. The
lower-rated and comparable unrated debt securities described above are subject
to greater risks of loss of income and principal than are higher-rated fixed
income securities. The market value of lower-rated securities generally tends to
reflect the market's perception of the creditworthiness of the issuer and
short-term market developments to a greater extent than is the case with more
highly rated securities, which reflect primarily functions in general levels of
interest rates.
JUNK BONDS
The International and Allocation Series may invest up to 10% and 5%,
respectively, of total net assets in non-investment grade debt securities. The
market prices of such lower rated securities generally fluctuate in response to
changes in interest rates and economic conditions more than those of higher
rated securities. Additionally, there is a greater possibility that an adverse
change in the financial condition of an issuer, particularly a higher leveraged
issuer, may affect its ability to make payments of income and principal and
increase the expenses of the Series seeking recovery from the issuer. Lower
rated securities may be thinly traded and less liquid than higher rated
securities and therefore harder to value and more susceptible to adverse
publicity concerning the issuer.
REAL ESTATE SECURITIES
The Real Estate Series will not invest in real estate directly, but only in
securities issued by real estate companies. However, the Portfolio may be
subject to risks similar to those associated with the direct ownership of real
estate because of its policy of concentrating in the securities of companies in
the real estate industry. These include declines in the value of real estate,
risks related to general and local economic conditions, dependence on management
skill, cash flow dependence, possible lack of availability of long-term mortgage
funds, over-building, extended vacancies of properties, decreased occupancy
rates and increased competition, increases in property taxes and operating
expenses, changes in neighborhood values and the appeal of the properties to
tenants and changes in interest rates.
Selecting REITs requires an evaluation of the merits of each type of asset a
particular REIT owns, as well as regional and local economics. Due to the
proliferation of REITs in recent years and the relative lack of sophistication
of certain REIT managers, the quality of REIT assets has varied significantly.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying properties owned by the trusts, while mortgage REITs may
be affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent upon management skills and generally are not diversified.
Equity and mortgage REITs also are subject to potential defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free status
of income under the Code and failing to maintain exemption from the Investment
Company Act of 1940. In the event of a default by a borrower or lessee, the REIT
may experience delays in enforcing its rights as a mortgagee or lessor and may
incur substantial costs associated with protecting its investments. In addition,
investment in REITs could cause the Series to possibly fail to qualify as a
regulated investment company.
EMERGING MARKET SECURITIES
The Asia Series may invest in countries or regions with relatively low gross
national product per capita compared to the world's major economies, and in
countries or regions with the potential for rapid economic growth (emerging
markets). Emerging markets in Asia will include countries: (i) having an
"emerging stock market" as defined by the International Finance Corporation;
(ii) with low-to-middle-income economies according to the International Bank for
Reconstruction and Development (the "World Bank"); (iii) listed in World Bank
publications as developing; or (iv) determined by the Adviser to be an emerging
market as defined above. The Series also may invest in securities of: (i)
companies the principal securities trading market for which is an emerging
market country; (ii) companies organized under the laws of, and with a principal
office in, an emerging market country; or (iii) companies whose principal
activities are located in emerging market countries.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities of many issuers in emerging
markets may be less liquid and more volatile than securities of comparable
domestic issuers. Emerging markets also have different clearance and settlement
procedures, and in certain
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markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Series is uninvested and no return is earned
thereon. The inability of the Series to make intended security purchases due to
settlement problems could cause the Series to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Series due to subsequent declines
in value of the portfolio securities or, if the Series has entered into a
contract to sell the security, in possible liability to the purchaser.
Securities prices in emerging markets can be significantly more volatile than in
the more developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of nationalization of businesses, restrictions on foreign ownership or
prohibitions of repatriation of assets, and may have less protection of property
rights than more developed countries. The economies of countries with emerging
markets may be predominantly based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Series could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Series any restrictions on investments. Investments in certain foreign
emerging market debt obligations may be restricted or controlled to varying
degrees. These restrictions or controls may at times preclude investment in
certain foreign emerging market debt obligations and increase the expenses of
the Series.
ADDITIONAL RISK FACTORS. As a result of its investments in foreign
securities, the Series may receive interest or dividend payments, or the
proceeds of the sale or redemption of such securities, in the foreign currencies
in which such securities are denominated. In that event, the Series may convert
such currencies into dollars at the then current exchange rate. Under certain
circumstances, however, such as where the Adviser believes that the applicable
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
Series may hold such currencies for an indefinite period of time.
In addition, the Series may be required to receive delivery of the foreign
currency underlying forward foreign currency contracts it has entered into. This
could occur, for example, if an option written by the Fund is exercised or the
Fund is unable to close out a forward contract. The Series may hold foreign
currency in anticipation of purchasing foreign securities. The Series also may
elect to take delivery of the currencies underlying options or forward contracts
if, in the judgment of the Adviser, it is in the best interest of the Series to
do so. In such instances as well, the Series may convert the foreign currencies
to dollars at the then current exchange rate, or may hold such currencies for an
indefinite period of time.
While the holding of currencies will permit the Series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Series
to risk of loss if such rates move in a direction adverse to the Series'
position. Such losses could reduce any profits or increase any losses sustained
by the Series from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. ln addition, the holding
of currencies could adversely affect the Series' profit or loss on currency
options or forward contracts, as well as its hedging strategies.
WHEN-ISSUED SECURITES
New issues of certain securities are offered on a when-issued basis, that
is, delivery and payment for the securities normally takes place 15 to 45 days
or more after the date of the commitment to purchase. The payment obligation and
the interest rate, if any, that will be received on the securities are each
fixed at the time the buyer enters into the commitment. The Enhanced Index
Series will generally make a commitment to purchase such securities with the
intention of actually acquiring the securities. However, the Series may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. When the Series purchases securities on a
when-issued basis, cash or liquid high quality debt securities equal in value to
commitments for the when-issued securities will be deposited in a segregated
account with the Series' custodian bank. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
Securities purchased on a when-issued basis and the securities held in the
Enhanced Index Series are subject to changes in market value. Therefore, to the
extent the Series remains substantially fully invested at the same time that
they have purchased securities on a when-issued basis, there will be greater
fluctuations in the net asset values than if the Series merely set aside cash to
pay for when-issued securities. In addition, there will be a greater potential
for the realization of capital gains. When the time comes to pay for when-issued
securities, the Series will meet its obligations from then available cash flow,
the sales of securities or, although it would not normally expect to do so, from
the sale of the when-issued securities themselves (which may have a value
greater or less than the payment obligation).
INDUSTRY CLASSIFICATIONS
For the purposes of establishing industry classifications for the Theme
Series, the Adviser utilizes the William O'Neil & Co., Inc. Industry Group
Index. The William O'Neil & Co., Inc. Industry Group Index is presently
comprised of 197 industry classifications. Classifications are determined based
on the following broad sectors: Basic Material, Energy, Capital Equipment,
Technology, Consumer Cyclical, Retail, Consumer Staple, Health Care,
Transportation,
11
<PAGE>
Financial and Utilities. Sectors are then divided into industry groups based
upon income sources and other economically relevant criteria as determined by
O'Neil & Co., Inc.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's fundamental policies as they affect any Series cannot be changed
without the approval of a vote of a majority of the outstanding shares of such
Series, which is the lesser of (i) 67% or more of the voting securities of such
Series present at a meeting if the holders of more than 50% of the outstanding
voting securities of such Series are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. A proposed
change in fundamental policy or investment objective will be deemed to have been
effectively acted upon by any Series if a majority of the outstanding voting
securities of that Series votes for the approval of the proposal as provided
above, notwithstanding (1) that such matter has not been approved by a majority
of the outstanding securities of any other Series affected by such matter and
(2) that such matter has not been approved by a majority of the outstanding
voting securities of the Fund.
The following investment restrictions are fundamental policies of the Fund
with respect to all Series and may not be changed except as described above. The
Fund may not:
(1) Purchase real estate or any interest therein, except through
the purchase of corporate or certain government securities
(including securities secured by a mortgage or a leasehold
interest or other interest in real estate). A security issued by
a real estate or mortgage investment trust is not treated as
an interest in real estate. The Real Estate Series may,
however, invest in mortgage backed securities.
(2) Make loans other than loans of securities secured by cash
or cash equivalents for the full value of the securities; any
interest earned from securities lending will inure to the
benefit of the Series which holds such securities. However,
the purchase of debt securities which are ordinarily
purchased by financial institutions are not considered the
loaning of money.
(3) Invest in commodities or in commodity contracts or in
options, provided, however, that it may write covered call
option contracts; and provided further, that the Allocation
and Balanced Series may enter into financial futures
contracts to purchase and sell debt obligations and may buy
call and put options on securities and stock market indexes;
and provided further, that the International and Asia Series
may purchase call and put options on securities, engage in
financial futures contracts and related options transactions,
write secured put options, and enter into foreign currency
and foreign currency options transactions.
(4) Engage in the underwriting of securities of other issuers,
except to the extent any Series may be deemed an
underwriter in selling as part of an offering registered under
the Securities Act of 1933 securities which it has acquired.
The International and Asia Series will buy and sell securities
outside the United States that are not registered with the
SEC or marketable in the United States.
(5) Borrow money, except as a temporary measure where such
borrowing would not exceed 25% of the market value of
total assets at the time each such borrowing is made.
However, the Fund may borrow money for any general
purpose from a bank provided such borrowing does not
exceed 10% of the net asset value of the Fund, not
considering any such borrowings as liabilities. The
Allocation, International and Asia Series may borrow money
to the extent of financial futures transactions and reverse
repurchase agreements, provided that such borrowings are
limited to 33 1/3% of the value of the total assets of the
Series.
(6) Invest in illiquid securities in an amount greater than 15% of the net
asset value of any Series' portfolio at the time any such investment
is made.
(7) Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of purchases or sales of securities, or to
effect a short sale of any security. (The deposit of "maintenance
margin" in connection with financial futures contracts is not
considered the purchase of a security on margin.)
(8) Invest for the purpose of exercising control over or
management of any company.
(9) Unless received as a dividend or as a result of an offer of
exchange approved by the Securities and Exchange
Commission or of a plan of reorganization, purchase or
otherwise acquire any security issued by an investment
company if the Series would immediately thereafter own (a)
more than 3% of the outstanding voting stock of the
investment company, (b) securities of the investment
company having an aggregate value in excess of 5% of the
Series' total assets, (c) securities of investment companies
having an aggregate value in excess of 10% of the Series'
total assets or (d) together with investment companies
having the same investment adviser as the Fund (and
companies controlled by such investment companies), more
than 10% of the outstanding voting stock of any registered
closed-end investment company.
(10) (a) Invest more than 5% of its total assets (taken at market
value at the time of each investment) in the securities (other
than United States government or government agency
securities or in the case of the International and Asia Series,
other than foreign government securities), or, with respect
to the Allocation and Balanced Series, call or put options
contracts and financial futures contracts of any one issuer
(including repurchase agreements with any one bank); and
(b) purchase more than either (i) 10% in principal amount
of the outstanding debt securities of an issuer (the foregoing
restriction being inapplicable to the Real Estate Series) or (ii)
10% of the outstanding voting securities of an issuer, except
that such restrictions shall not apply to securities issued or
guaranteed by the United States government or its agencies,
bank money instruments or bank repurchase agreements.
The International Series will, with respect to 75% of its
assets, limit its investment in the securities of any one
12
<PAGE>
foreign government, its agencies or instrumentalities, to 5%
of the Series' total assets.
(11) Concentrate the portfolio investments in any one industry
(the foregoing restriction being inapplicable to the Real
Estate Series). No security may be purchased for a Series if
such purchase would cause the value of the aggregate
investment in any one industry to exceed 25% of the Fund's
total assets. However, the Money Market Series and
Allocation Series may invest more than 25% of their assets
in the banking industry. The Real Estate Series may invest
not less than 75% of its assets in the real estate industry.
(12) Issue senior securities.
(13) Enter into repurchase agreements which would cause more than 10% of
any Series' net assets (taken at market value) to be subject to
repurchase agreements maturing in more than seven days.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The portfolio turnover rate of each Series is calculated by dividing the
lesser of purchases or sales of portfolio securities during the fiscal year by
the monthly average of the value of the Series' securities (excluding all
securities, including options, with maturities at the time of acquisition of one
year or less). All long-term securities, including long-term U.S. Government
securities, are included. A high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the Series. Turnover rates may vary greatly from year to year as
well as within a particular year and also may be affected by cash requirements
for redemptions of each Series' shares by requirements which enable the Fund to
receive certain favorable tax treatments. The portfolio turnover rates for each
Series (other than the Money Market and Enhanced Index Series) are set forth
under "Financial Highlights" in the Prospectus.
BALANCED SERIES
In the fiscal years ended December 31, 1995 and December 31, 1996, the
turnover rates for the equity portion of the Balanced Series were 256% and 288%,
respectively. The turnover rates for the fixed income securities were 175% and
117%, respectively for the same periods.
ALLOCATION SERIES
In the fiscal years ended December 31, 1995 and December 31, 1996, the
turnover rates for the equity portion of the Allocation Series were 195% and
280%, respectively. The turnover rates for the fixed income securities were 112%
and 253%, respectively for the same periods.
MANAGEMENT OF THE FUND
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. Unless otherwise noted,
the address of each executive officer and Trustee is One American Row, Hartford,
Connecticut 06102. The Trustees and executive officers are listed below.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
C. Duane Blinn (69) Trustee Partner in the law firm of Day, Berry & Howard. Director/Trustee, Phoenix
Day, Berry & Howard Funds (1980-present). Trustee, Phoenix-Aberdeen Series Fund and Phoenix
City Place Duff & Phelps Institutional Mutual Funds (1996-present). Director/Trustee,
Hartford, CT 06103 the National Affiliated Investment Companies (until 1993).
Robert Chesek (62) Trustee Trustee/Director, Phoenix Funds (1981-present) and Chairman
49 Old Post Road (1989-1994). Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff &
Wethersfield, CT 06109 Phelps Institutional Mutual Funds (1996-present). Director/Trustee, the
National Affiliated Investment Companies (until 1993). Vice President,
Common Stock, Phoenix Home Life Mutual Insurance Company
(1980-1994).
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
E. Virgil Conway (67) Trustee Chairman, (1992-present), Metropolitan Transportation Authority.
9 Rittenhouse Road Trustee/Director, Consolidated Edison Company of New York, Inc.
Bronxville, NY 10708 (1970-present), Pace University (1978-present), Atlantic Mutual Insurance
Company (1974-present), HRE Properties (1989-present), Greater New
York Councils, Boy Scouts of America (1985-present), Union Pacific Corp.
(1978-present), Blackrock Fund for Fannie Mae Mortgage Securities
(Advisory Director) (1990-present); Centennial Insurance Company
(1974-present), Josiah Macy, Jr. Foundation (1975-present), and The
Harlem Youth Development Foundation (1987-present). Chairman, Audit
Committee of the City of New York (1981-1996). Director/Trustee, the
National Affiliated Investment Companies (until 1993). Director/Trustee,
Phoenix Funds (1993-present). Trustee, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Director,
Duff & Phelps Utilities Tax-Free Income Inc. and Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present). Director, Accuhealth
(1994-present), Trism, Inc. (1994-present)and Realty Foundation of New
York (1972-present). Chairman, New York Housing Partnership
Development Corp. (1981-present)., and Blackrock Fannie Mae Mortgage
Securities Fund (Advisory Director) (1989-1996) and Advisory Director,
Fund Directions (1993-present). Chairman, Financial Accounting Standards
Advisory Council (1992-1995).
Harry Dalzell-Payne (67) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee, Phoenix-
330 East 39th Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
Apt. 29G (1996-present). Director Duff & Phelps Utilities Tax-Free Income Inc. and
New York, NY 10016 Duff & Phelps Utility and Corporate Bond Trust Inc. (1995-present).
Director, Farragut Mortgage Co., Inc. (1991-1994). Director/Trustee, the
National Affiliated Investment Companies (1983-1993). Formerly, a Major
General of the British Army.
*Francis E. Jeffries (66) Trustee Director and Chairman of the Board, Phoenix Duff & Phelps Corporation
6585 Nicholas Blvd. (1995-present). Director/Trustee, Phoenix Funds (1995-present). Trustee,
Apt. 1601 Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Naples, FL 33963 Mutual Funds (1996-present). Director, Duff & Phelps Utilities Income Fund
(1987-present), Duff & Phelps Utilities Electric Company (1984-present).
Director (1989-1995), Chairman of the Board (1993-1995), President
(1989-1993), and Chief Executive Officer (1989-1995) and Duff & Phelps
Corporation.
Leroy Keith, Jr. (58) Trustee Chairman and Chief Executive Officer, Carson Products Company
64 Ross Road (1995-present). Director/Trustee, Phoenix Funds (1980-present). Trustee,
Savannah, GA 31405 Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Director, Equifax Corporation
(1991-present), and Keystone International Fund, Inc. (1989-present).
Trustee, Keystone Liquid Trust, Keystone Tax Exempt Trust, Keystone Tax
Free Fund, Master Reserves Tax Free Trust, and Master Reserves Trust.
Trustee, Director/Trustee, the National Affiliated Investment Companies
(until 1993). Director, Blue Cross/Blue Shield (1989-1993) and First Union
Bank of Georgia (1989-1993). President, Morehouse College (1987-1994).
Chairman and Chief Executive Officer, Keith Ventures (1994-1995).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
*Philip R. McLoughlin (50) Trustee and President Director, Vice Chairman and Chief Executive Officer, Phoenix Duff & Phelps
Corporation (1995-present). Director (1994-present) and Executive Vice
President , Investments, Phoenix Home Life Mutual Insurance Company
(1988-present). Director/Trustee and President, Phoenix Funds
(1989-present). Trustee, Phoenix -Aberdeen Series Fund and Phoenix
Duff & Phelps Institutional Mutual Funds (1996-present). Director, Duff &
Phelps Utilities Tax-Free Income Inc. (1995-present) and Duff & Phelps
Utility and Corporate Bond Trust Inc. (1995-present), Director
(1983-present) and Chairman (1995-present), Phoenix Investment
Counsel, Inc. Director (1984-present) and President (1990-present),
Phoenix Equity Planning Corporation. Director, Phoenix Realty Group, Inc.
(1994-present), Phoenix Realty Advisors, Inc. (1987-present), Phoenix
Realty Investors, Inc. (1994-present), Phoenix Realty Securities, Inc.
(1994-present), PXRE Corporation (Delaware) (1985-present)and
World Trust Fund (1991-present). Director and Executive Vice President,
Phoenix Life and Annuity Company (1996-present), Director and Executive
Vice President, PHL Variable Insurance Company (1995-present) and
Director, Phoenix Charter Oak Trust Company (1996-present).
Director/Trustee, the National Affiliated Investment Companies (until 1993).
Director (1994-present), Chairman (1996-present) and Chief Executive
Officer (1995-1996), National Securities & Research Corporation, and
Director and President, Phoenix Securities Group, Inc. (1993-1995).
Director (1992-present) and President (1992-1994)W. S. Griffith & Co.,
Inc. and Director (1992-1995) and President (1992-1994), Townsend
Financial Advisers, Inc. Director and Vice President, PM Holdings, Inc.
(1985-present).
Everett L. Morris (68) Trustee Vice President, W. H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present). Trustee, Duff & Phelps
Colts Neck, NJ 07722 Mutual Funds (1994-present). Trustee, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Director,
Duff & Phelps Utilities Tax-Free Income Inc. (1991-present), Incorporated
(1989-1993). Senior Executive Vice President and Chief Financial Officer,
Public Service Electric and Gas Company (1986-1992).
*James M. Oates (50) Trustee Chairman, IBEX Capital Markets LLC (1997-present). Managing Director, The
60 State Street Wydown Group (1994-present). Director, Phoenix Duff & Phelps
Suite 950 Corporation (1995-present). Director/Trustee, Phoenix Funds. Trustee,
Boston, MA 02109 Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present). Director, Govett Worldwide Opportunity Funds, Inc.
(1991-present), Blue Cross and Blue Shield of New Hampshire
(1994-present), Stifel Financial (1996-present), Investors Bank and Trust
Corporation (1995-present), Investors Financial Services Corporation
(1995-present), and Plymouth Rubber Co. (1995-present). Member,
Chief Executives Organization (1996-present). Director (1984-1994),
President (1984-1994) and Chief Executive Officer (1986-1994).
*Calvin J. Pedersen (55) Trustee Director and President, Phoenix Duff & Phelps Corporation (1995-present).
55 East Monroe Street Director/Trustee, Phoenix Funds (1984-present). Trustee, Phoenix-
Suite 3600 Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual
Chicago, IL 60603 Funds (1996-present). President and Chief Executive Officer, Duff & Phelps
Utilities Tax-Free Income Inc. (1995-present), Duff & Phelps Utilities Income
Fund (since inception), and Duff & Phelps Utility and Corporate Bond Trust
Inc. (1995-present). Director (1986-1995), President (1993-1995) and
Executive Vice President (1992-1993), Duff & Phelps Corporation.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Philip R. Reynolds (69) Trustee Director/Trustee, Phoenix Funds (1984-present). Trustee, Phoenix-
43 Montclair Drive Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
West Hartford, CT 06107 (1996-present). Director, Vestaur Securities, Inc. (1972-present). Trustee
and Treasurer, J. Walton Bissell Foundation, Inc., (1988-present).
Director/Trustee, the National Affiliated Investment Companies (until 1993).
Herbert Roth, Jr. (68) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee, Phoenix-
134 Lake Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
P. O. Box 909 (1996-present). Director, Boston Edison Company (1972-present),
Sherborn, MA 01770 Landauer, Inc. (medical services) (1970-present), Tech Ops./Sevcon, Inc.
(electronic controllers) (1987-present), Key Energy Group (oil rig service)
(1988-1994), and Mark IV Industries (diversified manufacturer)
(1985-present). Director/Trustee, the National Affiliated Investment
Companies (until 1993).
Richard E. Segerson (51) Trustee Director/Trustee, Phoenix Funds (1993-present). Trustee, Phoenix-
102 Valley Road Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
New Canaan, CT 06840 (1996-present). Managing Director, Mullin Associates (1993-present). Vice
President and General Manager, Coates & Clark, Inc. (previously Tootal
American, Inc.) (1991-1993). Director/Trustee, the National Affiliated
Investment Companies (1984-1993).
Lowell P. Weicker, Jr. (65) Trustee Trustee/Director, the Phoenix Funds (1995-present). Trustee, Phoenix-
731 Lake Avenue Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
Greenwich, CT 06830 (1995-present). Director, UST, Inc. (1995-present) and HPSC, Inc.
(1995-present), Compuware (1996-present), Visiting Professor, University of
Virginia (1997-present), Duty Free International (1997-present) and
Chairman, Dresing, Lierman, Weicker (1995-1996). Former Governor of the
State of Connecticut (1991-1995).
</TABLE>
- ---------------
* Trustees identified with an asterisk are considered to be interested persons
of the Fund (within the meaning of the Investment Company Act of 1940, as
amended) because of their affiliation with the Phoenix Investment Counsel,
Inc., Phoenix Realty Securities, Inc.or Phoenix Equity Planning
Corporation.
<TABLE>
<S> <C> <C>
Michael E. Haylon (39) Executive Director and Executive Vice President, Investments, Phoenix Duff & Phelps
Vice President Corporation (1995-present). Senior Vice President, Securities Investments,
Phoenix Home Life Mutual Insurance Company (1993-1995). Executive
Vice President, the Phoenix Funds (1995-present), Phoenix-Aberdeen
Series Fund (1996-present, and Vice President, Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director (1994-present), President
(1995-present), and Executive Vice President (1994-1995), Phoenix Investment
Counsel, Inc. Director (1994-present), President (1996-present) and
Executive Vice President (1994-1996), National Securities & Research
Corporation. Director, Phoenix Equity Planning Corporation (1995-present).
Various other positions with Phoenix Home Life Mutual Insurance Company
(1990-1993).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
David R. Pepin (54) Executive Executive Vice President, Phoenix Funds, Phoenix-Aberdeen Series Fund and
Vice President Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Director,
Phoenix Investment Counsel, Inc., National Securities & Research
Corporation, and Phoenix Equity Planning Corporation, and (1996-present).
Executive Vice President, Mutual Fund Sales and Operations, Phoenix Equity
Planning Corporation (1996-present). Managing Director, Phoenix-
Aberdeen International Advisors, LLC (1996-present). Executive Vice
President (1996-present) and Director (1997-present), Phoenix Duff &
Phelps Corporation. Vice President, Phoenix Home Life Mutual Insurance
Company (1994-1995). Vice President and General Managerof Digital
Equipment Corporation (1980-1994).
William J. Newman (58) Senior Vice President Executive Vice President (1995-present) and Chief Investment Strategist
(1996-present), Phoenix Investment Counsel, Inc. Senior Vice President
(1995-1996), Executive Vice President and Chief Investment Strategist
(1996-present), National Securities & Research Corporation. Senior Vice
President, Phoenix Equity Planning Corporation (1995-1996). Vice
President, Common Stock and Chief Investment Strategist, Phoenix Home
Life Insurance Company (April 1995-November 1995). Senior Vice
President, Phoenix Strategic Equity Series Fund, Inc. (1996-present),
The Phoenix Edge Series Fund (1996-present), Phoenix Multi-Portfolio
Fund (1995-present), Phoenix Income and Growth Fund (1996-present),
Phoenix Series Fund (1995-present), Phoenix Strategic Allocation Fund,
Inc. (1996-present), Phoenix Worldwide Opportunities Fund
(1996-present), Phoenix Duff & Phelps Institutional Funds
(1996-present), and Phoenix-Aberdeen Series Fund (1996-present). Chief
Investment Strategist, Kidder, Peabody Co., Inc. (1993-1994) and Managing
Director, Equities, Bankers Trust Company (1991-1993).
Hugh Young (38) Senior Senior Vice President, Phoenix-Aberdeen Series Fund (1996-present).
Abtrust Fund Managers LTD Vice President Director, Phoenix-Aberdeen International Advisors, LLC. Far East
88A Circular Road Investment Director, Abtrust Fund Managers (Singapore) Limited
Singapore 049439 (1988-present). Managing Director, Abtrust Fund Managers (Singapore)
Limited (1992-present). Director, Abtrust Asian Smaller Companies
Investment Trust plc (1995-present), Abtrust New Dawn Investment Trust
plc (1989-present), Abtrust Emerging Asia Investment Trust Limited
(1990-present), JF Philippine Fund Inc. and Apollo Tiger.
Curtiss O. Barrows (45) Vice President Managing Director, Fixed Income (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Portfolio Manager, Public
Bonds, Phoenix Home Life Mutual Insurance Company (1991-1995). Vice
President, Phoenix Series Fund (1985-present), Phoenix Multi-Portfolio
Fund (1995-present). Managing Director, Fixed Income (1996-present),
Vice President (1993-1996), National Securities & Research Corporation.
Various other positions with Phoenix Home Life Mutual Insurance Company
(1985-1991).
Mary E. Canning (40) Vice President Managing Director and Investment Strategist (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Managing Director and
Investment Strategist, National Securities & Research Corporation
(1996-present). Associate Portfolio Manager, Common Stock, Phoenix
Home Life Mutual Insurance Company (1989-1995). Vice President,
Phoenix Series Fund (1987-present). Phoenix Strategic Allocation Fund
(1996-present). Various other positions with Phoenix Home Life Mutual
Insurance Company (1982-1989).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Jeanne H. Dorey (35) Vice President Managing Director, Equities (1996-present), Vice President (1993-1996),
Phoenix Investment Counsel, Inc. Managing Director, Equities,
(1996-present), Vice President (1993-1996), National Securities &
Research Corporation. Vice President, Phoenix Multi-Portfolio Fund
(1993-present) and Phoenix Worldwide Opportunities Fund
(1993-present). Portfolio Manager, International, Phoenix Home Life Mutual
Insurance Company (until 1995). Investment Analyst and Portfolio
Manager, Pioneer Group, Inc. (1990-1992).
Jean Claude Gruet Vice President Portfolio Manager and Vice President, The Phoenix Edge Series Fund
(1996-present). Vice President and Portfolio Manager, Atalanta Sosnoff
Capital Corporation (1994-1996). Vice President and Senior Analyst, UBS
Securities (1989-1994).
William E. Keen III (33) Vice President Assistant Vice President (1996-present), Director of Mutual Fund
100 Bright Meadow Blvd. Compliance (1995-1996), Phoenix Equity Planning Corporation. Vice
P.O. Box 2200 President, Phoenix Funds, Phoenix-Aberdeen Series Fund and Phoenix Duff
Enfield, CT 06083-2200 & Phelps Institutional Mutual Funds (1996-present). Assistant Vice
President, US Affinity Investments L.P. (1994-1995). Treasurer and
Secretary, US Affinity Funds (1994-1995). Manager, Fund Administration,
SEI Corporation (1991-1994).
Christopher J. Kelleher (42) Vice President Managing Director, Fixed Income (1996-present). Vice President (1991-
1996), Phoenix Investment Counsel, Inc. Portfolio Manager, Public Bonds,
Phoenix Home Life Mutual Insurance Company (1991-1995). Managing
Director, Fixed Income (1996-present). Vice President (1993-1996),
National Securities & Research Corporation. Vice President, Phoenix Series
Fund (1989-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Various other positions with Phoenix Home Life Mutual
Insurance Company (1983-1991).
David Lui (37) Vice President Portfolio Manager, Equities, Phoenix Investment Counsel, Inc. and National
Securities & Research Corporation (1996-present). Vice President, Phoenix
Worldwide Opportunities Fund and Phoenix Multi-Portfolio Fund
(1996-present). Associate Portfolio Manager, International Portfolios,
Phoenix Home Life Mutual Insurance Company (1995-1996). Vice
President, Asian Equities, Alliance Capital Management (1993-1995).
Associate, Global Markets, Bankers Trust (1990-1993).
William R. Moyer (52) Vice President Senior Vice President and Chief Financial Officer, Phoenix Duff & Phelps
100 Bright Meadow Blvd. Corporation (1995-present). Vice President, Investment Products Finance,
P.O. Box 2200 Phoenix Home Life Mutual Insurance Company (1990-1995). Senior Vice
Enfield, CT 06083-2200 President (1990-present), Chief Financial Officer (1996-present), Finance
(until 1996) and Treasurer (1994-1996), Phoenix Equity Planning
Corporation. Senior Vice President (1990-present), Chief Financial Officer
(1996-present), Finance (until 1996) and Treasurer (1994-present),
Phoenix Investment Counsel, Inc. Senior Vice President (1994-present),
Chief Financial Officer (1996-present), Finance (until 1996), and Treasurer
(1994-present), National Securities & Research Corporation. Vice President,
Phoenix Funds (1990-present), Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present) and Phoenix-Aberdeen Series Fund (1996-present).
Vice President, the National Affiliated Companies (until 1993). Senior Vice
President, Finance, Phoenix Securities Group, Inc. (1993-present). Senior
Vice President and Chief Financial Officer (1993-1995) and Treasurer
(1994-1995), W.S. Griffith & Co., Inc. and Townsend Financial Advisers,
Inc. Senior Vice President and Chief Financial Officer, Phoenix Duff &
Phelps Investment Management Co. (1996-present).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Scott C. Noble (50) Vice President Senior Vice President, Real Estate, Phoenix Home Life Mutual Insurance
Company (1991-present). Director and Executive Vice President, Phoenix
Real Estate Securities, Inc. (1993-present). Vice President, Phoenix Multi-
Portfolio Fund (1994-present) and Phoenix Duff & Phelps Institutional
Mutual Funds (1997-present). Director (1991-present) and President
(1993-present), Phoenix Founders, Inc. Director and President
(1994-present), Chief Executive Officer (1995-present), Phoenix Realty
Group, Inc. Director and Chief Executive Officer (1991-present), President
(1991-1995), Phoenix Realty Advisors, Inc. Director, President and Chief
Executive Officer (1994-present), Phoenix Realty Investors, Inc. Various
other positions with Phoenix Home Life Insurance Company (1991-1993).
C. Edwin Riley, Jr. (43) Vice President Managing Director, Equities, Vice President (1995-1996), Phoenix
Investment Counsel, Inc. Managing Director, Equities, National Securities
& Research Corporation (1996-present). Vice President, Phoenix Strategic
Allocation Fund, Inc. (1995-present), Phoenix Series Fund (1996-present).
Portfolio Manager, Phoenix Home Life Mutual Insurance Company (1995).
Senior Vice President and Director of Equity Management for Nationsbank
Investment Management (1988-1995).
Amy L. Robinson (41) Vice President Managing Director, Equity Trading (1996-present), Vice President
(1992-1996), Phoenix Investment Counsel, Inc. Managing Director,
Securities Administration, Phoenix Home Life Mutual Insurance Company
(1991-1995). Managing Director, Equity Trading (1996-present), Vice
President (1993-1996), National Securities & Research Corporation, Vice
President, Phoenix Series Fund (1989-present). Various other positions
with Phoenix Home Life Mutual Insurance Company (1979-1991).
Barbara Rubin (43) Vice President Vice President, (1995-present), Managing Director (1992-1995), Second
Vice President (1986-1992), Real Estate, Phoenix Home Life Mutual
Insurance Company. Vice President, Phoenix Multi-Portfolio Fund
(1994-present) and Phoenix Duff & Phelps Institutional Mutual Funds
(1997-present). Vice President (1991-present), 238 Columbus Blvd., Inc.
Director (1988-present) and Vice President (1993-present), Phoenix
Founders, Inc. Vice President (1993-present), Phoenix Real Estate
Securities, Inc. Director and President (1987-1991), Executive Vice
President (1991-1994), Phoenix Realty Advisors, Inc. Executive Vice
President, Phoenix Realty Group, Inc. (1994-present). President
(1995-present), Executive Vice President (1994-1995), Phoenix Realty
Securities, Inc.
Leonard J. Saltiel (43) Vice President Managing Director, Operationsand Service (1996-present), Senior Vice
100 Bright Meadow Blvd. President (1994-1996), Phoenix Equity Planning Corporation. Vice
P.O. Box 2200 President, Phoenix Funds (1994-present), Phoenix Duff & Phelps
Enfield, CT 06083-2200 Institutional Mutual Funds (1996-present) and National Securities &
Research Corporation (1994-present). Vice President, Investment
Operations, Phoenix Home Life Mutual Insurance Company (1994-1995).
Various positions with Home Life Insurance Company and Phoenix Home
Life Mutual Insurance Company (1987-1994).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Dorothy J. Skaret (44) Vice President Director, Money Market Trading (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Director, Public Fixed
Income, Phoenix Home Life Mutual Insurance Company (1991-1995).
Director, Money Market Trading (1996-present), Vice President
(1993-1996), National Securities & Research Corporation, Vice President,
Phoenix Series Fund (1990-present), Phoenix Realty Securities, Inc.
(1995-present), Phoenix-Aberdeen Series Fund (1996-present) and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Various
other positions with Phoenix Home Life Mutual Insurance Company
(1986-1991).
James D. Wehr (39) Vice President Managing Director, Fixed Income (1996-present), Vice President (1991-1996),
Phoenix Investment Counsel, Inc. Managing Director, Fixed Income
(1996-present), Vice President (1993-1996), National Securities & Research
Corporation. Vice President, Phoenix Multi-Portfolio Fund (1988-present),
Phoenix Series Fund (1990-present), Phoenix California Tax Exempt Bonds, Inc.
(1993-present) and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Managing Director, Public Fixed Income, Phoenix Home Life
Insurance Company (1991-1995). Various positions with Phoenix Home Life
Mutual Insurance Company (1981-1991).
Nancy G. Curtiss (44) Treasurer Treasurer(1996-present), Vice President, Fund Accounting
(1994-1996), Phoenix Equity Planning Corporation. Treasurer, Phoenix
Funds (1994-present), Phoenix-Aberdeen Series Fund (1996-present) and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Second
Vice President and Treasurer, Fund Accounting, Phoenix Home Life Mutual
Insurance Company (1994-1995). Various positions with Phoenix Home
Life Mutual Insurance Company (1987-1994).
G. Jeffrey Bohne (49) Secretary Vice President, Mutual Fund Customer Service, (1996-present), Vice
101 Munson Street President, Transfer Agent Operations (1993-1996), Phoenix Equity Planning
Greenfield, MA 01301 Corporation. Clerk, Phoenix Investment Counsel, Inc. (1995-present).
Secretary, the Phoenix Funds (1993-present) and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Clerk and Secretary, Phoenix-
Aberdeen Series Fund (1996-present). Vice President and General Manager,
Phoenix Home Life Mutual Insurance Company (1993-present). Assistant
Vice President, Phoenix Home Life Mutual Insurance Company
(1992-1993).
</TABLE>
No person listed in the foregoing table has any immediate family relationship
with any other person listed in the table.
At December 31, 1996, the Trustees and officers as a group owned none of the
then outstanding shares of the Fund.
For services rendered to the Fund during the fiscal year ended December 31,
1996, the Trustees received an aggregate of $143,625 from the Fund as Trustees'
fees. For service on the Boards of the Phoenix Funds, each Trustee who is not a
full-time employee of the Advisers or any of its affiliates currently receives a
retainer at the annual rate of $40,000 and $2,500 per joint meeting of the
Boards. Each Trustee who serves on the Audit Committee receives a retainer at
the annual rate of $2,000 and $2,000 per joint Audit Committee meeting attended.
The current members of the Audit Committee are Messrs. Blinn, Conway, Roth,
Segerson and Weicker. Each Trustee who serves on the Executive Committee and who
is not an interested person of the Fund receives a retainer at the annual rate
of $1,000 and $1,000 per joint Executive Committee meeting attended. The current
members of the Executive Committee are Messrs. Conway, Dalzell-Payne,
McLoughlin, Morris, Oates and Roth. The function of the Executive Committee is
to serve as a contract review, compliance review and performance review delegate
of the full Board of Trustees. The foregoing fees do not include the
reimbursement of expenses incurred in connection with meeting attendance.
Trustee costs are allocated equally to each of the Series of the Funds within
the Fund complex. Officers and employees of the Adviser who are interested
persons are compensated by the Adviser and receive no compensation from the
Fund. Any other interested persons who are not compensated by the Adviser
receive fees from the Fund.
20
<PAGE>
For the Fund's last fiscal year, the Trustees received the following
compensation:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION OR FROM FUND AND
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FUND COMPLEX
COMPENSATION ACCRUED AS PART OF BENEFITS UPON (11 FUNDS)
NAME FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
---- --------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
C. Duane Blinn $13,875* $60,500
Robert Chesek $12,125 $53,500
E. Virgil Conway $14,125 $61,750
Harry Dalzell-Payne $12,125 None for None for $53,750
Francis E. Jeffries $0 any Trustee any Trustee $0
Leroy Keith, Jr. $12,125 $53,500
Philip R. McLoughlin $0 $0
Everett L. Morris $11,375 $50,750
James M. Oates $13,250 $58,000
Calvin J. Pedersen $0 $0
Philip R. Reynolds $12,125 $53,500
Herbert Roth, Jr. $14,875* $64,750
Richard E. Segerson $13,750 $60,250
Lowell P. Weicker, Jr. $13,875 $60,500
</TABLE>
* At the request of Messrs. Blinn and Roth, arrangements have been made to
permit their compensation (and the earnings thereon) to be deferred until
their retirement or resignation from the Board of Trustees, or their death
or permanent disability.
THE INVESTMENT ADVISERS
- --------------------------------------------------------------------------------
The Fund has entered into Investment Advisory Agreements ("Agreements") with
Phoenix Investment Counsel, Inc. ("PIC"), Phoenix Realty Securities ("PRS") and
Phoenix-Aberdeen International Advisors, LLC ("PAIA") whose offices are located
in Hartford, Connecticut.
Phoenix is in the business of writing ordinary and group life and health
insurance and annuities. At December 31, 1996, Phoenix had total assets of
approximately $15.5 billion. PHL Variable writes variable annuities, and at
December 31, 1996 had total assets of approximately $189.5 million. PLAC writes
variable universal life insurance policies and at December 31, 1996 had total
assets of approximately $11.5 million. PEPCO performs bookkeeping and pricing
and administrative services for the Fund. It also provides bookkeeping and
pricing services to other investment companies advised by PIC and PRS. PEPCO is
registered as a broker-dealer in 50 states. The executive offices of Phoenix and
PAIA are located at One American Row, Hartford, Connecticut 06102 and the
principal offices of Equity Planning are located at 100 Bright Meadow Boulevard,
P.O. Box 2200, Enfield, Connecticut 06083-2200.
All of the outstanding stock of PIC is owned by PEPCO, a subsidiary of
Phoenix Duff & Phelps Corporation ("PD&P") of Chicago, Illinois. Phoenix owns a
majority interest in PD&P. PIC also serves as subadviser to the Asia Series.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, serves as subadviser to the
Enhanced Index Series. J.P. Morgan's principal place of business is located at
522 Fifth Avenue, New York, New York 10036. J.P. Morgan presently serves as an
investment manager for corporate, public and union employee benefit funds,
foundations, endowments, insurance companies, government agencies and the
accounts of other institutional investors. J.P. Morgan was founded in 1984 and
as of March 31, 1997 had approximately $184 billion in assets under
management.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. ABKB/LaSalle
Securities Limited Partnership (ABKB), a subsidiary of LaSalle Partners, serves
as subadviser to the Real Estate Series. ABKB's principal place of business is
located at 100 East Pratt Street, Baltimore, Maryland 21202. ABKB has been a
registered investment advisor since 1979.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc, is a direct subsidiary of Phoenix and Aberdeen
Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset Management plc.
Aberdeen Fund Managers, Inc. has its principal offices located at 1 Financial
Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. While many
of the officers and directors of the PAIA have extensive experience as
investment professionals, due to its recent formation, the PAIA has no prior
operating history. Aberdeen Fund Managers, Inc. also serves as subadviser for
the Asia Series.
Aberdeen Asset Management was founded in 1983 and through subsidiaries
operating from offices in Aberdeen, Scotland; London, England; Singapore and
Fort Lauderdale, Florida, provides investment management services to unit and
investment trusts, segregated pension funds and other institutional and private
portfolios. As of February 28, 1997, Aberdeen Asset Management, and its
advisory subsidiaries, had approximately $4.8 billion in assets under
management.
The Agreements provide that each Adviser shall furnish continuously, at its
own expense, an investment program for each of the Series, subject at all times
to the supervision of the Trustees. They also provide that all costs and
expenses not specifically enumerated
21
<PAGE>
as payable by the Advisers shall be paid by the Fund or by Phoenix, PHL Variable
and PLAC. The Advisers or Phoenix, PHL Variable and PLAC have agreed to
reimburse the Fund for certain operating expenses for all Series. Each Series
(except the International, Real Estate, Theme and Asia Series) pays a portion or
all of its total operating expenses other than the management fee, up to .15% of
its total average net assets. The International, Real Estate, Theme and Asia
Series pay total operating expenses other than the management fee up to .40%,
.25%, .25% and .25%, respectively, of its total average net assets. Expenses
above these limits are paid by the Advisers, Phoenix, PHL Variable or PLAC.
To the extent that any expenses are paid by the Fund, they will be paid by
the Series incurring them or, in the case of general expenses, may be charged
among the Series in relation to the benefits received by the shareholders, as
determined by the financial agent under the supervision of the Board of
Trustees. Such expenses shall include, but shall not be limited to, all expenses
(other than those specifically referred to as being borne by the Advisers,
Phoenix, PHL Variable or PLAC) incurred in the operation of the Fund and any
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Trustees, expenses of Trustees' and shareholders'
meetings including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of repurchase and
redemption of shares, certain expenses of issue and sale of shares, association
membership dues, charges of custodians, transfer agents, dividend disbursing
agents and financial agents, bookkeeping, auditing and legal expenses. The Fund,
Phoenix, PHL Variable or PLAC also will pay the fees and bear the expense of
registering and maintaining the registration of the Fund and its shares with the
Securities and Exchange Commission and the expense of preparing and mailing
prospectuses and reports to shareholders.
The Investment Advisory Agreements provide that the Advisers shall not be
liable to the Fund or to any shareholder of the Fund for any error of judgement
or mistake of law or for any loss suffered by the Fund or by any shareholder of
the Fund in connection with the matters to which the Investment Advisory
Agreements relate, except a loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard on the part of the Advisers in the
performance of its duties thereunder.
The Investment Advisory Agreements also provide that, as full compensation
for the services and facilities furnished to the Fund, the Advisers shall be
compensated as follows: within five days after the end of each month, the Fund
shall pay the Advisers the following fees:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market.... .40% .35% .30%
Multi-Sector.... .50% .45% .40%
Balanced........ .55% .50% .45%
Allocation...... .60% .55% .50%
Growth.......... .70% .65% .60%
International... .75% .70% .65%
Theme........... .75% .70% .65%
Enhanced Index.. .45% .45% .45%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia............ 1.00%
The amounts payable to the Advisers shall be based upon the average of the
values of the net assets of the Fund as of the close of business each day. There
can be no assurance that the Fund will reach a net asset level high enough to
realize a reduction in the rate of the advisory fee.
The Investment Advisory Agreements continue in force from year to year for
all Series, provided that, with respect to each Series, the applicable agreement
must be approved at least annually by the Trustees or by vote of a majority of
the outstanding voting securities of that Series. In addition, and in either
event, the terms of the agreements and any renewal thereof must be approved by
the vote of a majority of Trustees who are not parties to the agreement or
interested persons (as that term is defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreements will terminate automatically if assigned
and may be terminated at any time, without payment of any penalty, either by the
Fund or by the Advisers, on sixty (60) days written notice.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
In effecting portfolio transactions for the Fund, the Advisers and
Subadvisers, adhere to the Fund's policy of seeking best execution and price,
determined as described below, except to the extent it is permitted to pay
higher brokerage commissions for "brokerage and research services" as defined
herein. The Advisers may cause the Fund to pay a broker an amount of commission
for effecting a securities transaction in excess of the amount of commission
which another broker or dealer would have charged for effecting the transaction,
if the Advisers determine in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker. As provided in Section 28(e) of the Securities Exchange
Act of 1934, "brokerage and research services" include giving advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities; furnishing analyses and reports
concerning issuers, industries, economic factors and trends, portfolio strategy
and the performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Brokerage and research services provided by brokers to the Fund or to the
Advisers are considered to be in addition to and not in lieu of services
required to be performed by the Advisers under their contracts with the Fund
under their contracts with the Advisers and may benefit both the Fund and other
clients of the Advisers. Conversely, brokerage and research services provided by
brokers to other clients of the Advisers may benefit the Fund.
22
<PAGE>
If the securities in which a particular Series of the Fund invests are
traded primarily in the over-the-counter market, where possible the Series will
deal directly with the dealers who make a market in the securities involved
unless better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account. On occasion, securities may be
purchased directly from the issuer. Bonds and money market instruments are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
the availability of the broker to stand ready to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by the Advisers in
determining the overall reasonableness of brokerage commissions paid by the
Fund.
For the fiscal years ended December 31, 1994, 1995, and 1996 brokerage
commissions paid by the Fund on portfolio transactions totaled $4,360,577,
$5,452,277 and $6,749,696, respectively. None of such commissions was paid to a
broker who was an affiliated person of the Fund or an affiliated person of such
a person or, to the knowledge of the Fund, to a broker an affiliated person of
which was an affiliated person of the Fund or the Adviser. Total brokerage
commissions paid during the fiscal year ended December 31, 1996 included
brokerage commissions of $5,789,323 on portfolio transactions aggregating
$4,201,850,149 executed by brokers who provided research and other statistical
and factual information.
It may frequently happen that the same security is held in the portfolio
of more than one fund. Simultaneous transactions are inevitable when several
funds are managed by the same investment adviser, particularly when the same
security is suited for the investment objectives of more than one fund. When two
or more funds advised by the Advisers are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated among the funds in
a manner equitable to each fund. It is recognized that in some cases this system
could have a detrimental effect on the price or volume of the security as far as
the Fund is concerned. In other cases, however, it is believed that the ability
of the Fund to participate in volume transactions will produce better executions
for the Fund. It is the opinion of the Board of Trustees of the Fund that the
desirability of utilizing the Advisers as investment advisers to the Fund as
manager of foreign securities owned by the Fund outweighs the disadvantages that
may be said to exist from simultaneous transactions.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to lower
commission costs on a per-share and per-dollar basis. According to the bunching
procedures, the Adviser shall aggregate transactions unless it believes in its
sole discretion that such aggregation is consistent with its duty to seek best
execution (which shall include the duty to seek best price) for the Fund. No
advisory account of the Adviser is to be favored over any other account and each
account that participates in an aggregated order is expected to participate at
the average share price for all transactions of the Adviser in that security on
a given business day, with all transaction costs shared pro rata based on the
Fund's participation in the transaction. If the aggregated order is filled in
its entirety, it shall be allocated among the Adviser's accounts in accordance
with the allocation order, and if the order is partially filled, it shall be
allocated pro rata based on the allocation order. Notwithstanding the foregoing,
the order may be allocated on a basis different from that specified in the
allocation order if all accounts of the Adviser whose orders are allocated
receive fair and equitable treatment and the reason for such different
allocation is explained in writing and is approved in writing by the Adviser's
compliance officer as soon as practicable after the opening of the markets on
the trading day following the day on which the order is executed. If an
aggregated order is partially filled and allocated on a basis different from
that specified in the allocation order, no account that is benefited by such
different allocation may intentionally and knowingly effect any purchase or sale
for a reasonable period following the execution of the aggregated order that
would result in it receiving or selling more shares than the amount of shares it
would have received or sold had the aggregated order been completely filled. The
Trustees will annually review these procedures or as frequently as shall appear
appropriate.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The Exchange will be closed on the following
observed national holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Since the Fund does not price securities on weekends or United States national
holidays, the net asset value of a Series' foreign assets may be significantly
affected on days when the investor has no access to the Fund. The net asset
value per share of a Series is determined by adding the values of all securities
and other assets of the Series, subtracting liabilities and dividing by the
total number of outstanding shares of the Series. Assets and liabilities are
determined in accordance with generally accepted accounting principles and
applicable rules and regulations of the Securities and Exchange Commission.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary exchange for such
security by the Trustees or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place for any Series which invests
in foreign securities contemporaneously with the determination of the prices of
the majority of the portfolio securities of such Series. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair
23
<PAGE>
value considerations by the Trustees or their delegates. If at any time a Series
has investments where market quotations are not readily available, such
investments are valued at the fair value thereof as determined in good faith by
the Trustees although the actual calculations may be made by persons acting
pursuant to the direction of the Trustees.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
Shares of the Fund are not available to the public directly. Although shares
of the Fund are owned by the Accounts, Contract Owners and Policyowners do have
voting rights with respect to those shares, as described in the Prospectus under
"Shares of Beneficial Interest." You may invest in the Fund by buying a Variable
Accumulation Annuity Contract or a Variable Universal Life Insurance Policy from
Phoenix, PHL Variable or PLAC and directing the allocation of the net purchase
payment(s) to the Subaccounts corresponding to the Series of the Fund. Phoenix,
PHL Variable and PLAC will, in turn, invest payments in shares of the Fund as
the investor directs at net asset value next determined with no sales load.
SALES CHARGE AND SURRENDER CHARGES
The Fund does not assess any sales charge, either when it sells or when it
redeems securities. The sales charges which may be assessed under the Contracts
or Policies are described in the accompanying prospectus, as are other charges.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem any shares presented by the shareholder Accounts for
redemption. The Account's policies on when and whether to buy or redeem Fund
shares are described in the accompanying prospectus.
At the discretion of the Trustees, the Fund may, to the extent consistent
with state and Federal law, make payment for shares of a particular Series
repurchased or redeemed in whole or in part in securities or other assets of
such Series taken at current values. Should payment be made in securities, the
shareholder Accounts may incur brokerage costs in converting such securities to
cash.
The right of redemption may only be suspended or the payment date postponed
for more than seven days for any period during which trading on the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
or when trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, for any period when an emergency (as
defined by rules of the Commission) exists, or during any period when the
Commission has, by order, permitted such suspension. In case of a suspension of
the right of redemption, the shareholders may withdraw requests for redemption
of shares prior to the next determination of net asset value after the
suspension has been terminated or they will receive payment of the net asset
value so determined.
The shareholder Accounts may receive more or less than was paid
for the shares, depending on the net asset value of the shares at the
time they are repurchased or redeemed.
TAXES
- --------------------------------------------------------------------------------
As stated in the Prospectus, it will be the policy of the Fund and of each
Series to comply with those provisions of the Internal Revenue Code of 1986, as
amended, ("Code") which relieve investment companies that distribute
substantially all of their net income from Federal income tax on the amounts
distributed. The Fund also intends to comply with pertinent Code provisions in
order to avoid imposition of any Federal excise tax. Dividends derived from
interest and distributions of any realized capital gains are taxable, under
Subchapter M, to the Fund's Shareholders, which in this case are the Accounts.
Federal income taxation of separate accounts, life insurance companies, and
unit investment trusts are discussed in the accompanying prospectus for the
Account.
CUSTODIAN
- --------------------------------------------------------------------------------
The securities and cash of all Series except the International, Asia,
Enhanced Index and Real Estate Series are held by The Chase Manhattan Bank, N.A.
under the terms of a custodian agreement. The securities and cash of the
International and Asia Series are held by Brown Brothers Harriman & Co. under
the terms of a custodian agreement. With respect to the International Series,
the address for the Custodian is Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, Attention: Manager, Securities Department. The
securities and cash of the Real Estate and Enhanced Index Series are held by
State Street Bank and Trust Company, located at 1 Heritage Drive, P2N, North
Quincy, Massachusetts 02171. With respect to Series other than the
International, Real Estate, Enhanced Index and Asia Series, the address for the
Custodian is The Chase Manhattan Bank, N.A., 1 Chase Manhattan Plaza, Floor 13B,
New York, NY 10081. The Fund permits the Custodian to deposit some or all of its
securities in central depository systems as allowed by Federal law. The use of
foreign custodians and foreign central depositories has been authorized by the
Board of Trustees of the Fund if certain conditions are met.
FOREIGN CUSTODIAN
The Fund may use a foreign custodian in connection with its purchases of
foreign securities and may maintain cash and cash equivalents in the care of a
foreign custodian. The amount of cash or cash equivalents maintained in the care
of eligible foreign custodians will be limited to an amount reasonably necessary
to effect the Fund's foreign securities transactions. The use of a foreign
custodian involves considerations which are not ordinarily associated with
domestic custodians. These considerations include the possibility of
expropriations, restricted access to books and records of the foreign custodian,
inability to recover assets that are lost while under the control of the foreign
custodian, and the impact of political, social or diplomatic developments.
24
<PAGE>
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Fund's financial statements are audited by Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts 02110, independent accountants for the
Fund. The independent accountants also provide other accounting and tax-related
services as requested by the Fund from time to time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and the notes thereto relating to the Fund and the
report of Price Waterhouse LLP with respect thereto for the fiscal year ended
December 31, 1996 are contained in the Fund's Annual Report. The Annual Report
is available by calling Variable Products Operations at (800) 447-4312 or
writing to Phoenix Variable Products Mail Operations, P.O. Box 8027, Boston, MA
02266-8027. Phoenix, PHL Variable and PLAC have agreed to send a copy of both
the Annual Report and the Semi-Annual Report to Shareholders containing the
Fund's financial statements to every Contract Owner or Policyowner having an
interest in the Accounts. The Annual Report for the fiscal period ended December
31, 1996 is included in this Statement of Additional Information.
APPENDIX
- --------------------------------------------------------------------------------
A-1 AND P-1 COMMERCIAL PAPER RATINGS
The Money Market Series will invest only in commercial paper which at the
date of investment is rated A-1 by Standard & Poor's Corporation ("S&P") or P-1
by Moody's Investors Services, Inc., or, if not rated, is issued or guaranteed
by companies which at the date of investment have an outstanding debt issue
rated AA or higher by Standard & Poor's or Aa or higher by Moody's.
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Services, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of 10 years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD AND POOR'S CORPORATION'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
25
<PAGE>
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
26
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1996
THE PHOENIX EDGE SERIES FUND
27
<PAGE>
THE PHOENIX EDGE SERIES FUND
PART C--OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. Condensed Financial Information is included in Part A of the
Registration Statement.
2. Financial Statements and Notes, thereto, and reports of
Independent Accountants are included in the Annual Report to
Shareholders for the year ended December 31, 1996,
incorporated by reference.
(b) Exhibits:
1. Declaration of Trust of the Registrant dated February 18,
1986, filed with the Registration Statement on Form N-1A on
April 18, 1986 and filed via Edgar with Post-Effective
Amendment No. 18 on June 20, 1996.
1.1 Amendment to Declaration of Trust, establishing the
International Series, filed with Post-Effective Amendment
No. 7 on March 2, 1992 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
1.2 Amendment to Declaration of Trust, conforming the Fund's
borrowing restrictions to California Department's Borrowing
Guidelines, filed with Post-Effective Amendment No. 7 on
March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
1.3 Amendment to Declaration of Trust, establishing the Balanced
Series, filed with Post-Effective Amendment No. 8 on April
28, 1992 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
1.4 Amendment to Declaration of Trust, establishing the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 12 on February 16, 1995 and filed via Edgar
with Post-Effective Amendment No. 20 on April 29, 1997.
1.5 Amendment to Declaration of Trust, establishing the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
1.6 Amendment to Declaration of Trust, changing the name of the
Series currently designated "Bond Series" to the "Multi-
Sector Fixed Income Series," filed via Edgar with
Post-Effective Amendment No. 17 on April 17, 1996.
1.7 Amendment to Declaration of Trust, establishing the Aberdeen
New Asia Series, filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc. covering the Balanced,
Bond, Growth, Money Market, Total Return and International
Series, filed with Post-Effective Amendment No. 11 on May 2,
1994 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
5.1 Form of Investment Advisory Agreement between Registrant and
Phoenix Realty Securities, Inc. covering the Phoenix Real
Estate Securities Series, filed with Post-Effective
Amendment No. 13, on April 28, 1995 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
5.2 Form of Subadvisory Agreement among the Registrant, Phoenix
Realty Securities, Inc. and ABKB/LaSalle Partners Limited
Partnership, covering the Phoenix Real Estate Securities
Series, filed with Post-Effective Amendment No. 13 on April
28, 1995 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
5.3 Form of Investment Advisory Agreement between Registrant and
Phoenix-Aberdeen International Advisors, LLC covering the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 18 on June 20, 1996.
5.4 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Aberdeen Fund Managers, Inc. filed via Edgar
with Post-Effective Amendment No. 19 on September 3, 1996.
5.5 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Phoenix Investment Councel, Inc. filed via
Edgar with Post-Effective Amendment No. 19 on September 3,
1996.
6. Not Applicable.
7. Not Applicable.
C-1
<PAGE>
8. Form of Custodian Agreement between Registrant and The Chase
Manhattan Bank, N.A. covering the International Series,
filed with Post-Effective Amendment No. 4 on March 13, 1990
and filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
8.1 Form of Amendment to Custodian Agreement covering
International, Money Market, Growth, Bond, Total Return and
Balanced Series, filed with Post-Effective Amendment No. 7
on March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
8.2 Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. covering the International Series, filed with
Post-Effective Amendment No. 12 on February 16, 1995 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
8.3 Form of Custodian Agreement between Registrant and State
Street Bank and Trust Company covering the Real Estate
Securities Series, filed with Post-Effective Amendment No.
12 on February 16, 1995 and filed via Edgar with Post-
Effective Amendment No. 20 on April 29, 1997.
8.4 Amendment to Custodian Contract between Registrant and State
Street Bank and Trust Company dated October 17, 1996 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
9.1 Form of Transfer Agency Agreement, filed with original
Registration Statement on Form N-1A on April 18, 1986 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
9.2 Form of Financial Agent Agreement, filed via Edgar with
Post-Effective Amendment No. 16 on January 29, 1996.
9.3 Form of Financial Agent Agreement filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
10. Opinion and Consent of Counsel covering shares of the
International, Multi-Sector Fixed Income, Growth, Money
Market, Balanced and Strategic Allocation Series, filed with
Post-Effective Amendment No. 7 on March 2, 1992 and filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
10.1 Opinion and Consent of Counsel covering shares of the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 13 on April 28, 1995 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
10.2 Opinion and Consent of Counsel covering shares of the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
10.3 Opinion and Consent of Counsel covering shares of the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 19 on September 3, 1996.
11. Written Consent of Price Waterhouse LLP, to be filed by
amendment.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Financial Data Schedule, filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997 and reflected on Edgar as
Exhibit 27.
18. Powers of Attorney, filed via Edgar with Post-Effective
Amendment No. 17 on April 17, 1996.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following diagram illustrates the Registrant's place in the
organizational structure:
[GRAPHIC OMITTED]
C-3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF MAY 1, 1997
--------------- -----------------
Multi-Sector Series 4
Money Market Series* 4
Growth Series 7
Allocation Series 4
Balanced Series 4
International Series 4
Real Estate Series 5
Theme Series 5
Asia Series 5
Enhanced Index Series 0
- ---------------------
*Phoenix Mutual Life Insurance Company purchased 1 share of the Money Market
Series at a price of $10.00 per share on February 18, 1986.
ITEM 27. INDEMNIFICATION
The Declaration of Trust provides that the Fund shall indemnify each of its
Trustees and officers against liabilities arising by reason of being or having
been a Trustee or officer, except for matters as to which such Trustee or
officer shall have been finally adjudicated not to have acted in good faith and
except for liabilities arising by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Management of the Fund" in the Prospectus and "Management of the Fund"
in the Statement of Additional Information for information regarding the
business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (SEC File Nos.
801-5995 for Phoenix Investment Counsel Inc.; 801-8177 for National Securities
and Research Corporation; 801-52167 for Phoenix-Aberdeen International Advisors,
LLC) filed under the Investment Advisers Act of 1940, incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
and
101 Munson Street
P.O. Box 942
Greenfield, Massachusetts 01302-0942
ITEM 31. MANAGEMENT SERVICES
All management-related service contracts are discussed in Part A or B
of this Registration Statement.
C-4
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment using
financial statements which need not be certified, within four to
six months from the effective date of Registrant's Post-Effective
Amendment No. 21 with respect to the Research Enhanced Index
Series.
(c) The information called for by Item 5A of Form N-1A is contained
in the Fund's annual report to shareholders; accordingly, the
Fund hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Fund's latest annual
report, upon request and without charge.
(d) Registrant undertakes to provide the information specified
pursuant to Regulation S-K, Item 512 (Reg.ss.229.512), as
applicable, the terms of which are incorporated herein by
reference.
(e) Registrant undertakes to call a special meeting of shareholders
for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other
shareholders, as required by Section 16(c) of the 1940 Act, if
requested to do so by holders of at least 10% of a Portfolio's
outstanding shares.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford and the State of Connecticut
on the 14th day of May, 1997.
THE PHOENIX EDGE SERIES FUND
Attest: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
---------------------------- -------------------------------
Thomas N. Steenburg Philip R. McLoughlin
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on this 14th day of May, 1997.
SIGNATURE TITLE
--------- -----
Trustee
- -------------------------------------
C. Duane Blinn*
Trustee
- -------------------------------------
Robert Chesek*
Trustee
- -------------------------------------
E. Virgil Conway*
Treasurer
- -------------------------------------
Nancy G. Curtiss* (Principal Financial and Accounting
Officer)
Trustee
- -------------------------------------
Harry Dalzell-Payne*
Trustee
- -------------------------------------
Francis E. Jeffries*
Trustee
- -------------------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin Trustee and President
- -------------------------------------
Philip R. McLoughlin (Principal Executive Officer)
Trustee
- -------------------------------------
Everett L. Morris*
Trustee
- -------------------------------------
James M. Oates*
Trustee
- -------------------------------------
Calvin J. Pedersen*
Trustee
- -------------------------------------
Philip R. Reynolds*
Trustee
- -------------------------------------
Herbert Roth, Jr.*
S-1(C)
<PAGE>
Trustee
- -------------------------------------
Richard E. Segerson*
Trustee
- -------------------------------------
Lowell P. Weicker, Jr.*
By: /s/ Philip R. McLoughlin
-----------------------------
* Philip R. McLoughlin, pursuant to powers of attorney filed previously.
S-2(C)
