As filed with the Securities and Exchange Commission on December 12, 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. 23 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 26 [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 INSURANCE COMPANY
(800) 447-4312
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------
COPIES TO:
PHILIP R. MCLOUGHLIN EDWIN L. KERR, 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 __________, 1998 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>
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)
PART A
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
<S> <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
__________, 1998
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 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
2-1
<PAGE>
appear to offer growth potential and an overall volatility of return similar to
that of the S&P 500.
Engemann Nifty Fifty ("Nifty Fifty") Series. As its investment objective,
this Series seeks to achieve long-term capital appreciation by investing in
approximately 50 different securities which offer the best potential for long
term growth of capital. At least 75% of the Series' assets will be invested in
common stocks of high quality growth companies. The remaining portion will be
invested in common stocks of small corporations with rapidly growing earnings
per share or common stocks believed to be undervalued.
Seneca Mid-Cap Growth ("Seneca Mid-Cap") Series. As its investment
objective, this Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Series' seeks to outperform the Standard & Poor's
Mid-Cap 400 Index.
Phoenix Growth and Income ("Growth & Income") Series. This Series seeks, as
its investment objective, dividend growth, current income and capital
appreciation by investing in common stocks. The Fund seeks to achieve its
objective by selecting securities primarily from equity securities of the 1,000
largest companies traded in the United States, ranked by market capitalization.
Phoenix Value Equity ("Value") Series. The primary investment objective is
long-term capital appreciation with a secondary investment objective of current
income. The Series seeks to achieve its objective by investing in a diversified
portfolio of common stocks that meet certain quantitative standards that
indicate above average financial soundness and intrinsic value relative to
price.
Schafer Mid-Cap Value ("Schafer Mid-Cap") Series. Long-term capital
appreciation is the primary investment objective of this series with current
income as the secondary investment objective. The Series will invest in common
stocks of established companies having a strong financial position and a low
stock market valuation at the time of purchase which are believed to offer the
possibility of increase in value.
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
__________, 1998, which contains further information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") 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 SEC 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........................................ 2-12
Allocation Series.................................... 2-13
International Series................................. 2-13
Balanced Series...................................... 2-15
Real Estate Series................................... 2-15
Theme Series......................................... 2-16
Asia Series.......................................... 2-17
Enhanced Index Series................................ 2-17
Nifty Fifty Series................................... 2-18
Seneca Mid-Cap Series................................ 2-18
Growth & Income Series............................... 2-19
Value Series......................................... 2-19
Schafer Mid-Cap Series............................... 2-19
Other Special Investment Methods......................... 2-20
Convertible Securities............................... 2-20
Repurchase Agreements................................ 2-20
Options.............................................. 2-20
Financial Futures and Related Options................ 2-20
Foreign Securities................................... 2-21
Leverage............................................. 2-21
Private Placements & Rule 144A Securities............ 2-22
Mortgage-backed Securities........................... 2-22
Lending of Portfolio Securities...................... 2-23
When-Issued Securities............................... 2-23
Investment Restrictions.................................. 2-23
Portfolio Turnover....................................... 2-23
The Fund and Its Management.............................. 2-23
Investment Advisers...................................... 2-24
Portfolio Managers................................... 2-25
Balanced Series.................................. 2-25
Allocation Series................................ 2-25
Multi-Sector Series.............................. 2-25
Growth Series.................................... 2-25
International Series............................. 2-25
Money Market Series.............................. 2-25
Real Estate Series............................... 2-25
Theme Series..................................... 2-25
Asia Series...................................... 2-25
Enhanced Index Series............................ 2-25
Nifty Fifty Series............................... 2-26
Seneca Mid-Cap Series............................ 2-26
Growth & Income Series........................... 2-26
Value Series..................................... 2-26
Schafer Mid-Cap Series........................... 2-26
Advisory Fees........................................ 2-26
Financial Agent...................................... 2-27
Expenses............................................. 2-27
Portfolio Transactions and Brokerage................. 2-27
Performance History.................................. 2-27
Shares of Beneficial Interest............................ 2-28
Purchase of Shares....................................... 2-29
Net Asset Value.......................................... 2-29
Redemption of Shares..................................... 2-29
Dividends and Distributions.............................. 2-29
Taxes ................................................. 2-29
Custodian, Transfer Agent and
Dividend Paying Agent................................ 2-30
Other Information........................................ 2-30
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 (except for the Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series) are for the fiscal
year ended December 31, 1997.
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
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets for the year ending December 31, 1997)
<CAPTION>
MONEY
GROWTH MULTI-SECTOR ALLOCATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME
------ ------------ ---------- ------ ------------- -------- ----------- -----
Management Fees
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees........ .63% .50% .58% .40% .75% .55% .75% .75%
12b-1 Fees........................ 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)
---- ---- ---- ---- ----- ----- ----- -----
Total Fund Operating Expenses... .72% .65% .70% .55% 1.04% .68% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
ENHANCED
ASIA INDEX NIFTY FIFTY SENECA MID-CAP GROWTH & INCOME VALUE SCHAFER MID-CAP
---- ----- ----------- -------------- --------------- ----- ---------------
Management Fees
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees........ 1.00% .45% .90% .80% .75% .75% 1.10%
12b-1 Fees........................ None None None None None None None
Other Operating Expenses
(After Reimbursement)........... .25%(4) .10%(1) .15% .25% .15% .15% .15%
----- ---- ---- ----- ---- ---- -----
Total Fund Operating Expenses... 1.25% .55% 1.05% 1.05% .90% .90% 1.25%
</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>
MONEY
GROWTH MULTI-SECTOR ALLOCATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME
------ ------------ ---------- ------ ------------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year............................ $ 7 $ 7 $ 7 $ 6 $ 11 $ 7 $ 10 $ 10
3 Years........................... $23 $ 21 $22 $ 18 $ 33 $22 $ 32 $ 32
5 Years........................... $40 $ 36 $39 $ 31 $ 57 $38 $ 55 $ 55
10 Years.......................... $89 $ 81 $87 $ 69 $127 $85 $122 $122
</TABLE>
<TABLE>
<CAPTION>
ENHANCED
ASIA INDEX NIFTY FIFTY SENECA MID-CAP GROWTH & INCOME VALUE SCHAFER MID-CAP
---- ----- ----------- -------------- --------------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year............................ $ 13 $ 6 $ 11 $ 11 $ 9 $ 9 $ 13
3 Years........................... $ 40 $ 18 $ 33 $ 33 $ 29 $ 29 $ 40
5 Years........................... $ 69 N/A $ 58 $ 58 $ 50 $ 50 $ 69
10 Years.......................... $151 N/A $128 $ 128 $111 $ 111 $151
</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
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, except for the International, Enhanced Index and Seneca
Mid-Cap Series, which are .40%, .10% and .25% respectively. If these
reimbursements had not been in place for the fiscal year ended December 31,
1997, total operating expenses for the Enhanced Index Series would have been
___% of the average net assets of such Series. Without reimbursement,
other operating expenses are estimated to be approximately __%, __%, __%,
__% and __% of the average net assets of the Nifty Fifty, Seneca Mid-Cap,
Growth & Income, Value and Schafer Mid-Cap Series for the fiscal year ending
December 31, 1998. Without reimbursement, the total operating expenses are
estimated to be approximately __%, __%, __%, __% and __% of the average net
assets of the Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and
Schafer Mid-Cap Series for the fiscal year ending December 31, 1998.
(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, 1997, total operating expenses for the Real Estate Series
would have been ____% of average net assets of such Series.
(3) PIC 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, 1997, total operating
expenses for the Theme Series would have been ____% 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, 1997, total operating expenses for the Asia Series would
have been ____% 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.
<TABLE>
MONEY MARKET SERIES
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS -----------------------
ENDED
6/30/97
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period............. $ 10.00 $ 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............. 0.25 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........ 0.25 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.. (0.25) (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72) (0.63)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions..... (0.25) (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 $ 10.00
======== ======== ======== ======= ======= ======= ======= ======= ======= ======= =======
Total Return(2)...... 2.48%(4) 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). $124,735 $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. 0.54%(5) 0.55% 0.53%(3) 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income............. 5.01%(5) 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.
(4) Not annualized. (5) Annualized.
<TABLE>
GROWTH SERIES
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS -----------------------
ENDED
6/30/97
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period............. $ 18.89 $ 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............. 0.09 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.... 1.77 2.10 4.60 0.02 2.77 1.25 4.64 0.10 2.88 0.02 0.45
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations........ 1.86 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.. (0.10) (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 (1.18) (1.35) (2.19) (0.92) (1.20) (0.66) (1.95) -- (0.09) -- (1.46)
------ ------ ------ ------ ------ ------ ------ ---- ------ ---- ------
Total
distributions..... (1.28) (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................ 0.58 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............ $ 19.47 $ 18.89 $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81
========== ========== ======== ======== ======== ======== ======== ======= ======= ======= =======
Total Return(2)...... 9.81%(6) 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). $1,365,264 $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. 0.71%(7) 0.72% 0.75%(4) 0.80% 0.79% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income............. 0.92%(7) 1.03% 1.12% 1.38% 0.97% 1.66% 2.14% 3.19% 2.51% 3.64% 2.34%
Portfolio turnover
rate................. 186% 167% 173% 185% 185% 214% 237% 272% 285% 326% 251%
Average commission
rate paid(5)......... $ 0.0501 $ 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.
(6) Not annualized. (7) Annualized.
2-5
<PAGE>
<TABLE>
MULTI-SECTOR FIXED INCOME SERIES
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS -----------------------
ENDED
6/30/97
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period............. $ 10.34 $ 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............. 0.38(1) 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)............. 0.09 0.43 1.22 (1.28) 0.84 0.25 0.85 (0.37) (0.25) (0.01) (0.93)
---- ---- ---- ------ ---- ---- ---- ------ ------ ------ ------
Total from investment
operations....... 0.47 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.. (0.41) (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..... (0.09) (0.32) -- -- (0.15) -- -- -- -- -- --
------ ------ ---- ---- ------ ---- ---- ---- ---- ---- ----
Total
distributions..... (0.50) (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................ (0.03) 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............ $ 10.31 $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08
======== ======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Total Return(2)...... 4.68%(6) 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). $157,599 $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%(6) 0.65% 0.65% 0.66% 0.65% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income............. 7.53%(6) 7.80% 8.55% 7.62% 6.71% 7.47% 8.65% 9.26% 10.99% 10.37% 10.90%
Portfolio turnover
rate................. 90%(5) 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.
(5) Not annualized. (6) Annualized.
<TABLE>
STRATEGIC ALLOCATION SERIES
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS -----------------------
ENDED
6/30/97
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period............. $ 13.65 $ 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............. 0.18 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)........ 1.18 0.91 1.84 (0.56) 1.17 0.99 2.76 (0.02) (1.38) (0.24) (0.91)
---- ---- ---- ------ ---- ---- ---- ------ ------ ------ ------
Total from investment
operations....... 1.36 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.. (0.19) (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..... (0.17) (0.90) (0.89) (0.46) (0.32) (1.10) (0.86) -- -- -- (0.83)
------ ------ ------ ------ ------ ------ ------ ---- ---- --- ------
Total
distributions..... (0.36) (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................ 1.00 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............ $ 14.65 $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87
======== ======== ======== ======== ======== ======== ======= ======= ======= ======= =======
Total Return(2)...... 10.02%(6) 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). $397,239 $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. 0.69%(7) 0.70% 0.67%(4) 0.74% 0.74% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income............. 2.46%(7) 2.26% 3.28% 2.71% 1.82% 2.90% 3.48% 5.39% 4.73% 4.62% 3.67%
Portfolio turnover
rate................. 252%(7) 287% 170% 220% 269% 326% 255% 302% 302% 314% 359%
Average commission
rate paid(5)......... $ 0.0554 $ 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.
(6) Not annualized. (7) Annualized.
2-6
<PAGE>
<TABLE>
INTERNATIONAL SERIES
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, FROM
ENDED ----------------------- INCEPTION
6/30/97 5/1/90 TO
(UNAUDITED) 1996 1995 1994 1993 1992 1991 12/31/90
----------- ---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ $ 9.07 $ 10.00
Income from investment operations
Net investment income(4)............... 0.12 0.11 0.12 0.08 0.07(2) 0.09 0.24(2) 0.07(2)
Net realized and unrealized gain (loss) 1.79 2.25 1.02 (0.07) 3.32 (1.40) 1.53 (0.88)
---- ---- ---- ------ ---- ------ ---- ------
Total from investment operations..... 1.91 2.36 1.14 0.01 3.39 (1.31) 1.77 (0.81)
---- ---- ---- ---- ---- ------ ---- ------
Less distributions: (0.22) (0.19) (0.04) (0.03) -- (0.04) (0.24) (0.07)
Dividends from net investment income...
Dividends from net realized gains...... (0.37) (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.................. (0.59) (0.54) (0.29) (0.37) -- (0.04) (0.67) (0.12)
------ ------ ------ ------ ---- ------ ------ ------
Change in net asset value................ 1.32 1.82 0.85 (0.36) 3.39 (1.35) 1.10 (0.93)
---- ---- ---- ------ ---- ------ ---- ------
Net asset value, end of period........... $ 15.84 $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07
======== ======== ======== ======== ======== ======== ======= =======
Total Return(3).......................... 13.31%(6) 18.65% 9.59% 0.03% 38.44% (12.89%) 19.78% (8.10%)
Ratios/supplemental data:
Net assets, end of period (thousands).... $204,133 $172,668 $134,455 $134,627 $ 61,242 $ 13,772 $ 6,119 $ 2,010
Ratio to average net assets of:
Operating expenses....................... 0.95%(1) 1.04% 1.07% 1.10% 1.15% 1.50% 1.50% 1.50%(1)
Net investment income.................... 1.59%(1) 0.80% 0.95% 0.64% 0.49% 1.13% 2.44% 1.82%(1)
Portfolio turnover rate.................. 78%(6) 142% 249% 172% 193% 74% 104% 48%(1)
Average commission rate paid(5).......... $ 0.0125 $ 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.
(6) Not annualized.
<TABLE>
BALANCED SERIES
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31, FROM
ENDED ----------------------- INCEPTION
6/30/97 5/1/92 TO
(UNAUDITED) 1996 1995 1994 1993 12/31/92
----------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77 $ 10.00
Income from investment operations
Net investment income.......................... 0.20 0.36 0.40(4) 0.38(2,4) 0.32(2,4) 0.19(4)
Net realized and unrealized gain (loss)........ 0.97 0.89 2.02 (0.70) 0.60 0.77
---- ---- ---- ------ ---- ----
Total from investment operations............. 1.17 1.25 2.42 (0.32) 0.92 0.96
---- ---- ---- ------ ---- ----
Less distributions:
Dividends from net investment income........... (0.22) (0.35) (0.40) (0.36) (0.32) (0.19)
Dividends from net realized gains.............. (0.36) (1.14) (0.25) (0.10) (0.06) --
------ ------ ------ ------ ------ ----
Total distributions.......................... (0.58) (1.49) (0.65) (0.46) (0.38) (0.19)
------ ------ ------ ------ ------ ------
Change in net asset value........................ 0.59 (0.24) 1.77 (0.78) 0.54 0.77
---- ------ ---- ------ ---- ----
Net asset value, end of period................... $ 12.65 $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77
========== ======== ========== ======== ======== ========
Total Return(3).................................. 9.77%(7) 10.56% 23.28% (2.80%) 8.57% 9.72%(7)
Ratios/supplemental data:
Net assets, end of period (thousands).......... $216,724 $204,285 $193,302 $161,105 $158,144 $ 54,467
Ratio to average net assets of:
Operating expenses............................. 0.69%(1) 0.68% 0.65%(5) 0.69% 0.70% 0.50%(1)
Net investment income.......................... 3.15%(1) 2.93% 3.44% 3.44% 3.16% 3.59%(1)
Portfolio turnover rate.......................... 87%(7) 229% 223% 171% 161% 110%(1)
Average commission rate paid(6).................. $ 0.0548 $ 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>
<TABLE>
REAL ESTATE SECURITIES SERIES
<CAPTION>
SIX MONTHS FROM
ENDED YEAR INCEPTION
6/30/97 ENDED 5/1/95 TO
(UNAUDITED) 12/31/96 12/31/95
----------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period............................................ $ 14.32 $ 11.33 $ 10.00
Income from investment operations
Net investment income......................................................... 0.28(3) 0.50(2) 0.33(2)
Net realized and unrealized gain.............................................. 0.78 3.14 1.42
---- ---- ----
Total from investment operations............................................ 1.06 3.64 1.75
---- ---- ----
Less distributions: (0.18) (0.50) (0.33)
Dividends from net investment income..........................................
Dividends from net realized gains............................................. (0.05) (0.15) (0.06)
Tax return of capital......................................................... -- -- (0.03)
---- ---- ------
Total distributions......................................................... (0.23) (0.65) (0.42)
------ ------
Change in net asset value....................................................... 0.83 2.99 1.33
---- ----
Net asset value, end of period.................................................. $ 15.15 $ 14.32 $ 11.33
======== ========= ==========
Total Return(4)................................................................. 7.43%(3) 33.09% 17.79%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 38,932 $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses............................................................ 1.00%(1) 1.00% 1.00%(1)
Net investment income......................................................... 4.44%(1) 4.36% 4.80%(1)
Portfolio turnover rate......................................................... 6%(3) 21% 10%(3)
Average commission rate paid(5)................................................. $ 0.0482 $ 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.
<TABLE>
STRATEGIC THEME SERIES
<CAPTION>
SIX MONTHS FROM
ENDED INCEPTION
6/30/97 1/29/96 TO
(UNAUDITED) 12/31/96
----------- --------
<S> <C> <C>
Net asset value, beginning of period....................................................... $ 10.98 $ 10.00
Income from investment operations 0.04(2) 0.04(2)
Net investment income....................................................................
Net realized and unrealized gain......................................................... 0.72 0.99
---- ----
Total from investment operations....................................................... 0.76 1.03
---- ----
Less distributions: (0.03) (0.04)
Dividends from net investment income.....................................................
Tax return of capital.................................................................... -- (0.01)
---- ------
Total distributions.................................................................... (0.03) (0.05)
------ ------
Change in net asset value.................................................................. 0.73 0.98
---- ----
Net asset value, end of period............................................................. $ 11.71 $ 10.98
========= ==========
Total Return4.............................................................................. 6.85%(3) 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands).................................................... $ 38,706 $ 25,972
Ratio to average net assets of:
Operating expenses....................................................................... 1.00%(1) 1.00%(1)
Net investment income.................................................................... 0.69%(1) 0.64%(1)
Portfolio turnover rate.................................................................... 336%(3) 391%(3)
Average commission rate paid(5)............................................................ $ 0.0589 $ 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>
<TABLE>
ABERDEEN NEW ASIA SERIES
<CAPTION>
SIX MONTHS FROM
ENDED INCEPTION
6/30/97 1/29/96 TO
(UNAUDITED) 12/31/96
----------- --------
<S> <C> <C>
Net asset value, beginning of period.................................................... $ 9.96 $ 10.00
Income from investment operations
Net investment income................................................................. 0.07(1) 0.052
Net realized and unrealized gain (loss)............................................... 0.10 (0.04)
---- ------
Total from investment operations.................................................... 0.17 0.01
---- ----
Less distributions:
Dividends from net investment income.................................................. (0.02) (0.05)
------ ------
Total distributions................................................................. (0.03) (0.05)
------ ------
Change in net asset value............................................................... 0.14 (0.04)
---- ------
Net asset value, end of period.......................................................... $ 10.10 $ 9.96
========= ==========
Total Return(4)......................................................................... 1.62%(3) 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)................................................. $ 15,179 $ 11,585
Ratio to average net assets of:
Operating expenses.................................................................... 1.25%(1) 1.25%(1)
Net investment income................................................................. 1.51%(1) 2.40%(1)
Portfolio turnover rate................................................................. 6%(3) 2%(3)
Average commission rate paid(5)......................................................... $ 0.0098 $ 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
[To be filed by Amendment]
ENGEMANN NIFTY FIFTY SERIES
SENECA MID-CAP GROWTH SERIES
PHOENIX GROWTH & INCOME SERIES
PHOENIX VALUE EQUITY SERIES
SCHAFER MID-CAP VALUE SERIES
These Series commenced operations as of __________ 1998;
accordingly, data for these 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 admitted 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, Theme, Enhanced Index, Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series is Phoenix Investment
Counsel ("PIC" or "Adviser"). PIC is an indirect, less than wholly-owned
subsidiary of Phoenix.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the following series
to the subadvisor indicated, for which services each is paid a fee by PIC.
Enhanced Index Series J.P. Morgan Investment Management,
Inc. ("J.P. Morgan")
Nifty Fifty Series Roger Engemann & Associates, Inc.
("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC
("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
("Schafer")
The investment advisor for the Real Estate Series is Phoenix Realty
Securities, Inc. ("PRS" or "Advisor"). PRS is a wholly-owned indirect subsidiary
of Phoenix.
Pursuant to a subadvisory agreement with the Fund, PRS delegates certain
investment decisions and research functions with respect to the Real Estate
Series to Duff & Phelps Investment Management Co. for which it is paid a fee by
PRS.
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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.
Pursuant to a subadvisory agreement with the Fund, PAIA delegates certain
investment decisions and research functions with respect to the Asia Series to
PIC and to Aberdeen Fund Managers, Inc., for which each is paid a fee by PAIA.
As compensation for investment management services, the Advisers are
entitled to a fee, payable monthly and based on an annual percentage of the
average aggregate daily net asset values of each Series. These Fund charges and
other expenses are described more fully in the section, "The Fund and Its
Management - Advisory Fees."
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 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.
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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 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.
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<PAGE>
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 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
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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 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
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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 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
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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
refinancing 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.
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
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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.
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.
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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 ("NYSE"), 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 15, 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.
NIFTY FIFTY SERIES
The Nifty Fifty Series seeks its objective through investment in
approximately 50 different securities which the Adviser believes represent the
best potential to achieve long-term growth of capital. Dividend and interest
income to be received from portfolio securities is largely incidental.
Under normal market conditions, it is expected that at least 75% of the
Nifty Fifty Series' assets will be invested in common stocks of high-quality
growth companies (i.e., companies which generally exceed $50 million in annual
net income) which, at the time of investment, would satisfy the applicable
listing requirements of the NYSE with respect to demonstrated earning power,
years in operation, number of publicly held shares, and net tangible assets.
It is expected that the remaining portion of the Nifty Fifty Series'
investment portfolio will be invested in common stocks of corporations with
rapidly growing earnings per share or in common stocks of corporations that are
believed to be undervalued by other criteria used by the Adviser. Some of these
companies may be unseasoned, although others may be well-known and established.
While the Nifty Fifty Series anticipates being fully invested at all times,
except for temporary defensive purposes, it may for short periods of time have
more or less than 50 different securities while it is establishing or
eliminating a particular position.
The Nifty Fifty Series may invest in the securities of companies listed on
any exchange or traded in the over-the-counter market, and is expected to invest
principally in common stocks. The Series' investments may also include, to a
limited extent, preferred stocks, warrants, and convertible debt obligations, if
deemed appropriate by the Adviser in meeting the Series' objective.
The Nifty Fifty Series may invest in foreign securities, but typically less
than 5% of its assets.
Risk Factors. Many of the companies in this portion of the Nifty Fifty
Series' investment portfolio may be considered small (i.e., less than $50
million in annual net income), and the volatility of price movements of these
securities is likely to be greater than that of the S&P 500. Since this Series
contains securities of a limited number of companies, this Series may be more
sensitive to changes in the market value of a single issuer or industry in its
portfolio; therefore, the net asset value per share of the Nifty Fifty Series
may fluctuate substantially, and the Series may not be appropriate for
short-term investors.
SENECA MID-CAP SERIES
The Seneca Mid-Cap Series seeks appreciation greater than that of the S&P
Mid-Cap Index. The Seneca Mid-Cap Series invests primarily in common stocks of
growth companies that meet certain fundamental standards and that the Adviser
believes have the potential for above average market appreciation. This Series
generally invests at least 65% of its assets in common stocks of companies with
market capitalizations between $500 million and $5 billion, although it may at
times have significant investments in companies with higher or lower market
capitalizations.
In evaluating companies' potential for market appreciation, the Adviser
seeks companies that, among other things, it believes will demonstrate greater
long-term earnings growth than the average company included in for the S&P 500
or, the S&P Mid-Cap Index. This approach is based on the belief that growth in a
company's earnings will correlate with growth in the price of its stock. The
Adviser seeks to identify companies that have the most attractive earnings
prospects and favorable valuations. Although this analysis stresses the
long-term potential for earnings growth, this Series may buy securities in
anticipation of relatively short-term price gains and may engage in other
opportunistic trading activities.
This Series may also invest in preferred stocks, warrants, and debt
instruments, including bonds convertible into common stocks. When the Adviser
determines that market conditions warrant, the Series may invest without limit
in cash and cash equivalents for temporary defensive purposes, although this is
not expected to occur routinely. The Series may engage in hedging transactions
using, among other things, options and futures contracts.
The Series may invest as much as 20% of its assets in foreign securities if
those securities meet the same criteria for the Series' investments in general.
At times the Series may have no foreign investments. Generally, the Series'
foreign investments will be made through American depositary receipts ("ADRs")
or stocks of foreign
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issuers that are traded directly on U.S. securities exchanges or in the Nasdaq
Stock Market.
Risk Factors. As this Series invests primarily in common stocks, its
investments are subject to stock market price volatility. The Series is intended
for investors who have the perspective, patience, and financial ability to take
on above-average stock market volatility in pursuit of long-term capital growth.
Prices of securities issued by medium-capitalization companies are often more
volatile than those of large, well-established companies, in part because of the
relatively fewer shares available and the potential for developments in a
smaller company's business to have a relatively greater impact on its earnings
and revenues than developments in the business of larger companies. In addition,
the risk of insolvency (with attendant losses to shareholders) is greater for
smaller companies than for larger companies. As a result, because of its
investment focus on companies with medium-capitalization, the Seneca Mid-Cap
Series' performance can be expected to be more volatile.
GROWTH & INCOME SERIES
The Growth & Income Series' investment objective is to seek dividend growth,
current income, and capital appreciation by investing in common stocks. Under
normal circumstances, the Series is designed to seek a total return that exceeds
the total return of the S&P 500 and a dividend yield that exceeds the S&P 500's
dividend yield. Under normal circumstances, at least 65% of the Series' assets
will be invested in common stock or other equity securities; however, it is the
intention of the Adviser to be fully invested in equity securities.
The Adviser utilizes a quantitative value strategy in pursuit of the Series'
investment objective. Quantitative value is an active management strategy which
involves selection of securities primarily from the equity securities of the
1,500 largest companies traded in the United States, ranked by market
capitalization. The Adviser optimizes the portfolio to achieve a desired balance
of risk and return potential, including a targeted yield that exceeds the yield
of the S&P 500. This strategy seeks securities of companies relatively
undervalued and with improving fundamentals.
The Series' management strategy may cause its portfolio to be more heavily
weighted in some industries than in others. However, the Series will not invest
25% or more of its total assets in securities of companies whose principal
business activities are in the same industry.
VALUE SERIES
The Value Series' primary investment objective is to seek long-term capital
appreciation and its secondary objective is to seek current income by investing
in a diversified portfolio of common stocks. The Series seeks to achieve its
objective by investing in common stocks that meet certain quantitative standards
that in the judgment of the Adviser indicates above average financial soundness
and intrinsic value relative to price. Under normal market conditions, at least
65% of the Series' total assets will be invested in common stocks.
The Adviser applies a selection process which selects stocks that, at the
time of purchase, meet certain investment criteria relating to price, dividend
yield, going concern value and debt levels. In selecting the securities, the
Adviser screens a universe of over 2,500 companies for the Value Series. From
this universe, the Adviser anticipates that only a few hundred companies will
meet one or more of its investment criteria. Each of these companies is analyzed
on the basis of the Adviser's projections of the companies' growth in earnings
and dividends, earnings momentum, and under valuation based on a dividend
discount model. Target prices and value ranges are developed from this analysis
and portfolio selection is made from among the top-rated securities. The
securities selected for the Series are generally traded on the NYSE, the
American Stock Exchange and in over-the-counter markets.
A security normally will be sold once it reaches its target price, when
negative changes occur with respect to the company or its industry, or when
there is significant change in the security with respect to one or more of the
investment criteria. The Series may at times continue to hold equity securities
that no longer meet the criteria but that are believed suitable in view of the
Series' objectives.
SCHAFER MID-CAP SERIES
The Schafer Mid-Cap Series' primary investment objective is long-term
capital appreciation, and portfolio securities are selected primarily with a
view to achievement of this objective. The Series' primary objective is also a
fundamental policy of the Series and may not be changed without shareholder
approval. Current income is a secondary objective in the selection of
investments. This secondary objective is not a fundamental policy of the Series
and may be changed by a vote of a majority of the Board of Directors without a
vote of the shareholders.
The policy of the Series is to invest in securities which are believed by
the Adviser to offer the possibility of increase in value, for the most part
common stocks of established companies having a strong financial position and a
low stock market valuation at the time of purchase (as measured by
price/earnings ratios as compared with average price/earnings ratios of major
market indices, e.g., S&P 500) in relation to investment value (as measured by
prospective earnings and dividend growth rates as compared with market averages
of such rates). Investments are then monitored by the Series' Adviser for price
movement and earnings developments. Once a security is purchased, it will
generally be held in the portfolio until it no longer meets the Series'
financial or valuation criteria as determined by the Series' Adviser.
The Series expects to purchase and sell securities at such times as it deems
to be in the best interest of its shareholders. Although there may be some
short-term portfolio turnover, securities are generally purchased which the
Adviser believes will appreciate in value over the long term. The Series
anticipates that its annual portfolio turnover rate should not significantly
exceed 50%. The Series, however, has not placed any limit on its rate of
portfolio turnover and securities may be sold without regard to the time they
have been held when, in the opinion of the Adviser, investment considerations
warrant such action.
The Series does not concentrate its investments in any particular industry
or group of industries, but diversifies its holdings among as many different
companies and industries as seems appropriate in the light of conditions
prevailing at any given time.
Other than as considered appropriate for cash reserves, the Series will
generally maintain a fully invested position in common stocks of publicly-held
companies, primarily in stocks of companies listed on a
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national securities exchange and other equity securities (common stocks or
securities convertible into common stocks). Investments may also be made in debt
securities which are convertible into equity securities and preferred stocks
which are convertible into common stock and in warrants or other rights to
purchase common stock, which in each case are considered equity securities by
the Adviser. The Adviser rarely engages in market timing by shifting the
portfolio or a significant portion thereof in or out of the market in
anticipation of market fluctuations. Although the Series' portfolio will
normally be fully invested in equity securities as described above, a portion of
its assets may be held from time to time in cash or cash equivalents (e.g.,
short-term money market securities such as U.S. Treasury bills, prime-rated
commercial paper, certificates of deposit, variable rate demand notes, or
repurchase agreements) when the Adviser is unable to identify attractive equity
investments.
The Series expects to invest primarily in the securities of U.S. issuers,
although it may also invest up to 20% of its assets in securities of foreign
issuers, or depository receipts for such securities, which are traded in a U.S.
market or are available through a U.S. broker or dealer, regardless of whether
such securities or depository receipts are traded in U.S. dollars, and which
meet the criteria for investment selection set forth above. See International
Series for a description of risks associated with foreign investments.
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, Seneca
Mid-Cap, Schafer Mid-Cap, Growth & Income, Value 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, Seneca Mid-Cap, Growth & Income, Value 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, Growth and Multi-Sector Series may only purchase
call options for the purpose of terminating a call option previously written.
The Allocation, Balanced, International, Value, Growth & Income, Seneca Mid-Cap
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,
Value, Growth & Income, Seneca Mid-Cap 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, Growth & Income 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
NYSE 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 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, Value, Growth & Income, Seneca Mid-Cap and Balanced Series
may enter into financial futures contracts for the purchase or sale of debt
obligations traded on exchanges regulated by
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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, Value, Seneca Mid-Cap, Growth &
Income 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% (up to 35%
for the Theme Series and typically less than 5% for the Nifty Fifty 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.
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, Value, Seneca Mid-Cap 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.
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<PAGE>
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.
Schafer Mid-Cap, Growth & Income and Nifty Fifty Series may not borrow
except for emergency or other extraordinary purposes, only from a bank, and only
in an amount not to exceed 5% of the Series' total assets (33 1/3% in the case
of Growth & Income Series). Growth & Income and Nifty Fifty Series must also
maintain a 300% asset coverage ratio. Schafer Mid-Cap Series may collateralize
any such borrowings with up to 10% of its total assets; Growth & Income Series
may collateralize any such borrowing with up to 33 1/3% of its total assets.
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 and Seneca Mid-Cap 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 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
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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 (other than Nifty Fifty
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.
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, Nifty Fifty, Seneca Mid-Cap,
Growth & Income, Value and Schafer Mid-Cap 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 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
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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 the Enhanced Reserves Portfolio), Phoenix Growth and
Income Fund of Phoenix Equity Series Fund, Phoenix Investment Trust 97 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. As of
December 31, 1997, PIC had approximately $___ billion in assets under
management.
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.
Roger Engemann & Associates ("Engemann") serves as subadviser to the Nifty
Fifty Series. Engemann is a wholly owned subsidiary of Pasadena Capital
Corporation, which in turn is a wholly owned subsidiary of PD&P. Engemann has
been engaged in the investment management business since 1969, and provides
investment counseling services to retirement plans, colleges, corporations,
trusts and individuals. Engemann also serves as investment adviser to the
Phoenix-Engemann Funds. As of December 31, 1996, Engemann had approximately $5.1
billion in assets under management.
Seneca Capital Management, LLC ("Seneca") serves as subadviser to the Seneca
Mid-Cap Series. PD&P owns a majority interest in Seneca; the balance is owned by
certain of its employees, including Gail Seneca, one of the portfolio management
team leaders, and the former limited partners of GMC/Seneca Capital Management,
LLC. Seneca (including its predecessor, GMG/Seneca Capital Management LP) has
been an investment adviser since 1989, managing equity and fixed-income
securities portfolios primarily for institutions and individuals. As of December
31, 1996, Seneca had approximately $3.9 billion in assets under management.
Schafer Capital Management, Inc. ("Schafer"), serves as subadviser to the
Schafer Mid-Cap Series. Schafer's principal place of business is located at 101
Carnegie Center, Suite 107, Princeton, New Jersey. Schafer has been engaged in
the investment management business since 1981, specializing in long-term
investing in the equity markets. As of December 8, 1997, Schafer had
approximately $1.7 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.
Duff & Phelps Investment Management Co. ("DPIM"), an affiliate of the
Adviser, serves as subadviser to the Real Estate Series. DPIM is a subsidiary of
PD&P, an affiliate of the Adviser, and is located at 55 East Monroe Street,
Suite 3600, Chicago, Illinois 60603. PD&P is a NYSE traded company that provides
investment management and related services to institutional investors,
corporations and individuals through operating subsidiaries. As of December 31,
1996, DPIM had approximately $14 billion in assets under management on a
discretionary basis.
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.
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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. Investment and trading decisions for the Balanced Series
are made by a team of equity investment professionals and a team of fixed income
investment professionals.
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 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. Investment and trading decisions for the Growth Series are
made by a team of equity investment professionals.
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. Julie L. Sapia is the portfolio manager of the
Money Market Series and as such is primarily responsible for the day-to-day
management of the Series. Ms. Sapia is also Vice President and portfolio manager
of the Money Market Fund Series of Phoenix Series Fund and of the Money Market
Portfolio of Phoenix Duff & Phelps Institutional Mutual Funds. She is also Vice
President of Phoenix-Aberdeen Series Fund. From April 1997 to present, she has
been Head Money Market Trader of PIC; from 1995 to 1997 she was Money Market
Trader of PIC; and from 1991 to 1995 she was Money Market Trader for Phoenix.
Real Estate Series. Ms. Barbara Rubin and Mr. Michael Schatt are responsible
for managing the assets of the Real Estate Series. Ms. Rubin, president of the
Adviser, is also vice president and coportfolio manager for the Real Estate
Equity Securities Portfolio of PD&P Institutional Mutual Funds and the Real
Estate Securities Portfolio of Phoenix Multi-Portfolio Fund. She has over 21
years real estate experience and has been associated with Phoenix for the past
15 years. Michael Schatt is employed as managing director of PD&P and is a
senior vice president of the Adviser and vice president of DPIM. His current
responsibilities include serving as coportfolio manager of the Real Estate
Securities Portfolio of PD&P Institutional Mutual Funds and managing the real
estate investment securities of Duff & Phelps Utilities Income Inc. Previously
he served as director of the Real Estate Advisory Practice for Coopers &
Lybrand, LLC and has over 16 years experience in the real estate industry.
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 and Mr. James Wiess are
coportfolio managers of the Enhanced Index Series and, as such, are primarily
responsible for the day-to-day management of the Series' investments. 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. Mr. Wiess is a vice president
of J.P. Morgan and is a portfolio manager in the Structured Equity Group where
he has the responsibility of portfolio rebalancing and research and development
of structured equities. Prior to joining J.P. Morgan in 1992, Mr. Wiess was a
stock index arbitrager for seven years at Oppenheimer & Co.
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Nifty Fifty Series. Mr. Roger Engemann, Mr. James E. Mair and Mr. John S.
Tilson are primarily responsible for the day-to-day management of the Series.
Mr. Engemann has been president of Engemann since its inception. Messrs. Mair
and Tilson are both executive vice presidents of Engemann, and both have been
with Engemann since 1983.
Seneca Mid-Cap Series. Ms. Gail P. Seneca and Mr. Richard D. Little are the
portfolio management team leaders for the Series and as such are primarily
responsible for the day-to-day management of the Series' assets. Ms. Seneca is
the Chief Executive Officer and Chief Investment Officer of Seneca and a team
leader of the portfolio management team of each of the Seneca Funds. From
October 1987 until October 1989, Ms. Seneca was senior vice president of the
Asset Management Division of Wells Fargo Bank and from October 1983 to September
1987, she was investment strategist and portfolio manager for Chase Lincoln
Bank, heading the Fixed Income Division. Mr. Little has been with Seneca since
December 1989. He is a general partner and director of Equities. Before he
joined Seneca, Mr. Little held positions as an analyst, board member and
regional manager with Smith Barney, NatWest Securities and Montgomery
Securities.
Growth & Income Series. Mr. Steven L. Colton serves as portfolio manager of
the Growth & Income Series, and as such is primarily responsible for the
day-to-day operation of the Series. Mr. Colton joined PD&P in June 1997.
Previously, Mr. Colton was portfolio manager for the American Century Income &
Growth Fund ("ACIGF") from its inception on December 17, 1990 through May 30,
1997.
Value Series. Mr. Christian C. Bertelsen serves as portfolio manager of the
Value Series and as such is primarily responsible for the day-to-day management
of the Series' investments. Mr. Bertelsen joined PD&P in July 1997. Previously,
from 1996 to July 1997, Mr. Bertelsen was employed by Dreman Value Advisors
where he served as chief investment officer and portfolio manager of the
Kemper-Dreman Contrarian and Small Cap Value Funds. From 1993 to 1996, Mr.
Bertelsen was a senior vice president of Eagle Asset Management where he managed
private and institutional assets, as well as the Heritage Value Equity Fund.
From 1986 to 1993, he served as senior vice president of Colonial Equity
Management, Inc. and vice president and portfolio manager of the Colonial Fund.
Mr. Bertelsen has over 30 years investment experience.
Schafer Mid-Cap Series. Mr. David K. Schafer, is the portfolio manager for
the Schafer Mid-Cap Series and as such is primarily responsible for the
day-to-day management of the Series' portfolio. Mr. Schafer has been in the
investment management business for more than twenty-five years. Mr. Schafer is
the president of Schafer Capital Management, Inc. and is also portfolio manager
to Strong Schafer Value Fund. Mr. Schafer was a securities analyst, first for
Arnold Bernhard & Co., Inc., publisher of The Value Line Investment Survey, from
June 1966 to June 1968; for J & W Seligman & Co. from June 1968 to December
1970; and for Fariston Management Corp., from January 1971 to November 1972. In
1972, he joined the treasury department of INCO Ltd. to supervise that company's
pension assets, and in 1974 he began managing a portion of those assets himself.
In 1981, Mr. Schafer left INCO Ltd. to found Schafer Capital Management.
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%
Nifty Fifty...... .70% .65% .60%
Seneca Mid-Cap... .75% .70% .65%
Growth & Income.. .70% .65% .60%
Value............ .70% .65% .60%
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
SERIES
- ------
Enhanced Index... .45%
Schafer Mid-Cap.. 1.10%
The total advisory fees of .75%, .75%, .75% and 1.10% of the aggregate net
assets of the International, Theme, Seneca Mid-Cap and Schafer Mid-Cap Series,
respectively, 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, Theme, Seneca Mid-Cap and Schafer Mid-Cap 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 and with respect to the Schafer Mid-Cap Series to Schafer
for which they are 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 .25% of the average aggregate daily net asset values of the
Enhanced Index Series up to $100 million and .20% of such value in excess of
$100 million. In accordance with the Subadvisory agreement between the Fund and
Schafer, Schafer is paid a monthly fee at the annual rate of .85% of the average
aggregate daily net asset values of the Schafer Mid-Cap Series up to $175
million and .80% of such value in excess of $175 million. The subadvisory
agreement relating to the Enhanced Index and Schafer Mid-Cap Series provides,
among other things, that J.P. Morgan and Schafer shall effectuate the purchase
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 .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
2-26
<PAGE>
similar to fees charged by other mutual funds whose investment objectives are
similar to that of the Real Estate Series.
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 Asia Series is permitted to bear under the most
restrictive expense limitation.
For providing research and other domestic advisory services to the Asia
Series, PAIA pays to PIC, Inc. a monthly subadvisory fee at an annual rate
equivalent to .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 .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, Asia, Enhanced
Index and Seneca Mid-Cap 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, Asia, Enhanced Index and Seneca
Mid-Cap Series pay total operating expenses other than the management fee up to
.40%, .25%, .25%, .25%, .10% 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 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.. 7/15/97 N/A N/A N/A N/A
2-27
<PAGE>
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 ASIA ENHANCED
YEAR INTERNATIONAL ESTATE THEME 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]B1 =............ 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 fifteen 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 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
2-28
<PAGE>
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 NYSE on days when the NYSE 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 NYSE 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
SEC 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 NYSE is closed
will be declared as dividends on the next business day.
The Multi-Sector, Growth, Allocation, Balanced, International, Enhanced
Index, Theme, Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer
Mid-Cap 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-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 intends to 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
2-29
<PAGE>
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,
Growth & Income, Value, Schafer Mid-Cap 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.
2-30
<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
__________, 1998
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 __________, 1998, 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 (2-23)............................................. 12
Portfolio Turnover (2-23).................................................. 13
Management of the Fund (2-23).............................................. 13
Investment Advisers (2-24)................................................. 21
Brokerage Allocation (2-27)................................................ 23
Determination of Net Asset Value (2-29).................................... 24
Investing In the Fund (2-29)............................................... 24
Redemption of Shares (2-29)................................................ 24
Taxes (2-29)............................................................... 25
Custodian (2-30)........................................................... 25
Independent Accountants.................................................... 25
Financial Statements....................................................... 25
Appendix................................................................... 25
* Numbers in parentheses are cross-references to related sections of the
Prospectus.
1
<PAGE>
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.
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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 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.
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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, 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
The Allocation, Value, Growth & Income, Seneca Mid-Cap and Balanced 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, a 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 a 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. A 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,
a 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.
A 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.
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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 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 a Series is subject to the Adviser's ability to predict
correctly movements in the direction of interest rates and other factors
affecting the market for debt securities. Thus, while a 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.
A 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, Value, Seneca Mid-Cap, Growth & Income and
Asia Series. The International, Enhanced Index, Value, Seneca Mid-Cap, Growth &
Income 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.
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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 currently traded with respect to the S&P 500. A clearing
corporation associated with the New York Stock Exchange ("NYSE") 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, SENECA MID-CAP, GROWTH & INCOME, VALUE AND ASIA SERIES:
Writing Covered Call Options. The Multi-Sector, Money Market, Growth,
Balanced, Allocation, Theme, Enhanced Index, International, Seneca Mid-Cap,
Growth & Income, Value 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 NYSE 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
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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 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,
Value, Growth & Income, Seneca Mid-Cap 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, SENECA MID-CAP, VALUE, GROWTH & INCOME AND
ASIA SERIES:
In furtherance of its objectives, the International, Theme, Enhanced Index,
Seneca Mid-Cap, Value, Growth & Income 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
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(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 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, Growth & Income 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, Enhanced
Index, Growth & Income 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 NYSE 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
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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" 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 and Seneca Mid-Cap 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
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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.
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
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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 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 NYSE 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. In 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 SECURITIES
The Enhanced Index and Seneca Mid-Cap Series may purchase securities on a
when-issued basis. 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
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
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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 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). Lastly,
investing in when-issued securities includes the risk that the securities may
never be issued; in which event the Series may incur expenses associated with
unwinding such transactions.
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, 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
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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, Balanced, Value, Growth & Income
and Seneca Mid-Cap 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 SEC or of a plan of reorganization, purchase or
otherwise acquire any security
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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
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
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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, Enhanced Index, Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap 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 56 Prospect Street,
Hartford, Connecticut 06115. The Trustees and executive officers are listed
below.
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
Robert Chesek (63) Trustee Trustee/Director (1981-present) and Chairman (1989-1994), Phoenix Funds.
49 Old Post Road Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Wethersfield, CT 06109 Institutional Mutual Funds (1996-present). Vice President, Common Stock,
Phoenix Home Life Mutual Insurance Company (1980-1994). Director/Trustee,
the National Affiliated Investment Companies (until 1993).
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
E. Virgil Conway (68) Trustee Chairman, Metropolitan Transportation Authority (1992-present).
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 Freddie Mac Mortgage Securities Fund
(Advisory Director) (1990-present), Centennial Insurance Company
(1974-present), Josiah Macy, Jr., Foundation (1975-present), The Harlem
Youth Development Foundation (1987-present), Accuhealth (1994-present),
Trism, Inc. (1994-present), Realty Foundation of New York
(1972-present), New York Housing Partnership Development Corp.
(Chairman) (1981-present) and Fund Directions (Advisory Director)
(1993-present). 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). Chairman, Audit Committee of the City of New York
(1981-1996). Advisory Director, Blackrock Fannie Mae Mortgage Securities
Fund (1989-1996). Chairman, Financial Accounting Standards Advisory
Council (1992-1995). Director/Trustee, the National Affiliated
Investment Companies (until 1993).
Harry Dalzell-Payne (68) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee,
330 East 39th Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Apartment 29G Mutual Funds (1996-present). Director, Duff & Phelps Utilities Tax-Free
New York, NY 10016 Income Inc. and 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 (67) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee,
6585 Nicholas Blvd. Phoenix-Aberdeen Series Inc. and Phoenix Duff & Phelps Institutional
Apt. 1601 Mutual Funds (1996-present). Director, Duff & Phelps Utilities Income
Naples, FL 33963 Inc. (1987-present), Duff & Phelps Utilities Tax-Free Income Inc.
(1991-present) and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993-present). Director, The Empire District Electric Company
(1984-present). Director (1989-1997), Chairman of the Board (1993-1997),
President (1989-1993) and Chief Executive Officer (1989-1995), Phoenix
Duff & Phelps Corporation.
Leroy Keith, Jr. (59) Trustee Chairman and Chief Executive Officer, Carson Products Company
Chairman and Chief (1995-present). Director/Trustee, Phoenix Funds (1980-present). Trustee,
Executive Officer Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Carson Product Company Mutual Funds (1996-present). Director, Equifax Corp. (1991-present) and
64 Ross Road Keystone International Fund, Inc. (1989-present). Trustee, Keystone
Savannah, GA 30750 Liquid Trust, Keystone Tax Exempt Trust, Keystone Tax Free Fund, Master
Reserves Tax Free Trust, and Master Reserves Trust. President, Morehouse
College (1987-1994). Chairman and Chief Executive Officer, Keith
Ventures (1992-1994). Director/Trustee, the National Affiliated
Investment Companies (until 1993).
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
*Philip R. McLoughlin (51) Trustee and President Chairman (1997-present), Vice Chairman (1995-1997) and Chief Executive
Officer (1995-present), Phoenix Duff & Phelps Corporation. Director
(1994-present) and Executive Vice President, Investments (1988-present),
Phoenix Home Life Mutual Insurance Company. Director/Trustee and
President, Phoenix Funds (1989-present). Trustee and President,
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 (1993-present), Chairman (1993-present) and Chief Executive
Officer (1993-1995), National Securities & Research 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). Director, Phoenix Charter
Oak Trust Company (1996-present). Director and Vice President,
PM Holdings, Inc. (1985-present). Director and President, Phoenix
Securities Group, Inc. (1993-1995). Director (1992-present) and President
(1992-1994), W.S. Griffith & Co., Inc. Director (1992-present) and
President (1992-1994), Townsend Financial Advisers, Inc. Director/Trustee,
the National Affiliated Investment Companies (until 1993).
Everett L. Morris (69) 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)
and Duff & Phelps Utility and Corporate Bond Trust Inc. (1993-present).
Director, Public Service Enterprise Group, Incorporated (1986-1993).
President and Chief Operating Officer, Enterprise Diversified Holdings,
Incorporated (1989-1993).
*James M. Oates (51) Trustee Chairman, IBEX Capital Markets LLC (1997-present). Managing Director,
Managing Director Wydown Group (1994-present). Director, Phoenix Duff & Phelps Corporation
The Wydown Group (1995-present). Director/Trustee, Phoenix Funds (1987-present). Trustee,
IBEX Capital Markets LLC Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
60 State Street Mutual Funds (1996-present). Director, Govett Worldwide Opportunity
Suite 950 Funds, Inc. (1991-present), Blue Cross and Blue Shield of New Hampshire
Boston, MA 02109 (1994-present), Investors Financial Service Corporation (1995-present),
Investors Bank & Trust Corporation (1995-present), Plymouth Rubber Co.
(1995-present) and Stifel Financial (1996-present). Member, Chief
Executives Organization (1996-present). Director (1984-1994), President
(1984-1994) and Chief Executive Officer (1986-1994), Neworld Bank.
Director/Trustee, the National Affiliated Investment Companies (until
1993).
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
*Calvin J. Pedersen (56) Trustee Director (1986-present), President (1993-present) and Executive Vice
Phoenix Duff & Phelps President (1992-1993), Phoenix Duff & Phelps Corporation.
Corporation Director/Trustee, Phoenix Funds (1995-present). Trustee,
55 East Monroe Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Suite 3600 Mutual Funds (1996-present). President and Chief Executive Officer, Duff
Chicago, IL 60603 & Phelps Utilities Tax-Free Income Inc. (1995-present), Duff & Phelps
Utilities Income Inc. (1994-present) and Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present).
Herbert Roth, Jr. (69) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee,
134 Lake Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
P. O. Box 909 Mutual Funds (1996-present). Director, Boston Edison Company
Sherborn, MA 01770 (1978-present), Phoenix Home Life Mutual Insurance Company
(1972-present), Landauer, Inc. (medical services) (1970-present),Tech
Ops./Sevcon, Inc. (electronic controllers) (1987-present), and Mark IV
Industries (diversified manufacturer) (1985-present). Director, Key
Energy Group (oil rig service) (1988-1994). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Richard E. Segerson (52) Managing Director, Mullin Associates (1993-present). Director/Trustee,
102 Valley Road Phoenix Funds, (1993-present). Trustee, Phoenix-Aberdeen Series Fund and
New Canaan, CT 06840 Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Vice
President and General Manager, Coats & Clark, Inc. (previously Tootal
American, Inc.) (1991-1993). Director/Trustee, the National Affiliated
Investment Companies (1984-1993).
Lowell P. Weicker, Jr. (66) Trustee/Director, Phoenix Funds (1995-present). Trustee,
731 Lake Avenue Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Greenwich, CT 06830 Mutual Funds (1996-present). Director, UST Inc. (1995-present), HPSC
Inc. (1995-present), Duty Free International (1997-present) and
Compuware (1996-present). Visiting Professor, University of Virginia
(1997-present). Chairman, Dresing, Lierman, Weicker (1995-1996).
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 definition set forth in
Section 2(a)(19) 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>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
Michael E. Haylon (40) Executive Director and Executive Vice President--Investments, Phoenix Duff & Phelps
Vice President Corporation (1995-present). Executive Vice President, Phoenix Funds
(1993-present) and Phoenix-Aberdeen Series Fund (1996-present).
Executive Vice President (1997-present), Vice President (1996-1997),
Phoenix Duff & Phelps Institutional Mutual Funds. Director
(1994-present), President (1995-present, Executive Vice President
(1994-1995), Vice President (1991-1994), Phoenix Investment Counsel,
Inc. Director (1994-present), President (1996-present), Executive Vice
President (1994-1996), Vice President (1993-1994), National Securities &
Research Corporation. Director, Phoenix Equity Planning Corporation
(1995-present). Senior Vice President, Securities Investment, Phoenix
Home Life Mutual Insurance Company (1993-1995). Various other positions
with Phoenix Home Life Mutual Insurance Company (1990-1993).
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
David R. Pepin (55) Executive Executive Vice President, Phoenix Funds and Phoenix-Aberdeen Series Fund
Vice President (1996-present). Director (1997-present) and Executive Vice President
(1996-present), Phoenix Duff & Phelps Corporation. Managing Director,
Phoenix-Aberdeen International Advisers, LLC (1996-present). Director
and Executive Vice President, Phoenix Equity Planning Corp.
(1996-present). Director, Phoenix Investment Counsel, Inc. and National
Securities & Research Corporation (1996-present). Various positions with
Phoenix Home Life Mutual Insurance Company (1994-1995). Vice President
and General Manager, Finance and Health, 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. Executive Vice
President and Chief Investment Strategist (1996-present), Senior Vice
President (1995-1996) National Securities & Research Corporation. Senior
Vice President, Phoenix Strategic Equity Series Fund (1996-present), The
Phoenix Edge Series Fund (1995-present), Phoenix Multi-Portfolio Fund
(1995-present). Phoenix Income and Growth Fund (1996-present), Phoenix
Series Fund (1996-present), Phoenix Strategic Allocation Fund, Inc.
(1996-present), Phoenix Worldwide Opportunities Fund (1996-present),
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present) and
Phoenix-Aberdeen Series Fund (1996-present). Senior Vice President,
Phoenix Equity Planning Corporation (1995-1996). Vice President, Common
Stock and Chief Investment Strategist, Phoenix Home Life Mutual
Insurance Company (April 1995-November 1995). Chief Investment
Strategist, Kidder, Peabody Co., Inc. (1993-1994). Managing Director,
Equities, Bankers Trust Company (1991-1993).
James D. Wehr (40) Senior 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. Senior Vice President, Phoenix Multi-Portfolio
Fund, Phoenix Series Fund, The Phoenix Edge Series Fund, Phoenix
California Tax Exempt Bonds, Inc., Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Sector Fixed Income Fund, Inc. and Phoenix
Multi-Sector Short Term Bond Fund (1997-present). Vice President,
Phoenix Multi-Portfolio Fund (1988-1997), Phoenix Series Fund
(1990-1997), The Phoenix Edge Series Fund (1991-1997), Phoenix
California Tax Exempt Bonds, Inc. (1993-1997) and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-1997). Managing Director, Public Fixed
Income, Phoenix Home Life Insurance Company (1991-1995). Various
positions with Phoenix Home Life Mutual Insurance Company (1981-1991).
Hugh Young (39) Senior Senior Vice President, Phoenix-Aberdeen Series Fund and The Phoenix Edge
Aberdeen Asset Managers LTD Vice President Series Fund (1996-present). Director, Phoenix-Aberdeen International
88A Circular Road Advisors, LLC. Far East Investment Director, Aberdeen Asset Management
Singapore 049439 Asia Limited (1988-present). Managing Director, Aberdeen Asset
Management Asia 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.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
Curtiss O. Barrows (46) Vice President Managing Director, Fixed Income (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Vice President, The
Phoenix Edge Series Fund (1986-present), 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. Portfolio Manager, Public
Bonds, Phoenix Home Life Mutual Insurance Company (1991-1995). Various
other positions with Phoenix Home Life Mutual Insurance Company
(1985-1991).
Mary E. Canning (41) 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). Vice President, The Phoenix Edge Series Fund
(1987-present) and Phoenix Strategic Allocation Fund, Inc.
(1996-present). Vice President, Phoenix Series Fund (1987-1997).
Associate Portfolio Manager, Common Stock, Phoenix Home Life Mutual
Insurance Company (1989-1995). Various other positions with Phoenix Home
Life Mutual Insurance Company (1982-1989).
Timothy Devlin (34) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment Company and
Morgan Guaranty Trust Company of NY (1996-present). Vice President, The
Phoenix Edge Series Fund (1997-present). First Vice President and
Portfolio Manager, Mitchell Hutchins Asset Management, Inc. (1987-1996).
Jeanne H. Dorey (36) 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, The Phoenix Edge Series Fund,
Phoenix Multi-Portfolio Fund and Phoenix Worldwide Opportunities Fund
(1993-present). Portfolio Manager, International (1992-present) and
Portfolio Manager, Common Stock (1993-1996), Phoenix Home Life Mutual
Insurance Company.
William E. Keen III (34) 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).
David Lui (38) Vice President Portfolio Manager, Equities, Phoenix Investment Counsel, Inc. and
National Securities & Research Corporation (1996-present). Vice
President, The Phoenix Edge Series Fund, 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).
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
William R. Moyer (53) Vice President Senior Vice President and Chief Financial Officer, Phoenix Duff & Phelps
100 Bright Meadow Blvd. Corporation (1995-present). Senior Vice President, Finance
P.O. Box 2200 (1990-present), Chief Financial Officer (1996-present), and Treasurer
Enfield, CT 06083-2200 (1994-1996), Phoenix Equity Planning Corporation. Senior Vice President
(1990-present), Chief Financial Officer (1996-present) and Treasurer
(1994-present), Phoenix Investment Counsel, Inc. Senior Vice President,
Finance (1993-present), Chief Financial Officer (1996-present), and
Treasurer (1994-present), National Securities & Research Corporation.
Senior Vice President and Chief Financial Officer, Duff & Phelps
Investment Management Co. (1996-present). Vice President, Phoenix Funds
(1990-present), Phoenix-Duff & Phelps Institutional Mutual Funds
(1996-present), Phoenix-Aberdeen Series Fund (1996-present). Senior Vice
President and Chief Financial Officer, W. S. Griffith & Co., Inc.
(1992-1995) and Townsend Financial Advisers, Inc. (1993-1995). Vice
President, Investment Products Finance, Phoenix Home Life Mutual
Insurance Company (1990-1995). Vice President, the National Affiliated
Investment Companies (until 1993).
Scott C. Noble (51) 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, The Phoenix
Edge Series Fund (1995-present), 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, Phoenix Realty Investors, Inc. (1994-present).
Barbara Rubin (44) 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, The Phoenix Edge Series Fund
(1995-present), Phoenix Multi-Portfolio Fund (1994-present) and Phoenix
Duff & Phelps Institutional Mutual Funds (1997-present). Vice President,
238 Columbus Blvd. Inc. (1991-present). 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 (44) Vice President Managing Director, Operations and Service (1996-present), Senior Vice
President (1994-1996), Phoenix Equity Planning Corporation. Vice
President, Phoenix Funds (1994-present), Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present) and Phoenix-Aberdeen Series
Fund (1996-present). Vice President, 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>
<S> <C> <C>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
Julie L. Sapia (40) Vice President Head Money Market Trader (1997-present), Money Market Trader
(1995-1997), Phoenix Investment Counsel, Inc. Vice President, The
Phoenix Edge Series Fund, Phoenix Series Fund, Phoenix Duff & Phelps
Institutional Mutual Funds and Phoenix-Aberdeen Series Fund
(1997-present). Money Market Trader, Phoenix Home Life Mutual Insurance
Company (1991-1995). Various positions with Phoenix Home Life Mutual
Insurance Company (1985-1991).
Dorothy J. Skaret (45) Vice President Director, Money Market Trading (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Director, Money Market
Trading (1996-present), Vice President (1993-1996), National Securities
& Research Corporation. Vice President, The Phoenix Edge Series Fund
(1991-present), 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). Director, Public Fixed Income, Phoenix Home Life Mutual
Insurance Company (1991-1995). Various other positions with Phoenix Home
Life Mutual Insurance Company (1986-1991).
James C. Wiess (37) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment Management
Company and Morgan Guaranty Trust Company of NY (1992-present). Vice
President, The Phoenix Edge Series Fund (8/97-present).
Nancy G. Curtiss (45) 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 (50) Secretary Vice President and General Manager, Phoenix Home Life Mutual Insurance
101 Munson Street Co. (1993-present). Vice President, Mutual Fund Customer Service
Greenfield, MA 01301 (1996-present). Vice President, Transfer Agency Operations (1993-1996),
Phoenix Equity Planning Corporation. Clerk, Phoenix Investment Counsel,
Inc. (1995-present). Secretary, Phoenix Funds (1993-present), Phoenix
Duff & Phelps Institutional Mutual Funds (1996-present) and
Phoenix-Aberdeen Series Fund (1996-present). Vice President, Home Life
of New York Insurance Company (1984-1992).
</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. 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.
20
<PAGE>
For the Fund's last fiscal year, the Trustees received the following
compensation:
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM FUND AND
COMPENSATION ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX
NAME FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
---- --------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Robert Chesek $12,125 $53,500
E. Virgil Conway $14,125 $61,750
Harry Dalzell-Payne $12,125 $53,750
Francis E. Jeffries $0 None for None for $0
Leroy Keith, Jr. $12,125 any Trustee any Trustee $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
Herbert Roth, Jr. $14,875 $64,750
Richard E. Segerson $13,750 $60,250
Lowell P. Weicker, Jr. $13,875 $60,500
</TABLE>
* This compensation (and the earnings thereon) is deferred pursuant to the
Directors' Deferred Compensation Plan. At November 30, 1996, the total amount
of deferred compensation (including interest and other accumulation earned on
the original amounts deferred) accrued for Messrs. Blinn, Morris and Roth was
$313,234.37, $48,298.13 and $127,040.84, respectively. At present, by
agreement among the Fund, the Distributor and the electing director, director
fees that are deferred are paid by the Fund to the Distributor. The liability
for the deferred compensation obligation appears only as a liability of the
Distributor.
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.
Roger Engemann & Associates ("Engemann") serves as subadviser to the Nifty
Fifty Series. Engemann is a wholly owned subsidiary of Pasadena Capital
Corporation, which in turn is a wholly owned subsidiary of PD&P. Engemann has
been engaged in the investment management business since 1969, and provides
investment counseling services to retirement plans, colleges, corporations,
trusts and individuals. Engemann also serves as investment adviser to the
Phoenix-Engemann Funds. As of December 31, 1996, Engemann had approximately $5.1
billion in assets under management.
Seneca Capital Management, LLC serves as subadviser to the Seneca Mid-Cap
Series. PD&P owns a majority interest in Seneca; the balance is owned by certain
of its employees, including Gail Seneca, one of the portfolio management team
leaders, and the former limited partners of GMG/Seneca Capital Management, LLC.
21
<PAGE>
Seneca (including its predecessor, GMG/Seneca Capital Management LP) has been an
investment adviser since 1989, managing equity and fixed-income securities
portfolios primarily for institutions and individuals. As of December 31, 1996,
Seneca had approximately $3.9 billion in assets under management.
Schafer Capital Management, Inc. ("Schafer"), serves as subadviser to the
Schafer Mid-Cap Series. Schafer's principal place of business is located at 101
Carnegie Center, Suite 107, Princeton, New Jersey. Schafer has been engaged in
the investment management business since 1981, specializing in long-term
investing in the equity markets. As of December 8, 1997, Schafer had
approximately $1.7 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.
Duff & Phelps Investment Management Co. ("DPIM"), an affiliate of the
Adviser, serves as subadviser to the Real Estate Series. DPIM is a subsidiary of
PD&P, an affiliate of the Adviser, and is located at 55 East Monroe Street,
Suite 3600, Chicago, Illinois 60603. PD&P is a NYSE traded company that provides
investment management and related services to institutional investors,
corporations and individuals through operating subsidiaries. As of December 31,
1996, DPIM had approximately $14 billion in assets under management on a
discretionary basis.
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 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, Asia and Enhanced Index 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, Asia, Enhanced Index,
Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series
pay total operating expenses other than the management fee up to .40%, .25%,
.25%, .25%, .10%, .15%, .25%, .15%, .15% and .15%, 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
SEC 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%
Nifty Fifty...... .70% .65% .60%
Seneca Mid-Cap... .75% .70% .65%
Growth & Income.. .70% .65% .60%
Value............ .70% .65% .60%
22
<PAGE>
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
SERIES
- ------
Enhanced Index..... .45%
Schafer Mid-Cap.... 1.10%
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.
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.
23
<PAGE>
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 NYSE on days when the NYSE is open for trading. The
NYSE will be closed on the following observed national holidays: New Year's Day,
Martin Luther King 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 SEC.
A security that is listed or traded on more than one exchange is valued at
the quotation on the NYSE 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 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 be suspended or the payment date postponed for
more than seven days only for any period during which trading on the NYSE is
closed for other than customary weekend and holiday closings, or when trading on
the NYSE is restricted, as determined by the SEC, 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
24
<PAGE>
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, Growth & Income, Value, Schafer Mid-Cap
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.
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
25
<PAGE>
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.
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>
SEMI-ANNUAL REPORT
JUNE 30, 1997
THE PHOENIX EDGE SERIES FUND
2-1
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Phoenix Money Market Series .................. 2
Phoenix Growth Series ........................ 7
Phoenix Multi-Sector Fixed Income Series ...... 12
Phoenix Strategic Allocation Series ............ 18
Phoenix International Series .................. 24
Phoenix Balanced Series ........................ 30
Phoenix Real Estate Securities Series ......... 36
Phoenix Strategic Theme Series ............... 40
Phoenix Aberdeen New Asia Series ............... 45
Notes to Financial Statements .................. 50
</TABLE>
<PAGE>
MONEY MARKET SERIES
INVESTMENT REVIEW
Phoenix Edge Money Market Series continued to perform well during this
six-month reporting period. As of June 30, 1997, the seven-day current yield
was 5.13% compared with the 4.97% IBC Money Fund Average as reported in IBC's
Money Fund Report.* Current yield is a seven-day annualized yield computed by
dividing the average net income earned per share during the seven days
preceding the date of calculation by the average daily net asset value per
share for the same period, multiplied by 365.
The fixed-income market experienced significant swings in interest rates
during the first half of 1997. The first quarter was dominated by strong
economic growth, strong payroll numbers and strong consumer confidence data.
The Federal Reserve's decision to tighten monetary policy in late March was
long-awaited and much debated. In the second quarter economic releases began to
support a slower growth scenario, while the inflation environment remained
contained. High cash levels in the short-term market and lack of new issues, as
well as the unlikelihood of a further Fed tightening of monetary policy, caused
interest rates to fall.
The Fund's average maturity was kept slightly shorter during the first
three months of the year as a defensive strategy. In the second quarter, we
gradually lengthened the average maturity to neutral so that the Fund would be
well-positioned should rates move in either direction. We continued to
emphasize high-quality commercial paper and variable-rate instruments to
enhance yield. The average credit quality remains A1/P1.
OUTLOOK
Looking forward, we continue to anticipate a volatile fixed-income market.
Recent economic data has supported a slowdown in activity, but many key areas
remain quite strong. Resurgence of economic activity, especially in
consumer-related segments, is likely to place the market on alert for higher
interest rates.
Our emphasis will continue to be credit quality, focusing on higher
yielding issues, such as commercial paper and variable-rate instruments. Given
the uncertainty in the market, we will maintain a neutral position and be
monitoring any movement in rates or shifts in yield spreads to identify
attractive trading opportunities.
*The IBC Money Fund Average is an average of "first tier" taxable money-market
funds as reported in IBC's Money Fund Report.
2
<PAGE>
MONEY MARKET SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
FACE
VALUE INTEREST MATURITY
(000) DESCRIPTION RATE DATE VALUE
- --------------------------------- ------------------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
FEDERAL AGENCY SECURITIES--7.2%
$1,500 Federal Home Loan Banks ...... 5.69% 11/20/97 $ 1,500,000
3,000 Federal Home Loan Banks ...... 5.78 01/28/98 3,000,000
2,000 Federal Home Loan Banks ...... 5.79 01/28/98 2,000,000
2,500 Student Loan Marketing Assoc. 6.00 06/30/98 2,500,000
------------
TOTAL FEDERAL AGENCY SECURITIES ............................................................ 9,000,000
------------
RESET
DATE
-------
FEDERAL AGENCY SECURITIES--VARIABLE (b)--13.0%
3,500 Federal Farm Credit Banks (final 5.41 07/01/97 3,500,000
maturity 4/1/99)
4,500 Federal Farm Credit Banks (final 5.79 07/01/97 4,501,555
maturity 7/24/00)
1,600 Student Loan Marketing Assoc. 5.24 07/01/97 1,600,293
(final maturity 10/30/97)
1,500 Student Loan Marketing Assoc. 5.26 07/01/97 1,498,924
(final maturity 11/10/98)
2,500 Student Loan Marketing Assoc. 5.24 07/01/97 2,500,000
(final maturity 11/24/97)
1,000 Student Loan Marketing Assoc. 5.27 07/01/97 1,000,000
(final maturity 2/22/99)
1,650 Federal National Mortgage Assoc. 5.29 09/14/97 1,648,685
(final maturity 12/14/98) ------------
TOTAL FEDERAL AGENCY SECURITIES--VARIABLE 16,249,457
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S MATURITY
RATING DATE
---------- ----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER--79.4%
$2,000 AlliedSignal, Inc. ........................... A-1 5.70 07/01/97 2,000,000
1,500 Asset Securitization Cooperative Corp. ...... A-1+ 5.62 07/01/97 1,500,000
2,800 Donnelley (R.R.) & Sons Co. .................. A-1 6.25 07/01/97 2,800,000
3,030 International Lease Finance Corp. ............ A-1 5.54 07/03/97 3,029,067
435 AlliedSignal, Inc. ........................... A-1 5.52 07/07/97 434,600
1,765 AlliedSignal, Inc. ........................... A-1 5.56 07/07/97 1,763,364
2,500 Donnelley (R.R.) & Sons Co. .................. A-1 5.52 07/07/97 2,497,700
1,815 Southwestern Bell Telephone Co. ............ A-1+ 5.50 07/07/97 1,813,336
1,507 Southwestern Bell Telephone Co. ............ A-1+ 5.53 07/07/97 1,505,611
2,000 Warner-Lambert Co. ........................... A-1+ 5.50 07/07/97 1,998,167
515 Warner-Lambert Co. ........................... A-1+ 5.55 07/07/97 514,524
210 Du Pont (E.I.) de Nemours & Co. ............ A-1+ 5.60 07/08/97 209,771
2,000 Goldman Sachs & Co. ........................ A-1+ 5.65 07/08/97 1,997,803
560 Du Pont (E.I.) de Nemours & Co. ............ A-1+ 5.52 07/09/97 559,313
225 Pitney Bowes Credit Corp. .................. A-1+ 5.60 07/09/97 224,720
1,850 Preferred Receivables Funding Corp. ......... A-1 5.65 07/09/97 1,847,677
750 Coca-Cola Co. .............................. A-1+ 5.50 07/10/97 748,969
1,500 Corporate Asset Funding Co., Inc. ............ A-1+ 5.60 07/10/97 1,497,900
400 Du Pont (E.I.) de Nemours & Co. ............ A-1+ 5.55 07/10/97 399,445
1,000 Beta Finance, Inc. ........................... A-1+ 5.60 07/11/97 998,444
2,500 Cargill, Inc. .............................. A-1+ 5.54 07/14/97 2,494,999
1,800 Heinz (H.J.) Co. ........................... A-1 5.60 07/14/97 1,796,360
750 Preferred Receivables Funding Corp. ......... A-1 5.57 07/14/97 748,491
1,655 Private Export Funding Corp. ............... A-1+ 5.35 07/14/97 1,651,695
1,295 Private Export Funding Corp. ............... A-1+ 5.56 07/14/97 1,292,400
1,500 Exxon Imperial U.S., Inc. .................. A-1+ 5.55 07/15/97 1,496,763
1,000 Greenwich Funding Corp. ..................... A-1+ 5.58 07/15/97 997,830
970 Receivables Capital Corp. .................. A-1 5.57 07/15/97 967,899
2,275 Potomac Electric Power Co. .................. A-1 5.52 07/17/97 2,269,419
1,000 Asset Securitization Cooperative Corp. ...... A-1+ 5.57 07/18/97 997,370
2,970 Merrill Lynch & Co., Inc. .................. A-1+ 5.55 07/18/97 2,962,216
600 Receivables Capital Corp. .................. A-1 5.56 07/18/97 598,425
500 Corporate Receivables Corp. .................. A-1 5.67 07/21/97 498,425
3,500 General Electric Capital Corp. ............... A-1+ 5.55 07/22/97 3,500,000
2,000 Asset Securitization Cooperative Corp. ...... A-1+ 5.55 07/25/97 1,992,600
4,380 Private Export Funding Corp. ............... A-1+ 5.61 07/28/97 4,361,571
2,000 General Electric Capital Corp. ............... A-1+ 5.55 07/29/97 2,000,000
1,000 Greenwich Funding Corp. ..................... A-1+ 5.58 07/31/97 995,350
400 Enterprise Funding Corp. ..................... A-1+ 5.58 08/01/97 398,078
2,000 Preferred Receivables Funding Corp. ......... A-1 5.58 08/04/97 1,989,460
1,640 Ciesco L.P. ................................. A-1+ 5.60 08/05/97 1,631,071
1,500 Receivables Capital Corp. .................. A-1 5.62 08/08/97 1,491,102
1,000 Beta Finance, Inc. ........................... A-1+ 5.80 08/14/97 1,000,000
600 Preferred Receivables Funding Corp. ......... A-1 5.60 08/14/97 595,893
</TABLE>
See Notes to Financial Statements
3
<PAGE>
MONEY MARKET SERIES
<TABLE>
<CAPTION>
FACE STANDARD
VALUE & POOR'S INTEREST MATURITY
(000) DESCRIPTION RATING RATE DATE VALUE
- ----------------------------- -------------------------------------------- ---------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER--continued
$2,000 Corporate Receivables Corp. ............... A-1 5.68% 08/18/97 $ 1,984,853
250 Enterprise Funding Corp. .................. A-1+ 5.71 08/20/97 248,017
2,125 Beta Finance, Inc. ........................ A-1+ 5.30 08/26/97 2,107,481
3,000 Pitney Bowes Credit Corp. ............... A-1+ 5.60 08/27/97 2,973,400
1,000 Cargill, Inc. ........................... A-1+ 5.38 09/03/97 990,436
1,900 CXC, Inc. ................................. A-1+ 5.60 09/10/97 1,879,016
1,135 Beta Finance, Inc. ........................ A-1+ 5.67 09/12/97 1,121,950
1,500 Schering Corp. ........................... A-1+ 5.65 09/16/97 1,481,873
2,410 Greenwich Funding Corp. .................. A-1+ 5.60 09/22/97 2,378,884
1,750 Greenwich Funding Corp. .................. A-1+ 5.65 09/22/97 1,727,204
1,500 Corporate Asset Funding Co. Inc. ......... A-1+ 5.75 10/08/97 1,476,281
3,000 Goldman Sachs & Co. ..................... A-1+ 5.61 10/09/97 2,953,250
1,000 Corporate Receivables Corp. ............... A-1 5.75 10/24/97 981,632
1,000 Beta Finance, Inc. ........................ A-1+ 5.65 10/27/97 981,481
500 Preferred Receivables Funding Corp. ...... A-1 5.80 11/03/97 489,931
2,000 Enterprise Funding Corp. .................. A-1+ 5.73 11/13/97 1,957,025
2,000 Corporate Receivables Corp. ............... A-1 5.35 11/14/97 1,959,578
1,000 Pitney Bowes Credit Corp. ............... A-1+ 5.65 11/17/97 978,185
1,428 Enterprise Funding Corp. .................. A-1+ 5.71 11/25/97 1,394,705
2,000 Enterprise Funding Corp. .................. A-1+ 5.69 02/27/98 1,923,816
-----------------
TOTAL COMMERCIAL PAPER ................................................................................. 99,056,826
-----------------
TOTAL INVESTMENTS--99.6%
(Identified cost $124,306,283) ........................................................................ 124,306,283(a)
Cash and receivables, less liabilities--0.4% ......................................................... 428,237
-----------------
NET ASSETS--100.0% .................................................................................... $ 124,734,520
=================
</TABLE>
(a) Federal Income Tax Information: At June 30, 1997, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rate
currently in effect. The maturity dates shown reflect the next interest rate
reset dates.
See Notes to Financial Statements
4
<PAGE>
MONEY MARKET SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $124,306,283) ..................... $124,306,283
Cash ........................................................................... 494,223
Receivables
Interest ........................................................................ 380,795
-------------
Total assets .................................................................. 125,181,301
-------------
Liabilities
Payables
Fund shares repurchased ......................................................... 352,322
Investment advisory fee ......................................................... 40,919
Financial agent fee ............................................................ 6,138
Trustees' fee .................................................................. 3,887
Accrued expenses ............................................................... 43,515
-------------
Total liabilities ............................................................ 446,781
-------------
Net Assets ..................................................................... $124,734,520
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $124,734,517
Undistributed net investment income ............................................. 3
-------------
Net Assets ..................................................................... $124,734,520
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization .. 12,473,451
=============
Net asset value and offering price per share .................................... $10.00
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest ................................................ $ 3,487,254
------------
Total investment income ................................. 3,487,254
------------
Expenses
Investment advisory fee ................................. 251,344
Financial agent fee ....................................... 37,702
Printing ................................................ 14,400
Professional ............................................. 11,389
Trustees ................................................ 9,872
Custodian ................................................ 8,200
Miscellaneous ............................................. 3,782
------------
Total expenses .......................................... 336,689
------------
Net investment income .................................... 3,150,565
------------
Net increase in net assets resulting from operations ...... $ 3,150,565
============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
---------------- ------------------
<S> <C> <C>
From Operations
Net investment income ......................................................... $ 3,150,565 $ 5,274,565
-------------- --------------
Net increase in net assets resulting from operations ........................... 3,150,565 5,274,565
-------------- --------------
From Distributions to Shareholders
Net investment income ......................................................... (3,150,565) (5,303,654)
-------------- --------------
Decrease in net assets from distributions to shareholders ..................... (3,150,565) (5,303,654)
-------------- --------------
From Share Transactions
Proceeds from sales of shares (16,252,189 and 31,500,976 shares, respectively) 162,521,888 315,009,761
Net asset value of shares issued from reinvestment of distributions
(315,056 and 530,365 shares, respectively) .................................... 3,150,565 5,303,654
Cost of shares repurchased (17,229,932 and 29,186,637 shares, respectively) ... (172,299,339) (291,866,357)
-------------- --------------
Increase (decrease) in net assets from share transactions ..................... (6,626,886) 28,447,058
-------------- --------------
Net increase (decrease) in net assets .......................................... (6,626,886) 28,417,969
Net Assets
Beginning of period ............................................................ 131,361,406 102,943,437
-------------- --------------
End of period (including undistributed net investment income of $3 and
$3, respectively) ............................................................ $ 124,734,520 $ 131,361,406
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
----------------
<S> <C>
Net asset value, beginning of period ......... $ 10.00
Income from investment operations
Net investment income ..................... 0.25
----------
Total from investment operations ......... 0.25
----------
Less distributions
Dividends from net investment income ...... (0.25)
----------
Total distributions ..................... (0.25)
----------
Net asset value, end of period ............... $ 10.00
==========
Total return ................................. 2.48%(4)
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $ 124,735
Ratio to average net assets of:
Operating expenses ........................ 0.54%(3)
Net investment income ..................... 5.01%(3)
<CAPTION>
Year ended December 31,
1996 1995 1994 1993 1992
------------ --------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 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
-------- ---------- --------- --------- --------
Total from investment operations ......... 0.50 0.56 0.38 0.28 0.35
-------- ---------- --------- --------- --------
Less distributions
Dividends from net investment income ...... (0.50) (0.56) (0.38) (0.28) (0.35)
-------- ---------- --------- --------- --------
Total distributions ..................... (0.50) (0.56) (0.38) (0.28) (0.35)
-------- ---------- --------- --------- --------
Net asset value, end of period ............... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ========== ========= ========= ========
Total return ................................. 4.98% 5.55% 3.77% 2.80% 3.50%
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $131,361 $ 102,943 $ 94,586 $ 72,946 $ 69,962
Ratio to average net assets of:
Operating expenses ........................ 0.55% 0.53%(2) 0.55% 0.55% 0.50%
Net investment income ..................... 4.89% 5.57% 3.85% 2.84% 3.49%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.003 and $0.01 per share, respectively.
(2) 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.
(3) Annualized
(4) Not annualized
See Notes to Financial Statements
6
<PAGE>
GROWTH SERIES
INVESTMENT REVIEW
For the six months ended June 30, 1997, Phoenix Edge Growth Series
returned 9.81% compared with a return of 13.85% for a peer group of 684 growth
funds in the variable annuity category, according to Lipper Analytical
Services, Inc. The S&P 500 Stock Index* was up 20.53% over the same period. All
performance figures assume reinvestment of dividends and exclude the effect of
sales charges.
The strong performance of market indices, such as the S&P 500, continued
over the reporting period--a result of the narrowing that has occurred in the
market as an ever decreasing group of large-capitalization companies drove
index performance while the majority of stocks lagged. This trend has been
fueled, in large part, by investor concerns over the sustainability of
corporate earnings trends as well as uncertainty over the direction of interest
rates.
The market's focus on larger companies has detracted from the Fund's
relative performance. While many large-cap stocks are held in the portfolio,
the Fund also contains many mid-cap stocks with rapid growth prospects, which
the market has yet to recognize.
Over the reporting period, the Fund benefited from holdings in steady
growth sectors, such as consumer staples, financial services and health-care.
Our holdings in technology and other economically sensitive areas, including
basic materials and capital goods, held back performance. Energy stocks had
mixed results, beginning the period with a strong surge, then weakening in the
poor seasonal February and March time frame, before rallying during the second
quarter.
OUTLOOK
Looking ahead, we believe that the equity market will continue to be
buffeted by increased volatility. As the economy matures, the ability of
companies to generate abundant earnings growth will become more difficult.
The Fund's goal is to invest in companies that can continue to exhibit
relatively strong growth in a more challenging environment. We believe good
growth trends are available in health-care, financial services and technology
and have overweighted the portfolio in these sectors. We have also added
selected consumer staples stocks.
* The S&P 500 Stock Index is an unmanaged, commonly used measure of total
return stock performance.
7
<PAGE>
GROWTH SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
----------- ---------------
<S> <C> <C>
COMMON STOCKS--81.4%
Banks--4.5%
Ahmanson (H.F.) & Co. ........................ 464,400 $ 19,969,200
Banc One Corp. ................................. 298,000 14,434,375
Chase Manhattan Corp. ........................ 190,300 18,470,994
Republic New York Corp. ........................ 79,800 8,578,500
---------------
61,453,069
---------------
Chemical--Specialty--1.0%
Praxair, Inc. ................................. 247,900 13,882,400
---------------
Computer Software & Services--1.5%
Adaptec, Inc. (b) .............................. 333,300 11,582,175
HBO & Co. .................................... 130,900 9,015,737
Sterling Commerce, Inc. (b) .................. 1 33
---------------
20,597,945
---------------
Conglomerates--2.0%
Tyco International Ltd. ........................ 385,700 26,830,256
---------------
Cosmetics & Soaps--2.2%
Colgate-Palmolive Co. ........................ 463,000 30,210,750
---------------
Diversified Financial Services--4.0%
American Express Co. ........................... 229,400 17,090,300
Conseco, Inc. ................................. 1,025,700 37,950,900
---------------
55,041,200
---------------
Electronics--1.7%
Intel Corp. .................................... 167,600 23,767,775
---------------
Healthcare--Diversified--1.2%
American Home Products Corp. .................. 210,600 16,110,900
---------------
Healthcare--Drugs--3.6%
Eli Lilly & Co. .............................. 219,800 24,026,888
Pfizer, Inc. ................................. 213,300 25,489,350
---------------
49,516,238
---------------
Hospital Management & Services--6.7%
Genesis Health Ventures, Inc. (b) ............ 386,500 13,044,375
Health Management Association, Inc. Class A (b) 316,200 9,011,700
HEALTHSOUTH Corp. (b) ........................ 944,100 23,543,494
Oxford Health Plans (b) ........................ 257,400 18,468,450
Pacificare Health Systems, Inc. Class B (b) ... 97,900 6,253,362
Tenet Healthcare Corp. (b) ..................... 738,400 21,828,950
---------------
92,150,331
---------------
Insurance--3.9%
Aetna, Inc. .................................... 364,600 37,325,925
Allstate Corp. ................................. 212,400 15,505,200
---------------
52,831,125
---------------
Lodging & Restaurants--1.1%
Wendy's International, Inc. .................. 588,800 15,272,000
---------------
Medical Products & Supplies--2.6%
Johnson & Johnson .............................. 555,500 35,760,313
---------------
Natural Gas--2.2%
Sonat, Inc. .................................... 587,000 30,083,750
---------------
Office & Business Equipment--5.0%
Compaq Computer Corp. (b) ..................... 331,000 32,851,750
EMC Corp. (b) ................................. 553,700 21,594,300
Gateway 2000, Inc. (b) ........................ 408,400 13,247,475
---------------
67,693,525
---------------
Oil--2.8%
Texaco, Inc. ................................. 238,000 25,882,500
Unocal Corp. ................................. 314,800 12,218,175
---------------
38,100,675
---------------
SHARES VALUE
----------- ---------------
<S> <C> <C>
Oil Service & Equipment--2.0%
Halliburton Co. .............................. 175,000 $ 13,868,750
Schlumberger Ltd. .............................. 110,000 13,750,000
---------------
27,618,750
---------------
Paper & Forest Products--1.8%
Kimberly Clark Corp. ........................... 483,900 24,074,025
---------------
Pollution Control--3.4%
U.S. Filter Corp. (b) ........................ 425,800 11,603,050
U.S.A. Waste Services, Inc. (b) ............... 436,500 16,859,812
United Waste Systems, Inc. (b) ............... 434,100 17,798,100
---------------
46,260,962
---------------
Professional Services--1.0%
HFS, Inc. (b) ................................. 236,000 13,688,000
---------------
Retail--6.3%
Home Depot, Inc. .............................. 762,800 52,585,525
Lowe's Companies, Inc. ........................ 353,400 13,119,975
Staples, Inc. (b) .............................. 873,600 20,311,200
---------------
86,016,700
---------------
Retail--Drugs--2.6%
Rite Aid Corp. ................................. 702,700 35,047,163
---------------
Retail--Food--4.4%
Safeway, Inc. (b) .............................. 853,600 39,372,300
Sysco Corp. .................................... 557,600 20,352,400
---------------
59,724,700
---------------
Telecommunications Equipment--6.0%
Andrew Corp. (b) .............................. 395,400 11,120,625
Ascend Communications, Inc. (b) ............... 255,700 10,068,187
Cisco Systems, Inc. (b) ........................ 534,800 35,898,450
Newbridge Networks Corp. (b) .................. 581,800 25,308,300
---------------
82,395,562
---------------
Tobacco--3.8%
Philip Morris Companies, Inc. .................. 1,173,600 52,078,500
---------------
Utility--Telephone--4.1%
LCI International, Inc. (b) .................. 1,461,600 31,972,500
WorldCom, Inc. (b) ........................... 744,800 23,833,600
---------------
55,806,100
---------------
TOTAL COMMON STOCKS
(Identified cost $1,012,089,061) ........................... 1,112,012,714
---------------
FOREIGN COMMON STOCKS--12.0%
Electronics--2.0%
Philips Electronics NV ADR (Netherlands) ...... 381,000 27,384,375
---------------
Healthcare--Drugs--2.3%
SmithKline Beecham PLC Sponsored ADR
(United Kingdom) (b) ........................ 345,800 31,683,925
---------------
Oil--1.5%
Total Compagnie Francaise Des Petroles ADR
(France) .................................... 397,700 20,133,563
---------------
Oil Service & Equipment--2.4%
Elf Aquitane Sponsored ADR (France) ............ 595,900 32,439,306
---------------
Pipelines--1.1%
Eni Spa (Italy) (b) ........................... 2,675,000 15,140,500
---------------
Telecommunications Equipment--2.7%
Oy Nokia Corp. Sponsored ADR (Finland) ......... 502,100 37,029,875
---------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $141,414,318) .............................. 163,811,544
---------------
TOTAL LONG-TERM INVESTMENTS--93.4%
(Identified cost $1,153,503,379) ........................... 1,275,824,258
---------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
GROWTH SERIES
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -----------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--7.5%
Commercial Paper--6.6%
Mobil Corp. 6.25%, 7-1-97 ..................... A-1+ $18,550 $ 18,550,000
Donnelley (R.R.) & Sons Co. 5.52%,
7-7-97 ....................................... A-1 985 984,094
Donnelley (R.R.) & Sons Co. 5.55%,
7-7-97 ....................................... A-1 1,665 1,663,460
Southwestern Bell Telephone Co.
5.50%, 7-7-97 .............................. A-1+ 5,925 5,919,568
Southwestern Bell Telephone Co.
5.65%, 7-7-97 .............................. A-1+ 1,060 1,059,002
General Electric Capital Corp. 5.62%,
7-8-97 ....................................... A-1+ 7,500 7,500,000
Enterprise Funding Corp. 5.60%,
7-10-97 ....................................... A-1+ 3,366 3,361,288
Heinz (H.J.) Co. 5.57%, 7-14-97 ............... A-1 4,570 4,560,808
Preferred Receivables Funding Corp.
5.57%, 7-14-97 .............................. A-1 310 309,376
Private Export Funding Corp. 5.56%,
7-14-97 .................................... A-1+ 765 763,464
Private Export Funding Corp. 5.57%,
7-14-97 ....................................... A-1+ 3,160 3,153,132
Goldman Sachs & Co. 5.57%, 7-15-97 ............. A-1+ 1,755 1,751,198
General Electric Capital Corp. 5.60%,
7-17-97 .................................... A-1+ 3,000 2,991,890
General Electric Co. 5.60%, 7-17-97 ............ A-1+ 11,645 11,616,017
Kellogg Co. 5.55%, 7-18-97 ..................... A-1+ 390 388,978
Du Pont (E.I.) de Nemours & Co.
5.52%, 7-21-97 .............................. A-1+ 2,060 2,053,683
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -----------------------
<S> <C> <C> <C>
Commercial Paper--continued
Private Export Funding Corp. 5.61%,
7-28-97 .................................... A-1+ $ 5,000 $ 4,978,426
General Electric Capital Corp. 5.55%,
7-31-97 .................................... A-1+ 2,250 2,239,594
Ciesco L.P. 5.60%, 8-5-97 ..................... A-1+ 718 713,979
Receivables Capital Corp. 5.62%,
8-8-97 ....................................... A-1 7,500 7,455,508
Cargill, Inc. 5.55%, 9-5-97 .................. A-1+ 200 197,934
Beta Finance, Inc. 5.55%, 9-12-97 ............ A-1+ 1,115 1,102,278
Schering Corp. 5.65%, 9-16-97 .................. A-1+ 2,390 2,361,272
Goldman Sachs & Co. 5.55%, 10-9-97 .............. A-1+ 1,045 1,028,698
Corporate Receivables Corp. 5.75%,
10-24-97 .................................... A-1 3,250 3,191,370
-----------------
89,895,017
-----------------
Federal Agency Securities--0.9%
Federal Farm Credit Banks 5.55%,
7-1-97 ....................................... 10,000 9,999,969
Student Loan Marketing Assoc. 6%,
6-30-98 .................................... 2,500 2,500,675
-----------------
12,500,644
-----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $102,395,997) .................. 102,395,661
-----------------
TOTAL INVESTMENTS--100.9%
(Identified cost $1,255,899,376) ............... 1,378,219,919(a)
Cash and receivables, less liabilities--(0.9%) ... (12,956,056)
-----------------
NET ASSETS--100.0% .............................. $ 1,365,263,863
=================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $142,132,103 and gross
depreciation of $19,811,560 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$1,255,899,376.
(b) Non-income producing.
See Notes to Financial Statements
9
<PAGE>
GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $1,255,899,376) .................. $1,378,219,919
Cash ........................................................................... 2,577
Receivables
Investment securities sold ................................................... 25,793,617
Dividends and interest ......................................................... 1,616,252
Fund shares sold ............................................................... 175,209
---------------
Total assets .................................................................. 1,405,807,574
---------------
Liabilities
Payables
Investment securities purchased ................................................ 39,623,075
Investment advisory fee ...................................................... 699,597
Financial agent fee ............................................................ 66,877
Trustees' fee .................................................................. 3,830
Accrued expenses ............................................................... 150,332
---------------
Total liabilities ............................................................ 40,543,711
---------------
Net Assets ..................................................................... $1,365,263,863
===============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $1,170,060,307
Undistributed net investment income .......................................... 75,845
Accumulated net realized gain ................................................ 72,807,168
Net unrealized appreciation ................................................... 122,320,543
---------------
Net Assets ..................................................................... $1,365,263,863
===============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 70,131,002
===============
Net asset value and offering price per share .................................... $19.47
===============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Dividends ......................................................... $ 6,663,003
Interest ......................................................... 3,789,316
------------
Total investment income .......................................... 10,452,319
------------
Expenses
Investment advisory fee .......................................... 4,029,178
Financial agent fee ................................................ 384,322
Printing ......................................................... 70,328
Custodian ......................................................... 25,000
Professional ...................................................... 16,908
Trustees ......................................................... 10,872
Miscellaneous ...................................................... 16,477
------------
Total expenses ................................................... 4,553,085
------------
Net investment income ............................................. 5,899,234
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities .................................... 73,683,766
Net realized loss on foreign currency transactions ............... (55,537)
Net change in unrealized appreciation (depreciation) on investments 41,570,427
------------
Net gain on investments ............................................. 115,198,656
------------
Net increase in net assets resulting from operations ............... $121,097,890
============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
---------------- ------------------
<S> <C> <C>
From Operations
Net investment income ......................................................... $ 5,899,234 $ 11,543,617
Net realized gain ............................................................ 73,628,229 151,631,180
Net change in unrealized appreciation (depreciation) ........................ 41,570,427 (28,811,458)
-------------- --------------
Net increase in net assets resulting from operations ........................ 121,097,890 134,363,339
-------------- --------------
From Distributions to Shareholders
Net investment income ......................................................... (6,562,743) (10,973,300)
Net realized gains ............................................................ (77,550,466) (82,322,855)
-------------- --------------
Decrease in net assets from distributions to shareholders ..................... (84,113,209) (93,296,155)
-------------- --------------
From Share Transactions
Proceeds from sales of shares (6,569,991 and 16,369,935 shares, respectively) 129,331,821 309,035,692
Net asset value of shares issued from reinvestment of distributions
(4,320,484 and 4,853,881 shares, respectively) .............................. 84,113,209 93,296,155
Cost of shares repurchased (6,150,393 and 10,173,971 shares, respectively) ... (120,560,381) (193,393,445)
-------------- --------------
Increase in net assets from share transactions .............................. 92,884,649 208,938,402
-------------- --------------
Net increase in net assets ................................................... 129,869,330 250,005,586
Net Assets
Beginning of period ......................................................... 1,235,394,533 985,388,947
-------------- --------------
End of period (including undistributed net investment income of $75,845 and
$739,354, respectively) ...................................................... $1,365,263,863 $1,235,394,533
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
------------------
<S> <C>
Net asset value, beginning of period ...... $ 18.89
Income from investment operations
Net investment income ..................... 0.09
Net realized and unrealized gain ......... 1.77
----------
Total from investment operations ......... 1.86
----------
Less distributions
Dividends from net investment income ...... (0.10)
Dividends from net realized gains ......... (1.18)
----------
Total distributions ..................... (1.28)
----------
Change in net asset value .................. 0.58
----------
Net asset value, end of period ............ $ 19.47
==========
Total return .............................. 9.81%(6)
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $1,365,264
Ratio to average net assets of:
Operating expenses ........................ 0.71%(5)
Net investment income ..................... 0.92%(5)
Portfolio turnover rate ..................... 186%(6)
Average commission rate paid(4) ............ $ 0.0501
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
-------------- ---------------- -------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 18.13 $15.69 $ 16.59 $ 15.01 $ 14.43
Income from investment operations
Net investment income ..................... 0.19 0.20 0.23(1)(3) 0.16(3) 0.22(3)
Net realized and unrealized gain ......... 2.10 4.60 0.02 2.77 1.25
---------- --------- ----------- ---------- ----------
Total from investment operations ......... 2.29 4.80 0.25 2.93 1.47
---------- --------- ----------- ---------- ----------
Less distributions
Dividends from net investment income ...... (0.18) (0.17) (0.23) (0.15) (0.23)
Dividends from net realized gains ......... (1.35) (2.19) (0.92) (1.20) (0.66)
---------- --------- ----------- ---------- ----------
Total distributions ..................... (1.53) (2.36) (1.15) (1.35) (0.89)
---------- --------- ----------- ---------- ----------
Change in net asset value .................. 0.76 2.44 (0.90) 1.58 0.58
---------- --------- ----------- ---------- ----------
Net asset value, end of period ............ $ 18.89 $18.13 $ 15.69 $ 16.59 $ 15.01
========== ========= =========== ========== ==========
Total return .............................. 12.58% 30.85% 1.48% 19.69% 10.29%
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $1,235,395 $985,389 $616,221 $446,368 $245,565
Ratio to average net assets of:
Operating expenses ........................ 0.72% 0.75%(2) 0.80% 0.79% 0.50%
Net investment income ..................... 1.03% 1.12% 1.38% 0.97% 1.66%
Portfolio turnover rate ..................... 167% 173% 185% 185% 214%
Average commission rate paid(4) ............ $ 0.0455 N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.003 per share.
(2) 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.
(3) Computed using average shares outstanding.
(4) 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.
(5) Annualized
(6) Not annualized
See Notes to Financial Statements
11
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
INVESTMENT REVIEW
The Phoenix Edge Multi-Sector Fixed Income Series continued to provide
investors with above-average returns. For the six months ended June 30, 1997,
the Fund was up 4.68% compared with a return of 3.09% for the Lehman Brothers
Aggregate Bond Index.* All performance figures assume reinvestment of dividends
and exclude the effect of sales charges.
Favorable market conditions prevailed as market participants benefited
from lower volatility and solid fundamental credit conditions. Investors were
well-rewarded for taking incremental credit risk. The more conservative
fixed-income sectors, such as Treasuries and top-tier investment-grade
corporate issues, generally lagged the overall market.
The Fund's very strong performance over the last six months resulted from
our emphasis on less traditional sectors of the fixed-income market. The
emerging-market and domestic high-yield sectors continued to outperform all
other fixed-income categories, and the Fund benefited from its exposure in
these areas. Additionally, our decision to focus on high-yielding, non-agency
mortgage-backed securities, rather than more conventional agency
mortgage-backed issues, proved to be rewarding as these less efficient sectors
continued to produce strong results.
OUTLOOK
Given our outlook for moderate growth and benign inflation in the U.S., we
will emphasize higher-rated credits within the domestic high-yield universe as
we move into the later stages of the economic cycle. We will continue to take
advantage of undervalued credits, focusing on oil and gas exploration and
production companies, given the improving fundamentals in this sector.
We also believe the emerging-market sector provides favorable
opportunities for long-term appreciation. The focus has been on identifying
emerging countries that are experiencing the types of improvements in their
infrastructure associated with a better standard of living. Our research has
led us to a number of rewarding investment opportunities in Central and Eastern
Europe.
*The Lehman Brothers Aggregate Bond Index is an unmanaged, commonly used
measure of bond market total return performance.
12
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- -------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--15.5%
U.S. Treasury Bonds--4.6%
U.S. Treasury Bonds 6%, '26 (e) ............... Aaa $7,500 $ 6,710,153
U.S. Treasury Bonds 6.625%, '27 ............... Aaa 500 489,062
-------------
7,199,215
-------------
U.S. Treasury Notes--3.1%
U.S. Treasury Inflation Index Notes
3.375%, '07 (d)(e) ........................ Aaa 5,000 4,935,432
-------------
Agency Mortgage-Backed Securities--5.6%
FHLMC 7.50%, '18 .............................. Aaa 148 148,168
FNMA ACES 7.298%, '18 (e) ..................... Aaa 7,000 7,105,000
GNMA 8%, '06 ................................. Aaa 180 186,915
GNMA 6.50%, '23-'26 ........................... Aaa 1,506 1,442,666
-------------
8,882,749
-------------
Agency Non Mortgage-Backed Securities--2.2%
Overseas Private Investment Corp.
6.58%, '01 (e) .............................. Aaa 3,500 3,473,400
-------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $24,495,743) .................................... 24,490,796
-------------
NON-CONVERTIBLE BONDS--45.8%
Asset-Backed Securities--6.0%
Continental Airlines 144A 7.522%, '01 (b) Ba 1,600 1,600,000
Franchise Mortgage Acceptance Co. LLC
Loan Receivables Trust 97-A, D 144A
8.14%, '11 (b) .............................. BBB(c) 500 506,170
Green Tree Financial Corp. 94-1, B2
7.85%, '19 ................................. Baa 3,000 3,023,437
Green Tree Financial Corp. 97-4, M1
7.22%, '28 ................................. Aa 2,500 2,471,875
Team Fleet Financing Corp. 96-1, B
144A 7.10%, '02 (b) ........................ BBB(c) 1,975 1,958,645
-------------
9,560,127
-------------
Auto & Truck Parts--0.9%
Titan Wheel International, Inc. 8.75%,
'07 ....................................... B 1,400 1,428,000
-------------
Building & Materials--0.5%
Neenah Corp. 144A 11.125%, '07 (b) ............ B 800 852,000
-------------
Chemical--1.0%
General Chemical, Inc. 9.25%, '03 ............ B 1,500 1,537,500
-------------
Natural Gas--2.8%
Forcenergy, Inc. 8.50%, '07 .................. B 4,500 4,410,000
-------------
Non-Agency Mortgage-Backed Securities--22.3%
Equitable Life 174, D1 144A 7.77%,
'06 (b) .................................... Baa 2,000 2,075,625
FDIC REMIC Trust 96-C1, 1D 7.25%, '26 Baa 1,500 1,481,719
First Chicago/Lennar Trust 97-CHL1, D
144A 8.11%, '08 (b) ........................ BB(c) 2,000 1,911,875
G.E. Capital Mortgage Services, Inc.
96-8, 2A5 7.50%, '26 ........................ AAA(c) 990 989,721
Kidder Peabody Acceptance Corp.
94-C2, D 7.18%, '05 ........................ BBB(c) 500 501,563
Lehman Structured Securities Corp.
96-1, E1 7.995%, '26 ........................ BBB(c) 2,407 2,465,172
Morgan Stanley Capital Corp. I 96-WF1,
C 144A 6.59%, '06 (b) ..................... A 1,250 1,200,000
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- -------- --------------
<S> <C> <C> <C>
Non-Agency Mortgage-Backed Securities--continued
Mortgage Capital Funding, Inc. 96-MC2,
D 7.257%, '06 .............................. Baa $2,000 $ 1,994,375
Residential Asset Securitization Trust
96-A4, A13 7.50%, '26 ..................... AAA(c) 1,000 999,375
Residential Asset Securitization Trust
96-A8, A1 8%, '26 ........................... AAA(c) 1,662 1,683,180
Resolution Trust Corp. 92-C8, D
8.835%, '23 ................................. Baa 1,871 1,928,188
Resolution Trust Corp. 93-C3, A4
6.55%, '24 ................................. Aaa 136 135,712
Resolution Trust Corp. 95-C2, C 7%,
'27 ....................................... A 1,824 1,813,124
Resolution Trust Corp. 95-1, M2 7.50%,
'28 ....................................... Aa 1,881 1,894,830
Resolution Trust Corp. 95-2, M1 7.15%,
'29 ....................................... Aa 1,536 1,531,165
Resolution Trust Corp. 95-2, C1 7.45%,
'29 ....................................... Baa 1,491 1,489,574
Ryland Mortgage Securities Corp. III
92-A, 1A 8.279%, '30 ........................ A-(c) 888 880,972
Securitized Asset Sales, Inc. 95-6, B3
144A 7%, '10 (b) ........................... NR 1,366 1,229,054
Securitized Asset Sales, Inc. 95-A, M
7.53%, '24 ................................. Aa 1,807 1,798,456
Structured Asset Securities Corp.
93-C1, B 6.60%, '24 (e) ..................... A+(c) 2,250 2,152,443
Structured Asset Securities Corp.
95-C1, D 7.375%, '24 (e) .................. BBB(c) 2,000 1,998,125
Structured Asset Securities Corp.
95-C4, D 7%, '26 (e) ........................ BBB(c) 1,900 1,856,656
Structured Asset Securities Corp.
96-C3, C 144A 7.375%, '30 (b)(e) ............ BBB(c) 1,150 1,153,234
-------------
35,164,138
-------------
Oil--5.0%
Benton Oil & Gas Co. 11.625%, '03 ............ B 1,000 1,097,500
Lomak Petroleum, Inc. 8.75%, '07 ............ B 1,750 1,732,500
Ocean Energy, Inc. 144A 8.875%,
'07 (b) .................................... B 3,000 3,000,000
Snyder Oil Corp. 8.75%, '07 .................. B 2,000 2,000,000
-------------
7,830,000
-------------
Paper & Forest Products--0.6%
Buckeye Cellulose Corp. 8.50%, '05 ............ Ba 950 963,063
-------------
Publishing, Broadcasting, Printing & Cable--2.5%
Cablevision Systems Corp. 9.875%, '23 B 1,000 1,050,000
Hollinger International Publishing, Inc.
9.25%, '07 ................................. B 650 664,625
Poland Communications, Inc. 144A
9.875%, '03 (b) ........................... B 2,200 2,213,750
-------------
3,928,375
-------------
Retail--Food Service--0.0%
ARA Services, Inc. 10.625%, '00 ............... Baa 54 58,995
-------------
Telecommunications--1.5%
Call-Net Enterprises 0%, '04 (d) ............ B 2,000 1,735,000
Orion Network Systems, Inc. 0%,
'07 (d) .................................... B 1,000 580,000
-------------
2,315,000
-------------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
Textile & Apparel--2.7%
Westpoint Stevens, Inc. 9.375%, '05 ...... B $4,000 $ 4,205,000
-------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $71,360,258) .............................. 72,252,198
-------------
FOREIGN GOVERNMENT SECURITIES--7.0%
Dominican Republic--0.3%
Dominican Republic PDI Bearer
6.438%, '09 (d) ........................ B+(c) 500 441,875
-------------
Morocco--1.2%
Morocco R&C Agreement Series A
6.813%, '09 (d) ........................ NR 2,000 1,827,500
-------------
Philippines--0.8%
Republic of Philippines 144A 8.75%,
'16 (b) ................................. Ba 1,301 1,314,173
-------------
Poland--2.2%
Poland PDI Bearer 4%, '14 (d) ............ Baa 4,000 3,420,000
-------------
Slovenia--0.1%
Republic of Slovenia Series 1, 144A
6.75%, '06 (b)(d) ..................... A(c) 132 132,395
Republic of Slovenia Series 2, 144A
6.313%, '06 (b)(d) ..................... A(c) 28 27,527
-------------
159,922
-------------
Venezuela--2.4%
Republic of Venezuela FLIRB A Euro
6.75%, '07 (d) ........................ Ba 2,857 2,660,714
Republic of Venezuela NMB Series A
6.875%, '05 (d) ........................ Ba 1,250 1,167,187
-------------
3,827,901
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $9,740,619) ................................. 10,991,371
-------------
FOREIGN NON-CONVERTIBLE BONDS--20.9%
Argentina--3.8%
Bridas Corp. Sr. Note 12.50%, '99 ......... B 1,600 1,756,000
CEI Citicorp Holdings 144A 9.75%,
'07 (b) ................................. BB-(c) 4,000 4,165,000
-------------
5,921,000
-------------
Bahamas--0.6%
Sun International Hotels 9%, '07 ......... Ba 1,000 1,020,000
-------------
Brazil--5.6%
Comp Energetica Sao Paul 144A
9.125%, '07 (b)(d) ..................... NR 1,500 1,456,875
CSN Iron SA 144A 9.125%, '07 (b) ......... NR 1,500 1,460,625
Globo Communicacoes Participacoes
SA 144A 10.50%, '06 (b) ............... BB-(c) 2,000 2,115,000
RBS Participacoes SA 144A 11%,
'07 (b) ................................. BB-(c) 2,500 2,640,625
Tevecap SA 12.625%, '04 .................. NR 1,000 1,080,000
-------------
8,753,125
-------------
Chile--1.2%
Compania Sud Amer Vapore 7.375%,
'03 .................................... BBB(c) 2,000 1,967,500
-------------
Greece--1.2%
Fage Dairy Industries SA 144A 9%,
'07 (b) ................................. B 2,000 1,925,000
-------------
Hong Kong--1.2%
Road King Infrastructure Ltd. 144A
9.50%, '07 (b) ........................ NR 1,875 1,889,062
-------------
MOODY'S PAR
BOND VALUE
RATING (000) VALUE
--------- -------- -------------
<S> <C> <C> <C>
Indonesia--0.5%
Polytama International 11.25%, '07 ...... B $ 750 $ 776,250
-------------
Mexico--3.4%
Coca-Cola Femsa 8.95%, '06 ............... Ba 2,000 2,039,500
Copamex Industries SA 144A 11.375%,
'04 (b) ................................. B 3,000 3,258,750
-------------
5,298,250
-------------
Philippines--1.2%
Philippine Long Distance Telephone Co.
8.35%, '17 .............................. Ba 2,000 1,902,160
-------------
South Korea--1.4%
Hyundai Motor Co. 144A 7.60%,
'07 (b) ................................. NR 2,200 2,198,702
-------------
Venezuela--0.8%
CanTV Finance Ltd. 9.25%, '04 ............ Ba 1,200 1,225,500
-------------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $31,867,224) ............................. 32,876,549
-------------
FOREIGN CONVERTIBLE BONDS--3.6%
Mexico--0.9%
Empresas ICA Sociedad Euro Cv.
5%, '04 ................................. B(c) 1,700 1,351,500
-------------
Russia--2.7%
Lukinter Finance BV 3.50%, '02 ............ NR 3,450 4,312,500
-------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $5,549,157) ................................ 5,664,000
-------------
MUNICIPAL BONDS--7.8%
California--1.6%
Orange County Pension A Taxable
7.67%, '09 .............................. Aaa 2,500 2,596,825
-------------
Florida--1.5%
Palm Beach Waste Revenue Project B
Taxable 10.50%, '11 ..................... NR 1,500 1,028,760
University of Miami Exchangeable
Revenue Series A Taxable 7.65%, '20 ..... Aaa 1,290 1,286,775
-------------
2,315,535
-------------
Illinois--1.8%
Illinois Educational Facilities Authority
Revenue--Loyola University Series A
Taxable 7.84%, '24 ..................... Aaa 2,800 2,771,664
-------------
Pennsylvania--2.5%
Pennsylvania Economic Development
6.75%, '07 (e) ........................ NR 1,950 2,011,308
Pennsylvania Economic Development
9.50%, '12 .............................. NR 2,500 1,875,000
-------------
3,886,308
-------------
Virginia--0.4%
Newport News Taxable Series B 7.05%,
'25 .................................... Aa 750 704,168
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $13,182,624) ............................. 12,274,500
-------------
CONVERTIBLE BONDS--0.7%
Entertainment, Leisure & Gaming--0.7%
Comcast Corp. Cv. 1.125%, '07 ............ Ba 2,000 1,145,000
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,136,677) ................................ 1,145,000
-------------
</TABLE>
See Notes to Financial Statements
14
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
-------- -------------
<S> <C> <C>
PREFERRED STOCKS--0.6%
Paper & Forest Products--0.6%
SD Warren Co. Series B Pfd. PIK 14% ...... 30,000 $ 982,051
-------------
TOTAL PREFERRED STOCKS
(Identified cost $607,500) ........................ 982,051
-------------
WARRANTS--0.1%
Paper & Forest Products--0.1%
SD Warren Co. Warrants 144A (b)(f) ...... 30,000 150,000
-------------
TOTAL WARRANTS
(Identified cost $142,500) ........................ 150,000
-------------
TOTAL LONG-TERM INVESTMENTS--102.0%
(Identified cost $158,082,302) ..................... 160,826,465
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- -------- -------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--6.3%
Commercial Paper--6.3%
Cargill, Inc. 6.05%, 7-1-97 ......... A-1+ $ 245 $ 245,000
Donnelley (R.R.) & Sons Co. 6.25%,
7-1-97 .............................. A-1 1,425 1,425,000
Mobil Corp. 6.25%, 7-1-97 ............ A-1+ 6,195 6,195,000
Du Pont (E.I.) de Nemours & Co.
5.60%, 7-10-97 ..................... A-1+ 1,200 1,198,320
Heinz (H.J.) Co. 5.55%, 7-14-97 ...... A-1 880 878,236
-----------------
9,941,556
-----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $9,941,556) .............................. 9,941,556
-----------------
TOTAL INVESTMENTS--108.3%
(Identified cost $168,023,858) ........................... 170,768,021(a)
Cash and receivables, less liabilities--(8.3%) ......... (13,168,882)
-----------------
NET ASSETS--100.0% ....................................... $ 157,599,139
=================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $4,735,176 and gross
depreciation of $1,991,013 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$168,023,858.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At June 30, 1997,
these securities amounted to a value of $40,434,087 or 25.7% of net
assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(d) Variable or step coupon bond; interest rate shown reflects the rate
currently in effect.
(e) Segregated as collateral.
(f) Non-income producing.
See Notes to Financial Statements
15
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $168,023,858) ..................... $170,768,021
Receivables
Investment securities sold ...................................................... 4,921,943
Interest and dividends ......................................................... 2,567,928
Fund shares sold ............................................................... 145,706
-------------
Total assets .................................................................. 178,403,598
-------------
Liabilities
Payables
Custodian ..................................................................... 4,841,501
Investment securities purchased ................................................ 15,824,047
Investment advisory fee ......................................................... 57,379
Financial agent fee ............................................................ 7,683
Trustees' fee .................................................................. 3,217
Accrued expenses ............................................................... 70,632
-------------
Total liabilities ............................................................ 20,804,459
-------------
Net Assets ..................................................................... $157,599,139
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $151,962,316
Undistributed net investment loss ............................................. (61,088)
Accumulated net realized gain ................................................... 2,953,748
Net unrealized appreciation ................................................... 2,744,163
-------------
Net Assets ..................................................................... $157,599,139
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization .. 15,281,423
=============
Net asset value and offering price per share .................................... $10.31
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest ......................................................... $6,028,948
Dividends ......................................................... 46,335
------------
Total investment income .......................................... 6,075,283
------------
Expenses
Investment advisory fee .......................................... 371,276
Financial agent fee ................................................ 44,553
Custodian ......................................................... 32,335
Printing ......................................................... 20,474
Professional ...................................................... 11,512
Trustees ......................................................... 9,872
Miscellaneous ...................................................... 6,918
------------
Total expenses ................................................... 496,940
Less expenses borne by investment adviser ........................ (14,282)
------------
Net expenses ...................................................... 482,658
------------
Net investment income ............................................. 5,592,625
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities .................................... 2,978,603
Net realized gain on foreign currency transactions ............... 15,586
Net change in unrealized appreciation (depreciation) on investments (1,670,869)
------------
Net gain on investments ............................................. 1,323,320
------------
Net increase in net assets resulting from operations ............... $6,915,945
============
</TABLE>
See Notes to Financial Statements
16
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
---------------- ------------------
<S> <C> <C>
From Operations
Net investment income ............................................................ $ 5,592,625 $ 9,460,659
Net realized gain .................................................................. 2,994,189 7,367,063
Net change in unrealized appreciation (depreciation) .............................. (1,670,869) (2,309,914)
-------------- --------------
Net increase in net assets resulting from operations .............................. 6,915,945 14,517,808
-------------- --------------
From Distributions to Shareholders
Net investment income ............................................................ (6,080,467) (9,238,947)
Net realized gains ............................................................... (1,291,822) (4,270,844)
-------------- --------------
Decrease in net assets from distributions to shareholders ........................ (7,372,289) (13,509,791)
-------------- --------------
From Share Transactions
Proceeds from sales of shares (3,866,914 and 6,711,402 shares, respectively) ...... 39,999,436 69,891,527
Net asset value of shares issued from reinvestment of distributions
(719,971 and 1,316,308 shares, respectively) .................................... 7,372,289 13,509,791
Cost of shares repurchased (3,331,755 and 4,670,077 shares, respectively) ......... (34,360,652) (48,410,465)
-------------- --------------
Increase in net assets from share transactions .................................... 13,011,073 34,990,853
-------------- --------------
Net increase in net assets ......................................................... 12,554,729 35,998,870
Net Assets
Beginning of period ............................................................... 145,044,410 109,045,540
-------------- --------------
End of period (including undistributed net investment income (loss) of
($61,088) and $426,754, respectively) .............................................. $ 157,599,139 $ 145,044,410
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
----------------
<S> <C>
Net asset value, beginning of period ...... $ 10.34
Income from investment operations
Net investment income ..................... 0.38(1)
Net realized and unrealized gain (loss) ... 0.09
----------
Total from investment operations ......... 0.47
----------
Less distributions
Dividends from net investment income ...... (0.41)
Dividends from net realized gains ......... (0.09)
----------
Total distributions ..................... (0.50)
----------
Change in net asset value .................. (0.03)
----------
Net asset value, end of period ............ $ 10.31
==========
Total return .............................. 4.68%(5)
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $ 157,599
Ratio to average net assets of:
Operating expenses ........................ 0.65%(4)
Net investment income ..................... 7.53%(4)
Portfolio turnover rate ..................... 90%(5)
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
------------ ----------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33
Income from investment operations
Net investment income ..................... 0.79(1) 0.83(1)(2) 0.72(1)(2) 0.66(1)(2) 0.66(2)
Net realized and unrealized gain (loss) ... 0.43 1.22 (1.28) 0.84 0.25
--------- ----------- ----------- ----------- ---------
Total from investment operations ......... 1.22 2.05 (0.56) 1.50 0.91
--------- ----------- ----------- ----------- ---------
Less distributions
Dividends from net investment income ...... (0.78) (0.81) (0.73) (0.66) (0.66)
Dividends from net realized gains ......... (0.32) -- -- (0.15) --
--------- ----------- ----------- ----------- ---------
Total distributions ..................... (1.10) (0.81) (0.73) (0.81) (0.66)
--------- ----------- ----------- ----------- ---------
Change in net asset value .................. 0.12 1.24 (1.29) 0.69 0.25
--------- ----------- ----------- ----------- ---------
Net asset value, end of period ............ $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58
========= =========== =========== =========== =========
Total return .............................. 12.42% 23.54% (5.47)% 15.90% 10.03%
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $145,044 $ 109,046 $ 74,686 $ 79,393 $ 43,090
Ratio to average net assets of:
Operating expenses ........................ 0.65% 0.65%(3) 0.66% 0.65% 0.50%
Net investment income ..................... 7.80% 8.55% 7.62% 6.71% 7.47%
Portfolio turnover rate ..................... 191% 147% 181% 169% 166%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007, $0.006 and $0.005 per share, respectively.
(2) Computed using average shares outstanding.
(3) 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.
(4) Annualized
(5) Not annualized
See Notes to Financial Statements
17
<PAGE>
STRATEGIC ALLOCATION SERIES
INVESTMENT REVIEW
For the six months ended June 30, 1997, the Fund earned 10.02% compared
with an average return of 10.19% for a peer universe of 477 flexible portfolio
funds, according to Lipper Analytical Services, Inc. All figures assume
reinvestment of dividends and exclude the effect of sales charges.
As measured by the S&P 500 Stock Index, the equity market continued its
strong performance, ending the first half of the year up 20.53%.* The
combination of moderate economic growth, low inflation, falling interest rates
and high profit growth has been the perfect environment for stocks. As a
result, valuation levels are at historically high levels, and there is little
margin for further improvement in fundamentals. Only continued positive
investor sentiment and ongoing inflows to equity mutual funds are likely to be
able to drive the market to new highs.
Interest rates appeared to be locked in a narrow trading range over the
last six months as investors debated whether the robust economic growth
reported in the first quarter would serve as a catalyst for higher inflation in
the months ahead. As measured by the 30-year Treasury bond, interest rates
climbed as high as 7.17% in mid-April, but finished June yielding 6.79%--only
0.14% higher than at the start of the reporting period. Higher yielding, lower
quality bonds continued to outperform lower yielding, higher quality bonds.
The Fund's performance was helped by a relatively high equity allocation
of 68.3%. An underweighting in technology, one of the best performing sectors
in the last three months, limited returns. We are currently overweighted in
large-cap technology, which is benefiting performance. Other positive
contributors include a large position in the health-care sector, primarily
pharmaceuticals and medical devices. The financial services and energy sectors
are also overweighted. The fixed-income segment of the Fund also provided
positive results as emerging-market debt issues were among the best performers,
while more traditional sectors, such as Treasury and investment-grade issues,
were among the laggards.
OUTLOOK
We expect moderate economic growth, stable to lower interest rates and
continued low inflation. In this environment, we are focusing on companies with
the strongest earnings growth and the best earnings visibility. The Fund's
emphasis will remain on the health-care, technology and financial-services
sectors.
As we move into the second half of the year, we are confident that our
duration-neutral strategy for the fixed-income portion of the Fund will
insulate it from the effects of a volatile interest rate environment. Our
fixed-income strategy continues to focus on emphasizing the most undervalued
bond sectors.
*The S&P 500 Stock Index is an unmanaged, commonly used measure of total return
stock performance.
18
<PAGE>
STRATEGIC ALLOCATION SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--11.6%
U.S. Treasury Bonds--0.4%
U.S. Treasury Bonds 6%, '26 ......... AAA $ 1,850 $ 1,655,171
------------
U.S. Treasury Notes--11.2%
U.S. Treasury Notes 6%, '99 ......... AAA 14,050 14,026,396
U.S. Treasury Notes 6.375%, '00 ... AAA 5,250 5,269,687
U.S. Treasury Notes 6.25%, '02 ...... AAA 6,000 5,964,354
U.S. Treasury Notes 6.50%, '06 ...... AAA 1,000 995,110
U.S. Treasury Notes 6.625%, '07 ... AAA 17,950 18,095,844
------------
44,351,391
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $45,675,580) .............................. 46,006,562
------------
NON-CONVERTIBLE BONDS--4.0%
Asset-Backed Securities--0.5%
Fleetwood Credit Corp. 96-B,
A 6.90%, '12 ..................... AAA 841 847,056
Green Tree Financial Corp. 96-2,
M1 7.60%, '27 ..................... AA- 1,075 1,083,063
------------
1,930,119
------------
Non-Agency Mortgage-Backed Securities--3.4%
CS First Boston Mortgage 95-AE1,
B 7.182%, '27 ..................... AA- 1,350 1,357,385
First Union Lehman Bros. 97-C1,
B 7.43%, '29 ..................... Aa(c) 850 867,000
G.E. Capital Mortgage Services,
Inc. 96-8, M 7.25%, '26 ......... AA 248 243,038
Nationslink Funding Corp. 96-1,
B 7.69%, '05 ..................... AA 450 467,016
Residential Asset Securitization
Trust 96-A8, A1 8%, '26 ......... AAA 831 841,590
Residential Funding Mortgage
Securities I 96-S1, A11 7.10%,
'26 .............................. AAA 1,500 1,461,094
Residential Funding Mortgage
Securities I 96-S4, M1 7.25%,
'26 .............................. AA 988 965,855
Resolution Trust Corp. 93-C1,
B 8.75%, '24 ..................... Aa(c) 1,600 1,597,250
Resolution Trust Corp. 95-C2,
B 6.80%, '27 ..................... Aa(c) 869 864,323
Resolution Trust Corp. 95-2,
M1 7.15%, '29 ..................... Aa(c) 1,306 1,301,476
Securitized Asset Sales, Inc. 93-J,
2B 6.808%, '23 .................. A 976 925,271
Structured Asset Securities Corp.
93-C1, B 6.60%, '24 ............... A+ 1,150 1,100,137
Structured Asset Securities Corp.
95-C4, B 7%, '26 .................. AA 1,650 1,643,812
------------
13,635,247
------------
Paper & Forest Products--0.1%
Buckeye Cellulose Corp. 9.25%,
'08 .............................. BB- 350 364,000
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $15,964,239) .............................. 15,929,366
------------
FOREIGN GOVERNMENT SECURITIES--2.9%
Argentina--0.7%
Republic of Argentina Discount
L-GL Euro 6.875%, '23 (e) ......... BB 2,400 2,077,500
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -------------
<S> <C> <C> <C>
Argentina--continued
Republic of Argentina Global Bond
11.375%, '17 ..................... BB $ 200 $ 223,050
Republic of Argentina Par L-GP
5.50%, '23 (e) .................. BB 400 278,000
------------
2,578,550
------------
Brazil--0.3%
Republic of Brazil Discount Z-L
Euro 6.875%, '24 (e) ............ BBB- 800 675,000
Republic of Brazil Par Z-L Euro
5.25%, '24 (e) .................. B(c) 1,000 680,000
------------
1,355,000
------------
Colombia--0.9%
Republic of Colombia Yankee
7.25%, '04 ........................ BBB- 3,500 3,399,428
------------
Mexico--0.5%
United Mexican States 144A
7.875%, '01 (d)(e) ............... BBB- 350 350,560
United Mexican States Euro D
6.813%, '19 (e)(f) ............... BB 1,300 1,209,813
United Mexican States Series B
Euro 6.25%, '19 .................. BB 750 580,781
------------
2,141,154
------------
Venezuela--0.5%
Republic of Venezuela Discount
6.813%, '20 (e)(f) ............... B+ 850 752,250
Republic of Venezuela Par W-A
6.75%, '20 (f) .................. B+ 1,600 1,261,000
------------
2,013,250
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $10,259,743)......... 11,487,382
------------
FOREIGN NON-CONVERTIBLE BONDS--1.0%
Chile--0.2%
Compania Sud Amer Vapore
7.375%, '03 ..................... BBB 140 137,725
Petropower I Funding Trust 144A
7.36%, '14 (d) .................. BBB 500 475,855
------------
613,580
------------
Colombia--0.8%
Financiera Energ Nacional EMTN
Euro 9%, '99 ..................... BBB- 3,200 3,348,000
------------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $3,913,890) ............................. 3,961,580
------------
MUNICIPAL BONDS--2.2%
California--1.2%
Kern County Pension Obligation
Taxable 7.26%, '14 ............... AAA 1,500 1,483,470
Long Beach Pension Obligation
Taxable 6.87%, '06 ............... AAA 840 832,104
San Bernardino County Obligation
Revenue Taxable 6.87%, '08 ...... AAA 410 401,074
San Bernardino County Obligation
Revenue Taxable 6.94%, '09 ...... AAA 1,110 1,088,999
Ventura County Pension Taxable
6.54%, '05 ........................ AAA 975 952,302
------------
4,757,949
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- -------- ------------
<S> <C> <C> <C>
Florida--1.0%
Miami Beach Special Obligation
Taxable 8.60%, '21 ............ AAA $3,210 $ 3,455,308
University of Miami Exchangeable
Revenue Series A Taxable
7.65%, '20 ..................... AAA 540 538,650
------------
3,993,958
------------
TOTAL MUNICIPAL BONDS
(Identified cost $8,906,733) ........................... 8,751,907
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
COMMON STOCKS--64.7%
Aerospace & Defense--1.8%
United Technologies Corp. ............ 86,100 7,146,300
-----------
Banks--4.3%
Bank of New York Co., Inc. ......... 94,000 4,089,000
BankAmerica Corp. .................. 96,000 6,198,000
Nationsbank Corp. .................. 61,000 3,934,500
Norwest Corp. ........................ 51,000 2,868,750
-----------
17,090,250
-----------
Beverages--0.8%
PepsiCo, Inc. ........................ 85,800 3,222,863
-----------
Chemical--2.4%
Du Pont (E.I.) de Nemours & Co. ...... 56,400 3,546,150
Monsanto Co. ........................ 135,000 5,813,438
-----------
9,359,588
-----------
Chemical--Specialty--1.0%
Praxair, Inc. ........................ 72,900 4,082,400
-----------
Computer Software & Services--2.7%
BMC Software, Inc. (b) ............... 60,700 3,361,262
Fiserv, Inc. (b) ..................... 48,800 2,177,700
HBO & Co. ........................... 45,900 3,161,363
Sungard Data Systems, Inc. (b) ...... 45,200 2,101,800
-----------
10,802,125
-----------
Conglomerates--2.2%
Tyco International Ltd. ............ 126,700 8,813,569
-----------
Cosmetics & Soaps--2.6%
Gillette Co. ........................ 43,400 4,112,150
Procter & Gamble Co. ............... 43,700 6,172,625
-----------
10,284,775
-----------
Diversified Financial Services--5.4%
American Express Co. ............... 84,100 6,265,450
Merrill Lynch & Co., Inc. ............ 37,500 2,235,937
T. Rowe Price Associates ............ 66,100 3,412,413
Travelers Group, Inc. ............... 153,200 9,661,175
-----------
21,574,975
-----------
Diversified Miscellaneous--1.5%
Service Corporation International ... 184,900 6,078,587
-----------
Electrical Equipment--1.9%
General Electric Co. .................. 116,400 7,609,650
-----------
Electronics--5.6%
Altera Corp. (b) ..................... 71,700 3,620,850
Intel Corp. ........................... 61,900 8,778,194
LSI Logic Corp. (b) .................. 72,500 2,320,000
Linear Technology Corp. ............... 70,900 3,669,075
Tektronix, Inc. ..................... 61,800 3,708,000
-----------
22,096,119
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- --------------
<S> <C> <C>
Entertainment, Leisure & Gaming--2.1%
Time Warner, Inc. ..................... 90,700 $ 4,376,275
Walt Disney Co. ........................ 47,600 3,819,900
-------------
8,196,175
-------------
Healthcare--Diversified--2.1%
Bristol-Myers Squibb Co. ............... 101,100 8,189,100
-------------
Healthcare--Drugs--5.3%
Amgen, Inc. (b) ........................ 141,600 8,230,500
Merck & Co., Inc. ..................... 71,600 7,410,600
Pfizer, Inc. ........................... 43,900 5,246,050
-------------
20,887,150
-------------
Hospital Management & Services--1.7%
Health Management Association, Inc.
Class A (b) ........................... 97,500 2,778,750
Oxford Health Plans (b) ............... 57,500 4,125,625
-------------
6,904,375
-------------
Household Furnishings & Appliances--0.8%
Newell Companies, Inc. .................. 82,900 3,284,912
-------------
Insurance--2.3%
Allstate Corp. ........................ 55,000 4,015,000
Hartford Financial Services Group, Inc. 60,300 4,989,825
-------------
9,004,825
-------------
Medical Products & Supplies--3.2%
Abbott Laboratories ..................... 60,400 4,031,700
Johnson & Johnson ..................... 61,200 3,939,750
Medtronic, Inc. ........................ 61,100 4,949,100
-------------
12,920,550
-------------
Office & Business Equipment--1.5%
Compaq Computer Corp. (b) ............... 59,200 5,875,600
-------------
Oil--2.0%
Exxon Corp. ........................... 65,400 4,022,100
Texaco, Inc. ........................... 35,800 3,893,250
-------------
7,915,350
-------------
Oil Service & Equipment--4.3%
BJ Services Co. (b) ..................... 61,500 3,297,937
Diamond Offshore Drilling, Inc. (b) ... 44,300 3,460,937
Halliburton Co. ........................ 64,800 5,135,400
Schlumberger Ltd. ..................... 40,100 5,012,500
-------------
16,906,774
-------------
Publishing, Broadcasting, Printing & Cable--2.2%
Clear Channels Communications, Inc. (b) 73,500 4,520,250
Tribune Co. ........................... 92,000 4,421,750
-------------
8,942,000
-------------
Retail--2.8%
Borders Group, Inc. (b) ............... 267,800 6,460,675
TJX Companies, Inc. ..................... 181,600 4,789,700
-------------
11,250,375
-------------
Retail--Drugs--0.5%
CVS Corp. .............................. 38,300 1,962,875
-------------
Tobacco--1.7%
Philip Morris Companies, Inc. ......... 148,900 6,607,438
-------------
TOTAL COMMON STOCKS
(Identified cost $238,864,025) ........................ 257,008,700
-------------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------
<S> <C> <C>
FOREIGN COMMON STOCKS--3.6%
Healthcare--Drugs--1.3%
SmithKline Beecham PLC Sponsored ADR
(United Kingdom) (b) .................. 53,900 $ 4,938,588
-------------
Telecommunications Equipment--2.3%
Oy Nokia Corp. Sponsored ADR (Finland) ... 57,100 4,211,125
Telefonaktiebolaget LM Ericsson Class B ADR
(Sweden) .............................. 127,700 5,028,187
-------------
9,239,312
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $12,626,495) ........................ 14,177,900
-------------
TOTAL LONG-TERM INVESTMENTS--90.0%
(Identified cost $336,210,705) ........................ 357,323,397
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- -------- ---------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.1%
Commercial Paper--2.1%
McDonald's Corp. 5.90%, 7-3-97 . A-1+ $2,700 $ 2,699,115
Enterprise Funding Corp. 5.60%,
7-10-97 ..................... A-1+ 927 925,702
Receivables Capital Corp. 5.56%,
7-18-97 ..................... A-1+ 2,400 2,393,699
Receivables Capital Corp. 5.62%,
8-8-97 ........................ A-1+ 2,500 2,485,169
-----------------
8,503,685
-----------------
Federal Agency Securities--2.0%
Federal Home Loan Banks 5.25%
8-8-97 (e) .................. 2,500 2,500,975
Federal Farm Credit Banks 5.35%,
3-3-98 ........................ 5,500 5,503,905
-----------------
8,004,880
-----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $16,503,685) ........................... 16,508,565
-----------------
TOTAL INVESTMENTS--94.1%
(Identified cost $352,714,390) ........................ 373,831,962(a)
Cash and receivables, less liabilities--5.9% ............ 23,406,682
-----------------
NET ASSETS--100.0% ....................................... $ 397,238,644
=================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $24,902,672 and gross
depreciation of $3,785,100 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$352,714,390.
(b) Non-income producing.
(c) As rated by Moodys, Fitch or Duff & Phelps.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1997, these securities amounted to a value of $826,415 or 0.2% of net
assets.
(e) Variable or step coupon obligation; interest rate shown reflects the rate
currently in effect.
(f) Rights incorporated as a unit.
See Notes to Financial Statements
21
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $352,714,390) ..................... $373,831,962
Cash .............................................................................. 2,788
Receivables
Investment securities sold ...................................................... 45,174,786
Interest and dividends ......................................................... 1,107,999
-------------
Total assets .................................................................. 420,117,535
-------------
Liabilities
Payables
Investment securities purchased ................................................ 22,549,181
Fund shares repurchased ......................................................... 28,073
Investment advisory fee ......................................................... 188,490
Financial agent fee ............................................................ 19,442
Trustees' fee .................................................................. 3,434
Accrued expenses ............................................................... 90,271
-------------
Total liabilities ............................................................ 22,878,891
-------------
Net Assets ..................................................................... $397,238,644
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $347,662,434
Undistributed net investment income ............................................. 32,174
Accumulated net realized gain ................................................... 28,426,464
Net unrealized appreciation ................................................... 21,117,572
-------------
Net Assets ..................................................................... $397,238,644
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 27,119,096
=============
Net asset value and offering price per share .................................... $14.65
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest ......................................................... $ 4,765,493
Dividends ......................................................... 1,242,330
-----------
Total investment income .......................................... 6,007,823
-----------
Expenses
Investment advisory fee .......................................... 1,110,607
Financial agent fee ................................................ 114,395
Custodian ......................................................... 30,788
Printing ......................................................... 28,453
Professional ...................................................... 13,266
Trustees ......................................................... 9,872
Miscellaneous ...................................................... 6,108
-----------
Total expenses ................................................... 1,313,489
-----------
Net investment income ............................................. 4,694,334
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities .................................... 28,661,807
Net realized loss on written options .............................. (233,706)
Net realized gain on foreign currency transactions ............... 5,900
Net change in unrealized appreciation (depreciation) on investments 3,696,201
-----------
Net gain on investments ............................................. 32,130,202
-----------
Net increase in net assets resulting from operations ............... $36,824,536
===========
</TABLE>
See Notes to Financial Statements
22
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
--------------- ------------------
<S> <C> <C>
From Operations
Net investment income ...................................................... $ 4,694,334 $ 8,315,276
Net realized gain ......................................................... 28,434,001 25,851,907
Net change in unrealized appreciation (depreciation) ........................ 3,696,201 (2,475,007)
------------- -------------
Net increase in net assets resulting from operations ........................ 36,824,536 31,692,176
------------- -------------
From Distributions to Shareholders
Net investment income ...................................................... (5,077,025) (7,996,685)
Net realized gains ......................................................... (4,639,522) (23,234,158)
------------- -------------
Decrease in net assets from distributions to shareholders .................. (9,716,547) (31,230,843)
------------- -------------
From Share Transactions
Proceeds from sales of shares (1,669,983 and 4,387,120 shares, respectively) 23,786,173 61,269,234
Net asset value of shares issued from reinvestment of distributions
(670,617 and 2,254,196 shares, respectively) .............................. 9,716,547 31,230,843
Cost of shares repurchased (2,639,102 and 5,175,253 shares, respectively) ... (37,615,740) (72,555,884)
------------- -------------
Increase (decrease) in net assets from share transactions .................. (4,113,020) 19,944,193
------------- -------------
Net increase in net assets ................................................ 22,994,969 20,405,526
Net Assets
Beginning of period ......................................................... 374,243,675 353,838,149
------------- -------------
End of period (including undistributed net investment income of $32,174
and $414,865, respectively) ................................................ $397,238,644 $ 374,243,675
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
----------------
<S> <C>
Net asset value, beginning of period ......... $ 13.65
Income from investment operations
Net investment income ........................ 0.18
Net realized and unrealized gain (loss) ...... 1.18
-----------
Total from investment operations ............ 1.36
-----------
Less distributions
Dividends from net investment income ......... (0.19)
Dividends from net realized gains ............ (0.17)
-----------
Total distributions ........................ (0.36)
-----------
Change in net asset value ..................... 1.00
-----------
Net asset value, end of period ............... $ 14.65
===========
Total return ................................. 10.02%(6)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 397,239
Ratio to average net assets of:
Operating expenses ........................... 0.69%(5)
Net investment income ........................ 2.46%(5)
Portfolio turnover rate ........................ 252%(6)
Average commission rate paid(4) ............... $ 0.0554
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
----------- ---------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97
Income from investment operations
Net investment income ........................ 0.32 0.45 0.36(1)(3) 0.23(3) 0.37(3)
Net realized and unrealized gain (loss) ...... 0.91 1.84 (0.56) 1.17 0.99
--------- --------- ----------- ---------- ----------
Total from investment operations ............ 1.23 2.29 (0.20) 1.40 1.36
--------- --------- ----------- ---------- ----------
Less distributions
Dividends from net investment income ......... (0.31) (0.45) (0.37) (0.23) (0.37)
Dividends from net realized gains ............ (0.90) (0.89) (0.46) (0.32) (1.10)
--------- --------- ----------- ---------- ----------
Total distributions ........................ (1.21) (1.34) (0.83) (0.55) (1.47)
--------- --------- ----------- ---------- ----------
Change in net asset value ..................... 0.02 0.95 (1.03) 0.85 (0.11)
--------- --------- ----------- ---------- ----------
Net asset value, end of period ............... $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86
========= ========= =========== ========== ==========
Total return ................................. 9.05% 18.22% (1.45)% 11.02% 10.67%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 374,244 $ 353,838 $ 289,083 $ 256,011 $ 163,628
Ratio to average net assets of:
Operating expenses ........................... 0.70% 0.67%(2) 0.74% 0.74% 0.50%
Net investment income ........................ 2.26% 3.28% 2.71% 1.82% 2.90%
Portfolio turnover rate ........................ 287% 170% 220% 269% 326%
Average commission rate paid(4) ............... $ 0.0530 N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001 per share.
(2) 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.
(3) Computed using average shares outstanding.
(4) 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.
(5) Annualized
(6) Not annualized
See Notes to Financial Statements
23
<PAGE>
INTERNATIONAL SERIES
INVESTMENT REVIEW
The Fund rose 13.31% for the six months ended June 30, 1997 compared with
a 12.70% return for a peer universe of 442 international funds, according to
Lipper Analytical Services, Inc. The EAFE Index* was up 11.21%. All performance
figures are stated in U.S. dollars, assume reinvestment of dividends and
exclude the effect of sales charges. The MSCI total return figures are net of
foreign withholding taxes.
The Fund performed well largely because of its slightly overweighted
position in Europe and good stock selection in those same markets, as well as
its underweighted position in Japan. During May, performance was hampered
somewhat by this underweighting in Japan as that market returned 11.04%, with
the yen up 9.00% for the month. An overweighted position in the UK, which
lagged the rest of Europe, also held back performance.
Over the last six months, the European and Latin American markets have
performed strongly, in some cases even outpacing the United States. Europe has
continued to be supported by low and falling interest rates, particularly in
the peripheral countries. Latin America rose 40.79% in the last six months,
with every country participating in the rally. Brazil and Venezuela led the way
as economic reform and deregulation continued to push slowly forward. Peru,
Mexico and Argentina were boosted by signs of improving economic conditions.
The Pacific Basin produced a more uneven performance. Japan, the largest
market in the region gained 9.07%, while Malaysia lost 11.74%. In the rest of
Asia, only Taiwan and India turned in strong returns. The Thai market has
fallen 33.73%. Hong Kong and Japan experienced an extremely strong last three
months in which Hong Kong rose 20.34% and Japan was up 23.67%.
OUTLOOK
Continued efforts at fiscal restraint on the part of most European
governments is creating a climate of low interest rates and inflation, which is
supporting stock prices. The onus continues to be on companies to generate
earnings growth through internal means, as demand remains relatively sluggish
and pricing ability nonexistent. In Japan, the outlook for 1997 is also modest,
but better than was expected six months ago. We have raised our weighting in
Japan slightly, but would need a substantial improvement in the outlook for
earnings growth to become more positive.
Since our last report, we have reduced our holdings in Hong Kong based on
a potential clamp down on real estate property prices. We redeployed about 9%
of our cash position into Korea and the Philippines. Although Latin America
regions have posted strong gains in the last six months, they are coming off
very low bases and are still relatively inexpensive to the rest of the world.
We are still positive on the outlook for the region for the remainder of the
year.
* The Morgan Stanley Capital International (MSCI) EAFE Index is an
unmanaged, commonly used measure of total return foreign stock performance.
24
<PAGE>
INTERNATIONAL SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
----------- -----------------------
<S> <C> <C>
FOREIGN COMMON STOCKS--92.8%
Australia--0.5%
Westpac Bank Corp. Ltd. (Diversified
Financial Services) ........................... 176,000 $ 1,050,884
------------
Belgium--1.0%
Credit Communal Holding/Dexia (Banks) ............ 19,300 2,074,951
------------
Brazil--2.4%
Telebras Sponsored ADR (Utility--Telephone) ...... 21,500 3,262,625
Uniao de Bancos Brasileiros SA Sponsored
GDR (Banks) .................................... 43,000 1,596,375
------------
4,859,000
------------
Chile--1.0%
Santa Isabel SA Sponsored ADR (Retail--
Food) .......................................... 64,000 2,064,000
------------
Finland--2.9%
Nokia AB Series A (Telecommunications
Equipment) .................................... 31,800 2,374,806
Raision Tehtaat Oy (Food) ........................ 23,000 1,580,802
The Rauma Group (Machinery) ..................... 85,000 1,947,364
------------
5,902,972
------------
France--7.2%
AXA-UAP (Insurance) .............................. 33,369 2,077,428
Carrefour Supermarche (Retail--Food) ............ 3,020 2,195,466
Elf Aquitaine SA (Oil) ........................... 19,600 2,116,609
Louis Dreyfus Citrus (Food) (b) .................. 42,500 1,588,981
Promodes (Retail) .............................. 6,200 2,417,312
Total SA (Oil) ................................. 21,400 2,165,188
Usinor Sacilor (Steel) ........................... 120,000 2,166,618
------------
14,727,602
------------
Germany--4.8%
Adidas AG (Textile & Apparel) .................. 20,350 2,253,974
BHW Holding AG (Banks) (b) ..................... 120,000 2,031,564
Rhoen-Klinikum AG (Hospital Management &
Services) .................................... 15,850 2,028,436
Schmalbach Lubeca AG (Containers) ............... 8,100 1,817,561
VEBA AG (Utility--Electric) ..................... 28,400 1,597,245
------------
9,728,780
------------
Hong Kong--0.0%
Henderson China Holding Ltd. (Real Estate) ...... 828 1,395
------------
Hungary--0.6%
Gedeon Richter 144A GDS (Health Care--
Drugs) (c) .................................... 12,700 1,170,214
------------
Indonesia--0.1%
Wicaksana Overseas International
(Conglomerates) .............................. 248,500 304,046
------------
Italy--5.3%
Gucci Group NV (Textile & Apparel) ............... 20,600 1,345,787
Gucci Group NV-NY Registered Shares
(Textile & Apparel) ........................... 32,500 2,092,188
Istituto Bancario San Paolo di Torino (Banks) .... 203,223 1,479,831
Stet-Societa' Finanziaria Telefonica SPA
(Utility--Telephone) ........................... 1,020,000 5,934,763
------------
10,852,569
------------
Japan--14.4%
Canon, Inc. (Office & Business Equipment) ...... 124,000 3,380,932
Circle K Japan Co. Ltd. (Retail--Food) ......... 30,000 1,725,072
SHARES VALUE
----------- -----------------------
<S> <C> <C>
Japan--continued
Credit Saison Co. Ltd. (Diversified Financial
Services) .................................... 95,400 $ 2,334,353
DDI Corp. (Utility--Telephone) .................. 175 1,293,804
Hoya Corp. (Machinery) ........................... 21,000 935,943
Matsushita Communication Industrial
(Telecommunications Equipment) ............... 54,000 1,826,269
Meitec (Computer Software & Services) ............ 64,000 1,907,192
Namco (Entertainment, Leisure & Gaming) ......... 44,000 1,699,554
Nintendo Co. Ltd. (Entertainment, Leisure &
Gaming) ....................................... 18,000 1,510,093
Nippon Broadcasting System (Publishing,
Broadcasting, Printing & Cable) ............... 21,000 2,330,683
Paris Miki, Inc. (Retail) ........................ 55,000 1,619,768
Sankyo Co. Ltd. (Health Care--Diversified) ...... 52,000 1,749,541
TDK Corp. (Electronics) ........................ 14,000 1,028,926
Taisho Pharmaceutical Co. (Health Care--
Drugs) ....................................... 56,000 1,512,191
Taiyo Yuden Co. Ltd. (Electrical Equipment) ...... 114,000 1,882,898
Takeda Chemical Industries (Health Care--
Drugs) ....................................... 91,000 2,560,692
------------
29,297,911
------------
Mexico--1.3%
Coca-Cola Femsa SA Sponsored ADR
(Beverages) .................................... 50,000 2,581,250
------------
Netherlands--4.9%
DSM NV (Chemical) .............................. 20,000 1,993,569
ING Groep NV (Diversified Financial
Services) .................................... 46,000 2,124,739
Philips Electronics NV (Electronics) ............ 56,000 4,018,578
VNU-Verenigde Bezit (Publishing,
Broadcasting, Printing & Cable) ............... 85,800 1,900,536
------------
10,037,422
------------
New Zealand--0.2%
Restaurant Brands New Zealand Limited
(Entertainment, Leisure & Gaming) (b) ......... 245,000 425,076
------------
Norway--1.6%
Schibsted ASA (Publishing, Broadcasting,
Printing & Cable) .............................. 97,000 1,921,264
Smedvig ASA A Shares (Oil) ..................... 54,500 1,362,370
------------
3,283,634
------------
Peru--0.9%
Telefonica del Peru SA (Utility--Telephone) ...... 708,945 1,862,902
------------
Philippines--3.6%
Ayala Land, Inc. Class B (Real Estate) ......... 2,747,000 2,525,582
Manila Electric Co. (Utility--Electric) ......... 225,000 1,108,963
Metropolitan Bank & Trust Co. (Banks) ............ 23,000 488,323
Philippine Commercial International Bank
(Banks) ....................................... 101,000 976,456
SM Prime Holdings, Inc. (Real Estate) ............ 4,112,000 1,216,014
San Miguel Corp. Class B (Beverages) ............ 398,000 1,048,718
------------
7,364,056
------------
Poland--0.1%
Bank Handlowy W. Warszawie (Banks) (b) ......... 10,000 115,331
------------
Portugal--2.3%
Electricidade De Portugal SA (Utility--
Electric) .................................... 37,365 686,552
Portugal Telecom SA (Utility--Telephone) ......... 45,700 1,845,782
</TABLE>
See Notes to Financial Statements
25
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C>
Portugal--continued
Telecel-Comunicacoes Pessoais SA
(Telecommunications Equipment) (b) ............ 26,700 $ 2,217,532
-------------
4,749,866
-------------
South Korea--10.0%
Daewoo Securities Co. (Broker-Dealers) (b) ...... 188,600 3,419,435
Daewoo Telecom Co. (Telecommunications
Equipment) .................................... 99,000 963,243
Dongsuh Securities Co. (Broker-Dealers) (b) ...... 142,200 1,305,100
Hyundai Electronics Industries Co.
(Electronics) ................................. 12,600 645,608
Hyundai Marine & Fire Insurance Co.
(Insurance) (b) .............................. 39,800 1,609,030
Hyundai Securities Co. (Diversified Financial
Services) (b) ................................. 121,400 1,845,607
L.G. Electronics (Electronics) .................. 94,800 1,761,485
L.G. Information & Communication Ltd.
(Telecommunications Equipment) ............... 23,800 2,948,196
L.G. Securities (Diversified Financial Services)
(b) .......................................... 163,200 1,984,864
Oriental Fire & Marine Insurance (Insurance) ..... 59,200 1,493,332
Samsung Electronics Co. (Electronics) ............ 11,344 1,278,882
Samsung Fire & Marine Insurance
(Insurance) .................................... 630 238,804
Sungmi Telecom Electronics Co.
(Telecommunications Equipment) ............... 6,860 909,258
-------------
20,402,844
-------------
Spain--0.8%
Telefonica de Espana (Utility--Telephone) ...... 54,200 1,569,946
-------------
Sweden--1.6%
Astra AB A Shares (Health Care--Drugs) ......... 117,000 2,178,912
Biora AB (Medical Products & Supplies) (b) ...... 50,000 465,580
Biora AB Sponsored ADR (Medical Products
& Supplies) (b) .............................. 19,000 339,625
Hemkopskedjan AB B Shares (Retail--Food) ........ 37,000 380,417
-------------
3,364,534
-------------
Switzerland--5.6%
Ares-Serono Group Bearer Shares (Health
Care--Drugs) ................................. 1,890 2,742,043
Novartis AG Registered Shares (Health
Care--Drugs) ................................. 2,080 3,330,169
Sig Schweizerische Industrie-Gesellschaft
Holding AG Bearer Shares (Machinery) ......... 610 1,851,591
Sig Schweizerische Industrie-Gesellschaft
Holding AG Registered Shares
(Machinery) .................................... 200 297,709
Zurich Verschierungs Registered Shares
(Insurance) .................................... 8,300 3,307,930
-------------
11,529,442
-------------
United Kingdom--19.7%
Avis Europe PLC (Leasing/Rental) (b) ............ 970,000 2,203,812
British Aerospace PLC (Aerospace &
Defense) ....................................... 155,500 3,459,150
Carlton Communications PLC (Publishing,
Broadcasting, Printing & Cable) ............... 208,000 1,756,991
Celltech PLC (Health Care--Drugs) (b) ............ 178,000 795,489
SHARES VALUE
----------- -------------
<S> <C> <C>
United Kingdom--continued
Compass Group PLC (Lodging &
Restaurants) ................................. 304,000 $ 3,410,386
Cordiant PLC (Professional Services) ............ 1,646,000 3,383,505
Corporate Services Group PLC (Professional
Services) .................................... 580,900 1,822,564
GKN PLC (Miscellaneous) ........................ 117,000 2,014,589
Granada Group PLC (Entertainment, Leisure
& Gaming) .................................... 143,000 1,880,326
Lloyds TSB Group PLC (Diversified Financial
Services) .................................... 255,000 2,614,514
Next PLC (Retail) .............................. 154,000 1,739,165
Norwich Union PLC 144A (Insurance) (b)(c) ...... 190,000 1,010,403
Rentokil Initial PLC (Professional Services) ... 544,000 1,910,519
Rolls-Royce PLC (Aerospace & Defense) ............ 410,000 1,566,162
Shell Transport & Trading Co. PLC (Oil) ......... 459,000 3,128,504
Siebe PLC (Electrical Equipment) ............... 156,000 2,640,679
WPP Group PLC (Advertising) ..................... 876,000 3,594,108
Williams PLC (Professional Services) ............ 239,100 1,285,441
-------------
40,216,307
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $159,115,011) .................. 189,536,934
-------------
PREFERRED STOCKS--2.4%
Germany--1.5%
Volkswagen AG Pfd. (Autos & Trucks) ............ 5,500 3,093,257
-------------
United Kingdom--0.9%
Egypt Investment Co. (Multi-Industry) (b) ...... 119,000 1,755,250
-------------
TOTAL PREFERRED STOCKS
(Identified cost $3,398,922) ..................... 4,848,507
-------------
TOTAL LONG-TERM INVESTMENTS--95.2%
(Identified cost $162,513,933) .................. 194,385,441
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000)
---------- --------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--5.1%
Commercial Paper--3.2%
Anheuser-Busch Cos., Inc. 6%,
7-1-97 ........................ A-1+ $3,500 3,500,000
Albertson's, Inc. 5.52%, 8-15-97 A-1 3,000 2,979,300
-----------------
6,479,300
-----------------
Federal Agency Securities--1.9%
Federal Home Loan Banks 5.42%,
7-2-97 ..................... 1,605 1,604,758
Federal National Mortgage Assoc.
5.47%, 7-3-97 ............... 335 334,949
Federal National Mortgage Assoc.
5.45%, 7-30-97 ............... 2,025 2,016,110
-----------------
3,955,817
-----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $10,435,117) ..................... 10,435,117
-----------------
TOTAL INVESTMENTS--100.3%
(Identified cost $172,949,050) ..................... 204,820,558(a)
Cash and receivables, less liabilities--(0.3%) ... (688,039)
-----------------
NET ASSETS--100.0% ................................. $ 204,132,519
=================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $35,432,190 and gross
depreciation of $3,708,682 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$173,097,050.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1997, these securities amounted to a value of $2,180,617 or 1.1% of net
assets.
See Notes to Financial Statements
26
<PAGE>
INTERNATIONAL SERIES
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of
Total Long-Term Investments
(Unaudited)
<TABLE>
<S> <C>
Advertising .................................... 1.9%
Aerospace & Defense .............................. 2.6
Autos & Trucks ................................. 1.6
Banks .......................................... 4.5
Beverages ....................................... 1.9
Broker-Dealers .................................... 2.4
Chemical .......................................... 1.0
Computer Software & Services ..................... 1.0
Conglomerates .................................... 0.2
Containers ....................................... 0.9
Diversified Financial Services .................. 6.2
Electrical Equipment ........................... 2.3
Electronics .................................... 4.5
Entertainment, Leisure & Gaming .................. 2.8
Food ............................................. 1.6
Health Care--Diversified ........................ 0.9
Health Care--Drugs .............................. 7.4
Hospital Management & Services .................. 1.0
Insurance ....................................... 5.0
Leasing/Rental .................................... 1.1
Lodging & Restaurants ........................... 1.8
Machinery ....................................... 2.6
Medical Products & Supplies ..................... 0.4
Miscellaneous .................................... 1.0
Multi-Industry ................................. 0.9
Office & Business Equipment ..................... 1.7
Oil ............................................. 4.5
Professional Services ........................... 4.3
Publishing, Broadcasting, Printing & Cable ...... 4.1
Real Estate ....................................... 1.9
Retail .......................................... 3.0
Retail--Food .................................... 3.3
Steel .......................................... 1.1
Telecommunications Equipment ..................... 5.8
Textile & Apparel .............................. 2.9
Utility--Electric .............................. 1.8
Utility--Telephone .............................. 8.1
------
100.0%
======
</TABLE>
See Notes to Financial Statements
27
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $172,949,050) .................. $204,820,558
Receivables
Dividends and interest ...................................................... 411,897
Investment securities sold ................................................... 123,076
Fund shares sold ............................................................... 118,461
Tax reclaim .................................................................. 82,594
Net unrealized appreciation on forward currency contracts ..................... 199,127
-------------
Total assets ............................................................... 205,755,713
-------------
Liabilities
Payables
Custodian ..................................................................... 5,433
Investment securities purchased ............................................. 108,100
Closed foreign currency contracts ............................................. 1,276,245
Investment advisory fee ...................................................... 123,664
Custodian fee .................................................................. 27,404
Financial agent fee ......................................................... 9,443
Trustees' fee ............................................................... 3,405
Accrued expenses ............................................................ 69,500
-------------
Total liabilities ............................................................ 1,623,194
-------------
Net Assets ..................................................................... $204,132,519
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $156,743,742
Undistributed net investment income .......................................... 198,102
Accumulated net realized gain ................................................ 15,121,327
Net unrealized appreciation ................................................... 32,069,348
-------------
Net Assets ..................................................................... $204,132,519
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 12,885,617
=============
Net asset value and offering price per share ................................. $15.84
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Dividends .............................................................................. $ 1,755,856
Interest .............................................................................. 734,056
Foreign taxes withheld ............................................................... (179,254)
-----------
Total investment income ............................................................... 2,310,658
-----------
Expenses
Investment advisory fee ............................................................... 684,297
Financial agent fee .................................................................. 54,744
Custodian .............................................................................. 76,300
Printing .............................................................................. 20,377
Trustees .............................................................................. 11,586
Professional ........................................................................... 11,013
Miscellaneous ........................................................................ 6,000
-----------
Total expenses ........................................................................ 864,317
-----------
Net investment income .................................................................. 1,446,341
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ...................................................... 13,092,441
Net realized gain on foreign currency transactions .................................... 2,044,781
Net change in unrealized appreciation (depreciation) on investments .................. 7,878,138
Net change in unrealized appreciation (depreciation) on foreign currency and foreign ... (874,916)
-----------
currency transactions
Net gain on investments ............................................................... 22,140,444
-----------
Net increase in net assets resulting from operations .................................... $23,586,785
===========
</TABLE>
See Notes to Financial Statements
28
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
--------------- ------------------
<S> <C> <C>
From Operations
Net investment income .................................................................. $ 1,446,341 $ 1,238,905
Net realized gain ..................................................................... 15,137,222 12,048,984
Net change in unrealized appreciation (depreciation) ................................. 7,003,222 13,071,593
------------- -------------
Net increase in net assets resulting from operations ................................. 23,586,785 26,359,482
------------- -------------
From Distributions to Shareholders
Net investment income .................................................................. (2,638,818) (2,156,537)
Net realized gains ..................................................................... (4,630,792) (3,811,548)
In excess of net investment income ...................................................... -- (272,380)
------------- -------------
Decrease in net assets from distributions to shareholders .............................. (7,269,610) (6,240,465)
------------- -------------
From Share Transactions
Proceeds from sales of shares (1,804,932 and 3,516,722 shares, respectively) ......... 27,120,194 48,544,295
Net asset value of shares issued from reinvestment of distributions (468,431 and 435,075
shares, respectively) ............................................................... 7,269,610 6,240,465
Cost of shares repurchased (1,282,726 and 2,645,302 shares, respectively) ............ (19,242,115) (36,690,696)
------------- -------------
Increase in net assets from share transactions ....................................... 15,147,689 18,094,064
------------- -------------
Net increase in net assets ............................................................ 31,464,864 38,213,081
Net Assets
Beginning of period .................................................................. 172,667,655 134,454,574
------------- -------------
End of period (including undistributed net investment income of $198,102 and
$1,390,579, respectively) ............................................................ $204,132,519 $ 172,667,655
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding through the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
----------------
<S> <C>
Net asset value, beginning of period ......... $ 14.52
Income from investment operations
Net investment income ........................ 0.12
Net realized and unrealized gain (loss) ...... 1.79
-----------
Total from investment operations ............ 1.91
-----------
Less distributions
Dividends from net investment income ......... (0.22)
Dividends from net realized gains ............ (0.37)
In excess of net investment income ......... --
-----------
Total distributions ........................ (0.59)
-----------
Change in net asset value ..................... 1.32
-----------
Net asset value, end of period ............... $ 15.84
===========
Total return ................................. 13.31%(5)
Ratio/supplemental data:
Net assets, end of period (thousands) ......... $ 204,133
Ratio to average of net assets of:
Operating expenses ........................... 0.95%(4)
Net investment income ........................ 1.59%(4)
Portfolio turnover rate ........................ 78%(5)
Average commission rate paid(2) ............... $ 0.0125
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
-------------- -------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17
Income from investment operations
Net investment income ........................ 0.11(3) 0.12(3) 0.08(3) 0.07(1)(3) 0.09(3)
Net realized and unrealized gain (loss) ...... 2.25 1.02 (0.07) 3.32 (1.40)
--------- --------- --------- ----------- -----------
Total from investment operations ............ 2.36 1.14 0.01 3.39 (1.31)
--------- --------- --------- ----------- -----------
Less distributions
Dividends from net investment income ......... (0.19) (0.04) (0.03) -- (0.04)
Dividends from net realized gains ............ (0.33) (0.25) (0.34) -- --
In excess of net investment income ......... (0.02) -- -- -- --
--------- --------- --------- ----------- -----------
Total distributions ........................ (0.54) (0.29) (0.37) -- (0.04)
--------- --------- --------- ----------- -----------
Change in net asset value ..................... 1.82 0.85 (0.36) 3.39 (1.35)
--------- --------- --------- ----------- -----------
Net asset value, end of period ............... $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82
========= ========= ========= =========== ===========
Total return ................................. 18.65% 9.59% 0.03% 38.44% (12.89)%
Ratio/supplemental data:
Net assets, end of period (thousands) ......... $172,668 $134,455 $134,627 $ 61,242 $ 13,772
Ratio to average of net assets of:
Operating expenses ........................... 1.04% 1.07% 1.10% 1.15% 1.50%
Net investment income ........................ 0.80% 0.95% 0.64% 0.49% 1.13%
Portfolio turnover rate ........................ 142% 249% 172% 193% 74%
Average commission rate paid(2) ............... $ 0.0213 N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.05.
(2) 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.
(3) Computed using average shares outstanding.
(4) Annualized
(5) Not annualized
See Notes to Financial Statements
29
<PAGE>
BALANCED SERIES
INVESTMENT REVIEW
For the six months ended June 30, 1997, the Phoenix Edge Balanced Series
posted a solid gain of 9.77% compared with an average return of 9.57% for a
peer universe of 232 balanced funds, according to Lipper Analytical Services,
Inc. The benchmark index* returned 12.43%. All performance figures assume
reinvestment of dividends and exclude the effect of sales charges.
Despite a sharp sell-off from mid-March through mid-April, the U.S.
equities market continued to climb to record highs during this latest reporting
period. By the end of June, the Dow Jones Industrial Average reached 7673,
rising 1225 points in the last six months. Blue-chip stocks continued to
significantly outperform small- and mid-cap stocks, and health-care and finance
issues led the market in terms of sector performance. The S&P 500's 20.53%
year-to-date return is the fourth strongest first-half gain over the past 50
years.
Interest rates appeared to be locked in a narrow trading range over the
last six months as investors debated whether the robust economic growth
reported in the first quarter would serve as a catalyst for higher inflation in
the months ahead. As measured by the 30-year Treasury bond, interest rates
climbed as high as 7.17% in mid-April, but finished June yielding 6.79%--only
0.14% higher than at the start of the reporting period. Higher yielding, lower
quality bonds continued to outperform lower yielding, higher quality bonds.
Emerging-market debt and domestic high-yield bonds were the best performers,
while Treasury and investment grade issues were among the laggards. As measured
by the Lehman Brothers Aggregate Bond Index, the fixed-income market returned
3.09% over the last six months.
Over this latest reporting period, the Fund benefited from strong stock
selection in the consumer staples and financial services sectors as well as our
decision to increase the portfolio's equity exposure after the stock market
correction in mid-April. Individual stocks that produced strong gains for the
Fund included General Electric, Eli Lilly, Colgate-Palmolive, Perkin Elmer and
Franklin Resources. The fixed-income segment of the portfolio also boosted
results as it outperformed its benchmark, the Lehman Brothers Aggregate Bond
Index. With interest rates moving downward since mid-April, our purchase of
U.S. Treasury zero-coupon bonds proved to be very profitable. Negative
contributors to overall results included the relative underperformance of our
technology and energy exposures, and to a lesser degree, some individual
stocks, most notably U.S. Filter, Ascend, Amgen and Cardinal Health.
OUTLOOK
Looking ahead, we expect a slower domestic economy in the second half of
the year and continued market leadership from blue-chip growth stocks. Although
many blue-chip stocks have had a strong run as of late, we believe there is
still upside potential as investors remain focused on earnings growth, earnings
stability, global opportunities and liquidity. Given this outlook, we continue
to emphasize the financial, technology and health-care sectors.
Within the portfolio's fixed-income holdings, we are maintaining a longer
duration with the expectation that interest rates will continue to move
downward during the year. In addition, we reduced the portfolio's exposure to
emerging-market, high-yield debt. While this sector has provided excellent
returns year-to-date, valuation levels currently look rich from a historical
perspective. Besides these modest adjustments, our fixed-income strategy of
broad diversification and sector rotation remains unchanged. As of June 30, the
bond segment of the portfolio had an average credit quality of "AA" and a
duration of approximately 7.1 years. At the end of the period, the Fund was
positioned with an asset allocation of 55% equities, 35% fixed-income and 10%
cash equivalents.
* The Balanced Benchmark is a composite index consisting of 55% Standard &
Poor's 500 Index, 35% Lehman Brothers Aggregate Bond Index and 10% 90-day
Treasury bills.
30
<PAGE>
BALANCED SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--24.3%
U.S. Treasury Bonds--4.8%
U.S. Treasury Bonds Strip, P.O.,
0%, '22 ................................. AAA $36,000 $ 6,329,160
U.S. Treasury Bonds 6%, '26 ............... AAA 4,595 4,111,087
------------
10,440,247
------------
U.S. Treasury Notes--15.0%
U.S. Treasury Notes 6.375%, '99 ......... AAA 3,775 3,793,875
U.S. Treasury Notes 6.375%, '00 ......... AAA 3,000 3,011,250
U.S. Treasury Notes 6.875%, '00 ......... AAA 3,500 3,555,685
U.S. Treasury Notes 6.625%, '01 ......... AAA 4,400 4,444,000
U.S. Treasury Notes 6.50%, '05 ............ AAA 3,300 3,289,407
U.S. Treasury Notes 6.50%, '06 ............ AAA 12,235 12,175,171
U.S. Treasury Notes 6.875%, '06 ......... AAA 2,150 2,194,343
------------
32,463,731
------------
Agency Mortgage-Backed Securities--4.5%
GNMA 6.50%, '23-'26 ..................... AAA 10,151 9,744,192
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $52,849,408).................................... 52,648,170
------------
NON-CONVERTIBLE BONDS--5.0%
Asset-Backed Securities--0.7%
Fleetwood Credit Corp. 96-B, A
6.90%, '12 .............................. AAA 673 677,645
Green Tree Financial Corp. 96-2,
M1 7.60%, '27 ........................... AA- 675 680,063
TLFC Equipment Lease Trust
96-1A, 5.98%, '02 ..................... AAA 225 224,134
------------
1,581,842
------------
Non-Agency Mortgage-Backed Securities--3.8%
CS First Boston Mortgage
95-AEW1, B 7.182%, '27 .................. AA- 425 427,325
DLJ Mortgage Acceptance Corp.
96-CF1, A1B 144A 7.58%,
'28 (c) ................................. AAA 400 414,250
First Union Lehman Brothers
97-C1, B 7.43%, '29 ..................... Aa(d) 930 948,600
G.E. Capital Mortgage Services,
Inc. 96-8, M 7.25%, '26 ............... AA 248 243,038
Nationslink Funding Corp. 96-1, B
7.69%, '05 .............................. AA 450 467,015
Residential Asset Securitization
Trust 96-A8, A1 8%, '26 ............... AAA 582 589,113
Residential Funding Mortgage I
96-S8, A-4 6.75%, '11 .................. AAA 666 652,504
Residential Funding Mortgage I
96-S1, A11 7.10%, '26 .................. AAA 1,000 974,062
Residential Funding Mortgage I
96-S4, M1 7.25%, '26 .................. AA 988 965,855
Resolution Trust Corp. 93-C1, B
8.75%, '24 .............................. Aa(d) 425 424,270
Resolution Trust Corp. 95-C2, B
6.80%, '27 .............................. Aa(d) 1,113 1,106,125
Resolution Trust Corp. 95-2, M1
7.15%, '29 .............................. Aa(d) 576 574,181
Structured Asset Securities Corp.
93-C1, B 6.60%, '24 ..................... A+ 525 502,237
------------
8,288,575
------------
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -------------
<S> <C> <C> <C>
Paper & Forest Products--0.4%
Buckeye Cellulose Corp. 8.50%,
'05 .................................... BB- $700 $ 709,625
------------
Truckers & Marine--0.1%
Teekay Shipping Corp. 8.32%, '08 .......... Ba(d) 230 232,875
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $10,838,173) ............ 10,812,917
------------
FOREIGN GOVERNMENT SECURITIES--3.0%
Argentina--0.5%
Republic of Argentina Bearer FRB
6.75%, '05 (e) ........................ BB- 679 638,684
Republic of Argentina Discount
L-GL Euro 6.875%, '23 (e) ............... BB- 275 238,047
Republic of Argentina Global Bond
11.375%, '17 ........................... BB 100 111,525
Republic of Argentina Par L-GP
5.50%, '23 (e) ........................ BB- 220 152,900
------------
1,141,156
------------
Brazil--0.4%
Republic of Brazil C Bond, PIK
interest capitalization, 8%,
'14 (e) ................................. B+ 728 591,172
Republic of Brazil DCB-L Euro
6.938%, '12 (e) ........................ B+ 425 351,156
------------
942,328
------------
Colombia--0.4%
Republic of Colombia 7.25%, '03 ......... BBB- 500 486,590
Republic of Colombia Yankee
7.25%, '04 .............................. BBB- 475 461,351
------------
947,941
------------
Mexico--0.6%
United Mexican States 144A
7.875%, '01 (c)(e) ..................... Baa(d) 400 400,640
United Mexican States Discount A
6.867%, '19 (e)(f) ..................... BB 205 190,778
United Mexican States Euro D
6.813%, '19 (e)(f) ..................... BB 250 232,656
United Mexican States Series A
Euro 6.25%, '19 ........................ BB 300 232,313
United Mexican States Series B
Euro 6.25%, '19 ........................ BB 350 271,031
------------
1,327,418
------------
Poland--0.6%
Poland Discount Euro 6.938%,
'24 (e) ................................. BBB- 600 588,000
Poland PDI Bearer 4%, '14 (e) ............ BBB- 700 598,500
------------
1,186,500
------------
Venezuela--0.5%
Republic of Venezuela Discount
6.813%, '20 (e)(f) ..................... Ba(d) 815 721,275
Republic of Venezuela Par W-A
6.75%, '20 (f) ........................ Ba(d) 300 236,438
------------
957,713
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $6,039,671)............... 6,503,056
------------
</TABLE>
See Notes to Financial Statements
31
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- --------- -----------
<S> <C> <C> <C>
FOREIGN NON-CONVERTIBLE BONDS--0.7%
Chile--0.2%
Compania Sud Amer Vapore
7.375%, '03 .................. BBB $ 120 $ 118,050
Petropower I Funding Trust 144A
7.36%, '14 (c) ............... BBB 350 333,099
-----------
451,149
-----------
Colombia--0.3%
Financiera Energ Nacional EMTN
Euro 9%, '99 .................. BBB- 440 460,350
-----------
Indonesia--0.2%
Asia Pulp & Paper Co. Yankee
11.75%, '05 .................. BB 400 442,000
-----------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $1,312,627) ........................... 1,353,499
-----------
MUNICIPAL BONDS--1.9%
California--0.9%
Kern County Pension Obligation
Taxable 7.26%, '14 ............ AAA 420 415,372
Long Beach Pension Obligation
Taxable 6.87%, '06 ............ AAA 230 227,838
Orange County Pension Series A
Taxable 7.62%, '08 ............ AAA 650 673,322
San Bernardino County Obligation
Revenue Taxable 6.87%, '08 ... AAA 110 107,605
San Bernardino County Obligation
Revenue Taxable 6.94%, '09 ... AAA 300 294,324
Ventura County Pension Taxable
6.54%, '05 ..................... AAA 260 253,947
-----------
1,972,408
-----------
Florida--0.6%
Miami Beach Special Obligation
Taxable 8.60%, '21 ............ AAA 875 941,868
University of Miami Exchangeable
Revenue Series A Taxable
7.65%, '20 ..................... AAA 270 269,325
-----------
1,211,193
-----------
Virginia--0.4%
Newport News Taxable Series B
7.05%, '25 ..................... AA- 1,000 938,890
-----------
TOTAL MUNICIPAL BONDS
(Identified cost $4,200,134) ........................ 4,122,491
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------
<S> <C> <C>
COMMON STOCKS--53.4%
Aerospace & Defense--0.8%
Sundstrand Corp. ........................... 10,800 583,200
United Technologies Corp. .................. 13,500 1,120,500
-----------
1,703,700
-----------
Banks--3.1%
Citicorp ................................. 17,500 2,109,844
First Union Corp. ........................ 2,600 240,500
Mellon Bank Corp. ........................ 52,000 2,346,500
Nationsbank Corp. ........................ 32,000 2,064,000
-----------
6,760,844
-----------
Beverages--1.0%
PepsiCo, Inc. (g) ........................ 57,500 2,159,844
-----------
Chemical--0.2%
Monsanto Co. .............................. 10,400 447,850
-----------
Chemical--Specialty--0.4%
Praxair, Inc. .............................. 14,100 789,600
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------- ------------
<S> <C> <C>
Computer Software & Services--2.1%
Adaptec, Inc. (b) ........................... 5,400 $ 187,650
HBO & Co. .................................... 24,600 1,694,325
Microsoft Corp. (b) ........................... 21,000 2,653,875
-----------
4,535,850
-----------
Conglomerates--0.9%
Tyco International Ltd. ..................... 27,300 1,899,056
-----------
Cosmetics & Soaps--4.4%
Colgate-Palmolive Co. (g) .................. 52,100 3,399,525
Gillette Co. ................................. 46,400 4,396,400
Procter & Gamble Co. (g) ..................... 12,300 1,737,375
-----------
9,533,300
-----------
Diversified Financial Services--2.2%
American Express Co. ........................ 5,900 439,550
Franklin Resources, Inc. ..................... 22,200 1,610,887
Merrill Lynch & Co., Inc. ..................... 6,900 411,413
T. Rowe Price Associates (g) ............... 24,350 1,257,069
Washington Mutual, Inc. ..................... 18,400 1,099,400
-----------
4,818,319
-----------
Electrical Equipment--2.3%
General Electric Co. ........................ 58,800 3,844,050
Honeywell, Inc. .............................. 14,300 1,085,012
-----------
4,929,062
-----------
Electronics--3.8%
Altera Corp. (b) .............................. 10,300 520,150
Intel Corp. (g) .............................. 26,480 3,755,195
Perkin Elmer Corp. ........................... 38,100 3,031,331
Texas Instruments, Inc. ..................... 10,000 840,625
-----------
8,147,301
-----------
Entertainment, Leisure & Gaming--0.7%
Time Warner, Inc. ........................... 13,000 627,250
Walt Disney Co. .............................. 12,500 1,003,125
-----------
1,630,375
-----------
Healthcare--Diversified--1.3%
Bristol-Myers Squibb Co. (g) ............... 34,400 2,786,400
-----------
Healthcare--Drugs--3.8%
Amgen, Inc. (b) .............................. 37,000 2,150,625
Eli Lilly & Co. (g) ........................ 8,200 896,362
Merck & Co., Inc. ........................... 25,400 2,628,900
Pfizer, Inc. ................................. 22,300 2,664,850
-----------
8,340,737
-----------
Hospital Management & Services--0.8%
Columbia/HCA Healthcare Corp. ............... 45,900 1,804,444
-----------
Insurance--2.7%
Allstate Corp. .............................. 30,100 2,197,300
Hartford Financial Services Group, Inc. ...... 22,300 1,845,325
SunAmerica, Inc. .............................. 36,000 1,755,000
-----------
5,797,625
-----------
Machinery--0.5%
Deere & Co. ................................. 19,500 1,070,063
-----------
Medical Products & Supplies--4.8%
Abbott Laboratories ........................... 23,900 1,595,325
Baxter International, Inc. .................. 44,900 2,346,025
Boston Scientific Corp. (b) .................. 41,834 2,570,176
Cardinal Health, Inc. ........................ 28,100 1,608,725
</TABLE>
See Notes to Financial Statements
32
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Medical Products & Supplies--continued
Johnson & Johnson .............................. 36,400 2,343,250
------------
10,463,501
------------
Natural Gas--0.3%
Columbia Gas System, Inc. ........................ 9,600 626,400
------------
Office & Business Equipment--1.0%
International Business Machines Corp. (g) ...... 24,400 2,200,575
------------
Oil--0.7%
Exxon Corp. .................................... 24,400 1,500,600
------------
Oil Service & Equipment--3.3%
Camco International, Inc. ........................ 7,800 427,050
ENSCO International, Inc. (b) .................. 20,600 1,086,650
Halliburton Co. ................................. 20,400 1,616,700
Noble Drilling Corp. (b) ........................ 46,200 1,042,388
Schlumberger Ltd. .............................. 17,200 2,150,000
Transocean Offshore, Inc. ........................ 12,300 893,287
------------
7,216,075
------------
Paper & Forest Products--0.6%
Kimberly Clark Corp. ........................... 28,400 1,412,900
------------
Pollution Control--0.5%
U.S. Filter Corp. (b) ........................... 36,600 997,350
------------
Professional Services--0.6%
HFS, Inc. (b) .................................... 21,750 1,261,500
------------
Publishing, Broadcasting, Printing & Cable--1.0%
Gannett Co, Inc. ................................. 11,800 1,165,250
New York Times Co. Class A ..................... 20,800 1,029,600
------------
2,194,850
------------
Real Estate--0.0%
Crescent Operating Inc. (b) ..................... 1,565 18,780
------------
REITS--0.5%
Crescent Real Estate Equities Co. ............... 15,650 496,888
Redwood Trust, Inc. .............................. 15,000 701,250
------------
1,198,138
------------
Retail--2.3%
Home Depot, Inc. ................................. 17,500 1,206,406
Lowe's Companies, Inc. ........................... 26,100 968,963
Staples, Inc. (b) .............................. 118,100 2,745,825
------------
4,921,194
------------
Retail--Drugs--0.5%
CVS Corp. ....................................... 22,100 1,132,625
------------
Retail--Food--0.5%
Safeway, Inc. (b) .............................. 22,300 1,028,587
------------
Telecommunications Equipment--2.6%
Ascend Communications, Inc. (b) .................. 51,550 2,029,781
Cisco Systems, Inc. (b) ........................ 16,200 1,087,425
Lucent Technologies, Inc. ........................ 23,900 1,722,294
Motorola, Inc. ................................. 9,400 714,400
------------
5,553,900
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------- -------------
<S> <C> <C>
Textile & Apparel--0.5%
Nike, Inc. Class B ........................ 18,300 $ 1,068,262
-------------
Tobacco--1.0%
Philip Morris Companies, Inc. ............... 49,200 2,183,250
-------------
Utility--Telephone--1.7%
Ameritech Corp. ........................... 7,300 495,944
Bell Atlantic Corp. ........................ 26,700 2,025,862
LCI International, Inc. (b) ............... 9,100 199,063
SBC Communications, Inc. .................. 14,600 903,375
-------------
3,624,244
-------------
TOTAL COMMON STOCKS
(Identified cost $103,229,336) ....................... 115,757,101
-------------
FOREIGN COMMON STOCKS--1.7%
Electronics--0.8%
Philips Electronics NV ADR (Netherlands) ... 24,100 1,732,187
-------------
Oil--0.5%
Royal Dutch Petroleum Co. ADR NY Registered
(Netherlands) ........................... 20,800 1,131,000
-------------
Pollution Control--0.4%
Philip Services Corp. (Canada) (b) ......... 56,300 893,762
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $3,035,774) ......................... 3,756,949
-------------
TOTAL LONG-TERM INVESTMENTS--90.0%
(Identified cost $181,505,123) ....................... 194,954,183
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000)
---------- --------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--9.8%
Commercial Paper--9.8%
Mobil Corp. 6.25%, 7-1-97 ......... A-1+ $1,730 1,730,000
Shell Oil Co. 6.15%, 7-1-97 ...... A-1+ 4,495 4,495,000
Preferred Receivables Funding Corp.
5.60%, 7-2-97 .................. A-1 202 201,969
Donnelley (R.R.) & Sons Co. 5.52%,
7-7-97 ........................ A-1 3,185 3,182,070
Asset Securitization Corp. 5.60%,
7-10-97 ........................ A-1+ 2,000 1,997,200
Dupont (E.I.) de Nemours 5.55%,
7-14-97 ........................ A-1+ 275 274,449
Private Export Funding Corp. 5.57%
7-14-97 ........................ A-1+ 1,655 1,651,403
Receivable Capital Corp 5.57%,
7-15-97 ........................ A-1+ 1,030 1,027,769
Private Export Funding Corp. 5.61%,
7-28-97 ........................ A-1+ 2,520 2,509,127
Receivable Capital Corp. 5.62%,
8-8-97 ........................ A-1+ 2,500 2,485,169
Beta Finance Corp. 5.60%, 9-12-97 A-1+ 1,000 988,590
Beta Finance Corp. 5.65%, 10-27-97 A-1+ 750 736,192
-----------------
21,278,938
-----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $21,279,449) ........................ 21,278,938
-----------------
TOTAL INVESTMENTS--99.8%
(Identified cost $202,784,572)........................ 216,233,121(a)
Cash and receivables, less liabilities--0.2% ......... 490,797
-----------------
NET ASSETS--100.0% .................................... $ 216,723,918
=================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $16,082,947 and gross
depreciation of $2,664,229 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$202,814,403.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1997, these securities amounted to a value of $1,147,989 or 0.5% of net
assets.
(d) As rated by Moody's, Fitch or Duff & Phelps.
(e) Variable or step coupon bond; interest rate shown reflects the rate
currently in effect.
(f) Rights incorporated as a unit.
(g) Segregated as collateral.
See Notes to Financial Statements
33
<PAGE>
BALANCED SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $202,784,572) ..................... $216,233,121
Cash ........................................................................... 107,633
Receivables
Interest and dividends ......................................................... 993,785
Investment securities sold ...................................................... 212,884
-------------
Total assets .................................................................. 217,547,423
-------------
Liabilities
Payables
Fund shares repurchased ......................................................... 329,503
Investment securities purchased ................................................ 194,236
Options written, at value (Premiums received $120,536) ........................... 122,288
Investment advisory fee ......................................................... 97,389
Financial agent fee ............................................................ 10,624
Trustees' fee .................................................................. 3,143
Accrued expenses ............................................................... 66,322
-------------
Total liabilities ............................................................ 823,505
-------------
Net Assets ..................................................................... $216,723,918
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $189,227,746
Undistributed net investment income ............................................. 35,278
Accumulated net realized gain ................................................... 14,014,097
Net unrealized appreciation ................................................... 13,446,797
-------------
Net Assets ..................................................................... $216,723,918
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 17,130,094
=============
Net asset value and offering price per share .................................... $12.65
=============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest ............................................................... $ 3,294,909
Dividends ............................................................ 662,660
-----------
Total investment income ............................................. 3,957,569
-----------
Expenses
Investment advisory fee ................................................ 568,120
Financial agent fee ................................................... 61,977
Printing ............................................................... 23,956
Custodian ............................................................ 17,610
Professional ......................................................... 16,100
Trustees ............................................................... 13,106
Miscellaneous ......................................................... 7,604
-----------
Total expenses ...................................................... 708,473
-----------
Net investment income ................................................... 3,249,096
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ....................................... 14,191,285
Net realized gain on written options ................................. 5,202
Net realized gain on foreign currency and foreign currency transactions 6,754
Net change in unrealized appreciation (depreciation) on investments ... 2,065,168
Net change in unrealized appreciation (depreciation) on written options (1,752)
-----------
Net gain on investments ................................................ 16,266,657
-----------
Net increase in net assets resulting from operations .................. $19,515,753
===========
</TABLE>
See Notes to Financial Statements
34
<PAGE>
BALANCED SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
--------------- ------------------
<S> <C> <C>
From Operations
Net investment income ...................................................... $ 3,249,096 $ 5,806,775
Net realized gain ......................................................... 14,203,241 16,867,817
Net change in unrealized appreciation (depreciation) ........................ 2,063,416 (2,671,304)
------------- -------------
Net increase in net assets resulting from operations ........................ 19,515,753 20,003,288
------------- -------------
From Distributions to Shareholders
Net investment income ...................................................... (3,565,032) (5,536,811)
Net realized gains ......................................................... (5,977,747) (18,064,626)
------------- -------------
Decrease in net assets from distributions to shareholders .................. (9,542,779) (23,601,437)
------------- -------------
From Share Transactions
Proceeds from sales of shares (1,200,311 and 2,805,856 shares, respectively) 14,948,263 34,642,833
Net asset value of shares issued from reinvestment of distributions
(759,231 and 1,949,091 shares, respectively) .............................. 9,542,779 23,601,437
Cost of shares repurchased (1,771,298 and 3,529,372 shares, respectively) ... (22,025,330) (43,662,808)
------------- -------------
Increase in net assets from share transactions .............................. 2,465,712 14,581,462
------------- -------------
Net increase in net assets ................................................ 12,438,686 10,983,313
Net Assets
Beginning of period ......................................................... 204,285,232 193,301,919
------------- -------------
End of period (including undistributed net investment income of $35,278
and $351,214, respectively) ................................................ $216,723,918 $ 204,285,232
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended
6/30/97
(Unaudited)
----------------
<S> <C>
Net asset value, beginning of period ......... $ 12.06
Income from investment operations
Net investment income ........................ 0.20
Net realized and unrealized gain (loss) ...... 0.97
----------
Total from investment operations ............ 1.17
----------
Less distributions
Dividends from net investment income ......... (0.22)
Dividends from net realized gains ............ (0.36)
----------
Total distributions ........................ (0.58)
----------
Change in net asset value ..................... 0.59
----------
Net asset value, end of period ............... $ 12.65
==========
Total return ................................. 9.77%(5)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 216,724
Ratio to average net assets of:
Operating expenses ........................... 0.69%(1)
Net investment income ........................ 3.15%(1)
Portfolio turnover rate ........................ 87%(5)
Average commission rate paid(6) ............... $ 0.0548
<CAPTION>
From Inception
Year Ended December 31, 5/1/92 to
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(3) 0.38(2)(3) 0.32(2)(3) 0.19(3)
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 ................................. 10.56% 23.28% (2.80)% 8.57% 9.72%(5)
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%(4) 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) Computed using average shares outstanding.
(4) 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) Not annualized
(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.
See Notes to Financial Statements
35
<PAGE>
REAL ESTATE SERIES
INVESTMENT REVIEW
For the six months ended June 30, 1997, the Fund generated a total return
of 7.43%, outperforming the NAREIT Equity Total Return Index* return of 5.73%.
All performance figures assume reinvestment of dividends and exclude the effect
of sales charges.
Our investment strategy is to emphasize market sectors with strong
underlying fundamentals and prospects for growth in excess of market averages
as well as sectors that are significantly undervalued on a risk-adjusted basis.
Over the past six months, the Fund benefited from its significant overweighting
in hotels and apartments. While performance was somewhat tempered by a low
allocation to mall REITs, which generated very strong results, our investments
in the strip-retail REIT sector contributed positively to the Fund's return.
Real estate securities experienced a minor correction during the first
four months of 1997, then recovered slightly over the last two months. REIT
performance was impacted by several factors. First, there was a tremendous
volume of capital-raising activity, which put downward pressure on prices. In
addition, a significant rise in interest rates resulted in dividend yields
that, other than for two brief periods in 1991 and 1994, were below 10-year
Treasury yields for the first time since 1989. On a weighted-average basis,
REIT total return dropped 2.06% from year-end through April, and then
experienced a modest recovery in May and June. The recovery was, in part,
supported by very strong operational performance. First-quarter growth in funds
from operation (FFO) was well above industry analyst expectations, and
second-quarter results are also expected to be better than projected.
OUTLOOK
The outlook for REITs for the remainder of 1997 remains very strong for a
number of reasons. First, the underlying real estate market continues to
evidence stability, with construction levels in most markets trailing expected
demand growth. Second, funds from operations multiples--comparable to a P/E
ratio for non-REITs--are in line with historic levels and well below the
broader market P/E ratios. Third, dividend yields, albeit below pre-1996
levels, are higher than at year-end 1996 and provide a very attractive benefit
relative to the broader market. As of June 30, 1997, the average dividend yield
for REITs was 6.06% compared with a yield of only 1.87% for the S&P 500 Index.
Finally, both individual and institutional investor demand is expected to
continue to expand. We intend to maintain the Fund's emphasis on mixed
office/industrial and hotel REITs, which we believe have good upside potential,
and remain underweighted in the retail sector.
* The NAREIT Equity Total Return Index is a market-weighted total return of all
tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System.
36
<PAGE>
REAL ESTATE SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS--97.5%
REAL ESTATE INVESTMENT TRUSTS--89.2%
COMMERCIAL--28.6%
Office/Industrial--23.1%
Beacon Properties Corp. ............... 24,300 $ 811,012
Cali Realty Corp. ..................... 15,200 516,800
CarrAmerica Realty Corp. ............... 26,400 759,000
Duke Realty Investments, Inc. ......... 38,300 1,551,150
Highwoods Properties, Inc. ............ 59,900 1,916,800
Kilroy Realty Corp. ..................... 15,200 383,800
Reckson Associates Realty Corp. ......... 17,200 395,600
Spieker Properties, Inc. ............... 49,900 1,755,856
Weeks Corp. ........................... 28,900 903,125
------------
8,993,143
------------
Storage--5.5%
Public Storage, Inc. .................. 29,800 871,650
Shurgard Storage Centers, Inc. Class A .. 14,000 392,000
Storage USA, Inc. ..................... 22,900 875,925
------------
2,139,575
------------
TOTAL COMMERCIAL ....................................... 11,132,718
------------
HEALTH CARE--3.2%
Health Care Property Investors, Inc. ... 5,750 202,688
Nationwide Health Properties, Inc. ...... 47,900 1,053,800
------------
1,256,488
------------
HOTELS--12.9%
FelCor Suite Hotels, Inc. ............... 35,500 1,322,375
Patriot American Hospitality, Inc. ...... 91,800 2,340,900
Starwood Lodging Trust .................. 32,100 1,370,269
------------
5,033,544
------------
RESIDENTIAL--28.7%
Apartments--24.8%
Avalon Properties, Inc. ............... 26,500 758,563
Bay Apartment Communities, Inc. ......... 29,900 1,106,300
Camden Property Trust .................. 26,100 825,412
Columbus Realty Trust .................. 20,200 459,550
Equity Residential Properties Trust ... 24,600 1,168,500
Evans Withycombe Residential, Inc. ...... 33,900 703,425
Irvine Apartment Communities, Inc. ...... 33,500 984,062
Merry Land & Investment Co. ............ 33,400 724,363
Oasis Residential, Inc. ............... 32,100 754,350
Post Properties, Inc. .................. 27,100 1,099,244
United Dominion Realty Trust ............ 76,400 1,083,925
------------
9,667,694
------------
Manufactured Homes--3.9%
Manufactured Home Communities, Inc. .... 33,800 779,513
Sun Communities, Inc. .................. 21,300 714,881
------------
1,494,394
------------
TOTAL RESIDENTIAL .................................... 11,162,088
------------
SHARES VALUE
--------- ------------
<S> <C> <C>
RETAIL--15.8%
Community/Neighborhood--7.3%
Developers Diversified Realty Corp. ... 18,000 $ 720,000
Federal Realty Investment Trust ......... 24,800 669,600
Regency Realty Corp. .................. 12,000 327,000
Vornado Realty Trust .................. 15,700 1,132,362
------------
2,848,962
------------
Factory Outlet--2.2%
Chelsea G.C.A. Realty, Inc. ............ 22,600 858,800
------------
Regional Malls--6.3%
Simon DeBartolo Group, Inc. ............ 17,796 569,472
Taubman Centers, Inc. .................. 77,100 1,021,575
The Macerich Company .................. 30,300 840,825
------------
2,431,872
------------
TOTAL RETAIL .......................................... 6,139,634
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $29,621,772) ........................ 34,724,472
------------
REAL ESTATE OPERATING COMPANIES--8.3%
Hotels--7.4%
CapStar Hotel Co. (b) .................. 33,700 1,078,400
Host Marriott Corp. (b) ............... 100,600 1,791,938
------------
2,870,338
------------
Regional Malls--0.9%
Rouse Co. .............................. 12,500 368,750
------------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $2,581,365) ........................ 3,239,088
------------
TOTAL COMMON STOCKS
(Identified cost $32,203,137) ........................ 37,963,560
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000)
---------- -------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--2.0%
Commercial Paper--2.0%
Anheuser-Busch Cos., Inc. 6%,
7-1-97 ..................... A-1+ $790 790,000
----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $790,000) ........................ 790,000
----------------
TOTAL INVESTMENTS--99.5%
(Identified cost $32,993,137) ..................... 38,753,560(a)
Cash and receivables, less liabilities--0.5% ... 178,413
----------------
NET ASSETS--100.0% ................................. $ 38,931,973
================
</TABLE>
(a) Federal Income Tax information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $5,994,643 and gross
depreciation of $234,220 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$32,993,137.
(b) Non-income producing.
See Notes to Financial Statements
37
<PAGE>
REAL ESTATE SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $32,993,137) .................. $38,753,560
Cash ........................................................................... 3,281
Receivables
Dividends ..................................................................... 176,912
Fund shares sold ............................................................ 55,698
------------
Total assets ............................................................... 38,989,451
------------
Liabilities
Payables
Investment advisory fee ...................................................... 16,534
Trustees' fee ............................................................... 3,105
Financial agent fee ......................................................... 1,858
Accrued expenses ............................................................ 35,981
------------
Total liabilities ............................................................ 57,478
------------
Net Assets ..................................................................... $38,931,973
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $32,597,041
Undistributed net investment income .......................................... 275,996
Accumulated net realized gain ................................................ 298,513
Net unrealized appreciation ................................................... 5,760,423
------------
Net Assets ..................................................................... $38,931,973
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 2,569,062
============
Net asset value and offering price per share ................................. $15.15
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Dividends ......................................................... $ 828,326
Interest ......................................................... 23,930
----------
Total investment income .......................................... 852,256
----------
Expenses
Investment advisory fee .......................................... 117,394
Financial agent fee ................................................ 9,392
Printing ......................................................... 10,470
Professional ...................................................... 9,988
Trustees ......................................................... 9,457
Custodian ......................................................... 7,358
Miscellaneous ...................................................... 3,110
----------
Total expenses ................................................... 167,169
Less expenses borne by investment adviser ........................ (10,644)
----------
Net expenses ...................................................... 156,525
----------
Net investment income ............................................. 695,731
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities .................................... 299,685
Net change in unrealized appreciation (depreciation) on investments 1,345,216
----------
Net gain on investments ............................................. 1,644,901
----------
Net increase in net assets resulting from operations ............... $2,340,632
==========
</TABLE>
See Notes to Financial Statements
38
<PAGE>
REAL ESTATE SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 31, 1996
---------------- ------------------
<S> <C> <C>
From Operations
Net investment income ............................................................ $ 695,731 $ 538,337
Net realized gain .................................................................. 299,685 357,371
Net change in unrealized appreciation (depreciation) .............................. 1,345,216 3,569,257
------------- ------------
Net increase in net assets resulting from operations .............................. 2,340,632 4,464,965
------------- ------------
From Distributions to Shareholders
Net investment income ............................................................ (428,477) (529,595)
Net realized gains ............................................................... (124,358) (234,185)
------------- ------------
Decrease in net assets from distributions to shareholders ........................ (552,835) (763,780)
------------- ------------
From Share Transactions
Proceeds from sales of shares (1,681,265 and 1,121,196 shares, respectively) ...... 24,605,605 14,117,141
Net asset value of shares issued from reinvestment of distributions
(36,890 and 59,531 shares, respectively) .......................................... 552,835 763,780
Cost of shares repurchased (734,737 and 342,758 shares, respectively) ............ (10,724,024) (4,344,888)
------------- ------------
Increase in net assets from share transactions .................................... 14,434,416 10,536,033
------------- ------------
Net increase in net assets ......................................................... 16,222,213 14,237,218
Net Assets
Beginning of period ............................................................... 22,709,760 8,472,542
------------- ------------
End of period (including undistributed net investment income of $275,996 and $8,742,
respectively) ..................................................................... $ 38,931,973 $ 22,709,760
============= ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended Year From Inception
6/30/97 Ended 5/1/95 to
(Unaudited) 12/31/96 12/31/95
-------------- -------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ...... $ 14.32 $ 11.33 $ 10.00
Income from investment operations
Net investment income ..................... 0.28(3) 0.50(3) 0.33(3)
Net realized and unrealized gain ......... 0.78 3.14 1.42
--------- --------- ----------
Total from investment operations ......... 1.06 3.64 1.75
--------- --------- ----------
Less distributions
Dividends from net investment income ...... (0.18) (0.50) (0.33)
Dividends from net realized gains ......... (0.05) (0.15) (0.06)
Tax return of capital ..................... -- -- (0.03)
--------- --------- ----------
Total distributions ..................... (0.23) (0.65) (0.42)
--------- --------- ----------
Change in net asset value .................. 0.83 2.99 1.33
--------- --------- ----------
Net asset value, end of period ............ $ 15.15 $ 14.32 $ 11.33
========= ========= ==========
Total return .............................. 7.43%(2) 33.09% 17.79%(2)
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $ 38,932 $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses ........................ 1.00%(1) 1.00% 1.00%(1)
Net investment income ..................... 4.44%(1) 4.36% 4.80%(1)
Portfolio turnover rate ..................... 6%(2) 21% 10%(2)
Average commission rate paid(4) ............ $ 0.0482 $ 0.0468 N/A
</TABLE>
(1) Annualized
(2) Not annualized
(3) Includes reimbursement of operating expenses by investment adviser of
$0.005, $0.05 and $0.07 per share, respectively.
(4) 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.
See Notes to Financial Statements
39
<PAGE>
STRATEGIC THEME SERIES
INVESTMENT REVIEW
The Phoenix Edge Strategic Theme Series returned 6.85% for the six months
ended June 30, 1997, compared with 12.99% for the S&P MidCap 400 Index and
20.53% for the S&P 500 Index. All performance figures assume reinvestment of
dividends and exclude the effect of sales charges.
Over reasonably long time frames, small and mid-cap companies are
generally able to achieve more rapid growth in sales and net income than
larger, well-established companies. We believe that above-average growth leads
to above-average stock market performance over time. The S&P MidCap 400 Index
is an unmanaged index of companies with characteristics that are more
representative of those the Fund favors than is the S&P 500 Index. As a result,
the Fund's benchmark has been changed from the S&P 500 Index to the S&P MidCap
400 Index.*
Over the past six months, the Fund has focused on the small and mid-cap
arenas which offer more opportunities for thematic investing, higher earnings
growth rates and more attractive valuations compared to large-cap stocks. It is
difficult to find emerging themes in the large-cap area because larger,
well-established companies tend to be associated with mature industries. Yet,
large-cap stocks dominated the market, which limited Fund performance. Positive
contributors included our financial services, health-care, telecommunications
and REIT holdings as well as our defensive use of cash during the
February-April sell-off.
We continue to focus on themes with positive dynamics. Our Deregulating
Financial Services theme represents banks, insurance companies and brokerages,
which we believe will continue to witness above-average earnings growth and
benefit from continued industry consolidation. Energy Technology is profiting
from the recovery of the oil sector. This theme represents companies that
provide productivity-enhancing solutions to exploration and production
companies. Next Generation Semiconductors is benefiting from strong growth in
the global PC market, cellular phones and new consumer products. 21st Century
Medicine continues to be an attractive theme due to remarkable advances in
gene-mapping, biotechnology and non-invasive surgical techniques. The Bandwidth
Bottleneck theme represents companies capitalizing on network infrastructure
spending by the telecommunications industry.
OUTLOOK
Looking forward, we believe our key investment themes will serve us well
in this environment. We have also included a strategic component to the Fund's
overall approach which gives us flexibility to use larger cap stocks when we
feel they will be strong performers. We expect the performance disparity
between small, mid and large-cap stocks will close as investors realize that
small and mid-cap stocks offer comparatively higher growth rates and lower
valuations. Finally, as the economy slows, growth stocks should become more
attractive and return to favor. As of June 30, the Fund's asset allocation mix
was 83% equities and 17% cash equivalents.
[PIE CHART]
21st Century Medicine 18.3%
Bandwidth Bottleneck 11.8%
Special Situations 8.8%
Energy Technology 8.2%
Next Generation Semiconductors 4.6%
Wireless Wave 4.1%
Global Consumer 3.4%
Retail Revival 2.9%
Short-term Obligations and Cash 17.5%
Deregulating Financial Services 20.4%
[END OF PIE CHART]
* The S&P MidCap 400 Index is an unmanaged, commonly used measure of mid-cap
stock total return performance. The S&P 500 Index is an unmanaged, commonly
used measure of large-cap stock total return performance.
40
<PAGE>
STRATEGIC THEME SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
-------- -------------
<S> <C> <C>
COMMON STOCKS--76.5%
Banks--Money Center--1.0%
BankAmerica Corp. ........................... 6,000 $ 387,375
------------
Banks--Southeast--1.0%
First American Corp. ..................... 10,000 383,750
------------
Commercial Services--Security/Safety--1.0%
Corrections Corporation of America (b) ... 10,000 397,500
------------
Computer--Mini/Micro--1.2%
Dell Computer Corp. (b)(c) ............... 4,000 469,750
------------
Computer--Services--2.7%
America Online, Inc. (b) .................. 19,000 1,056,875
------------
Computer--Software--1.2%
Compuware Corp. (b) ........................ 9,500 453,625
------------
Cosmetics/Personal Care--4.2%
Avon Products, Inc. ........................ 8,000 564,500
Gillette Co. .............................. 8,000 758,000
Weider Nutrition International, Inc. ...... 20,000 317,500
------------
1,640,000
------------
Diversified Operations--2.0%
Corning, Inc. .............................. 14,000 778,750
------------
Electric--Semiconductor Equipment--4.6%
Applied Materials, Inc. (b) ............... 13,500 955,969
Teradyne, Inc. (b) ........................ 21,000 824,250
------------
1,780,219
------------
Electric--Semiconductor Manufacturers--1.0%
Motorola, Inc. .............................. 5,000 380,000
------------
Finance--Investment Bankers--1.9%
Merrill Lynch & Co., Inc. .................. 6,000 357,750
Salomon, Inc. .............................. 7,000 389,375
------------
747,125
------------
Finance--Investment Management--0.9%
T. Rowe Price Associates .................. 7,000 361,375
------------
Financial Services--Miscellaneous--4.0%
American Express Co. ..................... 11,000 819,500
SunAmerica, Inc. ........................... 15,000 731,250
------------
1,550,750
------------
Insurance--Diversified--2.3%
Travelers Group, Inc. ..................... 14,000 882,875
------------
Insurance--Life--5.1%
Hartford Life, Inc. Class A (b) ............ 22,000 825,000
Lincoln National Corp. ..................... 6,000 386,250
Protective Life Corp. ..................... 8,000 402,000
Torchmark Corp. ........................... 5,000 356,250
------------
1,969,500
------------
Insurance--Property/Casualty/Title--3.8%
Allstate Corp. ........................... 10,000 730,000
American International Group, Inc. ......... 5,000 746,875
------------
1,476,875
------------
Medical--Drug/Diversified--3.7%
Bristol-Myers Squibb Co. .................. 10,000 810,000
Warner-Lambert Co. ........................ 5,000 621,250
------------
1,431,250
------------
SHARES VALUE
-------- -------------
<S> <C> <C>
Medical--Ethical Drugs--5.8%
Eli Lilly & Co. ........................... 6,000 $ 655,875
Pfizer, Inc. .............................. 7,000 836,500
Schering-Plough Corp. ..................... 16,000 766,000
------------
2,258,375
------------
Medical--Instruments--4.7%
Medtronic, Inc. ........................... 14,000 1,134,000
Spine-Tech, Inc. (b) ..................... 19,000 705,375
------------
1,839,375
------------
Medical--Products--0.7%
Guidant Corp. .............................. 3,000 255,000
------------
Oil & Gas--Drilling--1.2%
Diamond Offshore Drilling (b) ............ 6,000 468,750
------------
Oil & Gas--Machinery/Equipment--7.0%
Cooper Cameron Corp. (b) .................. 28,000 1,309,000
Smith International, Inc. (b) ............ 11,000 668,250
Varco International, Inc. (b) ............ 22,300 719,175
------------
2,696,425
------------
Retail--Major Discount Chains--0.9%
Costco Companies, Inc. (b) ............... 11,000 361,625
------------
Retail/Wholesale--Building Products--2.0%
Home Depot, Inc. ........................... 11,000 758,312
------------
Telecommunications--Equipment--10.9%
Brightpoint, Inc. (b) ..................... 12,000 390,750
Ciena Corp. (b) ........................... 25,000 1,178,125
Lucent Technologies, Inc. .................. 11,000 792,688
Newbridge Networks Corp. (b) ............... 18,000 783,000
Tellabs, Inc. (b) ........................ 19,000 1,061,625
------------
4,206,188
------------
Transportation--Trucks--1.7%
CNF Transportation, Inc. .................. 20,000 645,000
------------
TOTAL COMMON STOCKS
(Identified cost $25,890,450) .......................... 29,636,644
------------
FOREIGN COMMON STOCKS--6.0%
Banks--0.4%
Uniao de Bancos Brasileiros SA GDR (Brazil)
(b) .................................... 4,000 148,500
------------
Medical--Biomed/Genetics--2.4%
Qiagen NV (Netherlands) (b) ............... 19,000 915,562
------------
Medical--Ethical Drugs--1.0%
Teva Pharmaceutical Industries, Ltd.
Sponsored ADR (Israel) .................. 6,000 388,500
------------
Telecommunications--Equipment--2.1%
Northern Telecom Ltd. (Canada) ............ 4,000 364,000
Oy Nokia Corp. Sponsored ADR (Finland) ... 6,000 442,500
------------
806,500
------------
Transportation--Airlines--0.1%
Ryanair Holdings PLC Sponsored ADR
(Ireland) (b) ........................... 2,000 54,250
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $2,076,890) .......................... 2,313,312
------------
TOTAL LONG-TERM INVESTMENTS--82.5%
(Identified cost $27,967,340) .......................... 31,949,956
------------
</TABLE>
See Notes to Financial Statements
41
<PAGE>
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
---------- -------- --------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--18.1%
Commercial Paper--18.1%
Cargill, Inc. 6.05%, 7-1-97 ...... A-1+ $1,610 $ 1,610,000
Preferred Receivables Funding
Corp. 5.60%, 7-2-97 ............ A-1 1,510 1,509,765
AT&T Corp. 5.58%, 7-8-97 ...... A-1+ 1,000 998,915
Exxon Imperial U.S., Inc. 5.55%,
7-15-97 ..................... A-1+ 1,000 997,842
Goldman Sachs & Co. 5.57%,
7-15-97 ..................... A-1+ 745 743,386
General Electric Co. 5.60%,
7-17-97 ..................... A-1+ 1,135 1,132,175
----------------
6,992,083
----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $6,992,083) ........................ 6,992,083
----------------
TOTAL INVESTMENTS--100.6%
(Identified cost $34,959,423) ........................ 38,942,039(a)
Cash and receivables, less liabilities--(0.6%) ...... (235,621)
----------------
NET ASSETS--100.0% .................................... $ 38,706,418
================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $3,997,932 and gross
depreciation of $15,316 for income tax purposes. At June 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$34,959,423.
(b) Non-income producing.
(c) Segregated as collateral.
See Notes to Financial Statements
42
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $34,959,423) .................. $38,942,039
Cash ........................................................................... 2,068
Receivables
Investment securities sold ................................................... 100,557
Fund shares sold ............................................................ 35,327
Interest and dividends ...................................................... 6,570
------------
Total assets ............................................................... 39,086,561
------------
Liabilities
Payables
Investment securities purchased ............................................. 250,689
Options written, at value (Premiums received $33,879) ........................ 55,000
Investment advisory fee ...................................................... 21,041
Trustees' fee ............................................................... 3,316
Financial agent fee ......................................................... 1,856
Accrued expenses ............................................................ 48,241
------------
Total liabilities ............................................................ 380,143
------------
Net Assets ..................................................................... $38,706,418
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $35,452,850
Undistributed net investment income .......................................... 34,910
Accumulated net realized loss ................................................ (742,837)
Net unrealized appreciation ................................................... 3,961,495
------------
Net Assets ..................................................................... $38,706,418
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 3,306,693
============
Net asset value and offering price per share ................................. $11.71
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Interest ............................................................... $ 192,685
Dividends ............................................................ 83,591
----------
Total investment income ............................................. 276,276
----------
Expenses
Investment advisory fee ................................................ 122,331
Financial agent fee ................................................... 9,787
Printing ............................................................... 13,694
Custodian ............................................................ 13,302
Trustees ............................................................... 10,131
Professional ......................................................... 9,200
Miscellaneous ......................................................... 5,066
----------
Total expenses ...................................................... 183,511
Less expense borne by investment adviser .............................. (20,402)
----------
Net expenses ......................................................... 163,109
----------
Net investment income ................................................... 113,167
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized loss on securities ....................................... (304,703)
Net change in unrealized appreciation (depreciation) on investments ... 2,461,480
Net change in unrealized appreciation (depreciation) on written options (21,121)
----------
Net gain on investments ................................................ 2,135,656
----------
Net increase in net assets resulting from operations .................. $2,248,823
==========
</TABLE>
See Notes to Financial Statements
43
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended From Inception
June 30, 1997 January 29, 1996
(Unaudited) December 31, 1996
--------------- ------------------
<S> <C> <C>
From Operations
Net investment income .................................................................. $ 113,167 $ 94,091
Net realized loss ..................................................................... (304,703) (438,134)
Net change in unrealized appreciation (depreciation) ................................. 2,440,359 1,521,136
------------ --------------
Net increase in net assets resulting from operations ................................. 2,248,823 1,177,093
------------ --------------
From Distributions to Shareholders
Net investment income .................................................................. (78,257) (94,091)
Tax return of capital .................................................................. -- (21,960)
------------ --------------
Decrease in net assets from distributions to shareholders .............................. (78,257) (116,051)
------------ --------------
From Share Transactions
Proceeds from sales of shares (1,281,362 and 3,425,481 shares, respectively) ......... 14,357,970 36,431,726
Net asset value of shares issued from reinvestment of distributions (7,140 and 10,456
shares,
respectively) ........................................................................ 79,597 116,051
Cost of shares repurchased (347,302 and 1,070,444 shares, respectively) ............... (3,873,724) (11,636,810)
------------ --------------
Increase in net assets from share transactions ....................................... 10,563,843 24,910,967
------------ --------------
Net increase in net assets ............................................................ 12,734,409 25,972,009
Net Assets
Beginning of period .................................................................. 25,972,009 0
------------ --------------
End of period (including undistributed net investment income of $34,910 and $0,
respectively) ........................................................................ $ 38,706,418 $ 25,972,009
============ ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended From Inception
6/30/97 1/29/96 to
(Unaudited) 12/31/96
-------------- ---------------
<S> <C> <C>
Net asset value, beginning of period ...... $ 10.98 $ 10.00
Income from investment operations
Net investment income ..................... 0.04(2) 0.04(2)
Net realized and unrealized gain ......... 0.72 0.99
--------- ----------
Total from investment operations ......... 0.76 1.03
--------- ----------
Less distributions
Dividends from net investment income ...... (0.03) (0.04)
Tax return of capital ..................... -- (0.01)
--------- ----------
Total distributions ..................... (0.03) (0.05)
--------- ----------
Change in net asset value .................. 0.73 0.98
--------- ----------
Net asset value, end of period ............ $ 11.71 $ 10.98
========= ==========
Total return .............................. 6.85%(3) 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) ...... $ 38,706 $ 25,972
Ratio to average net assets of:
Operating expenses ........................ 1.00%(1) 1.00%(1)
Net investment income ..................... 0.69%(1) 0.64%(1)
Portfolio turnover rate ..................... 336%(3) 391%(3)
Average commission rate paid(4) ............ $ 0.0589 $ 0.0587
</TABLE>
(1) Annualized
(2) Includes reimbursement of operating expenses by investment adviser of $0.01
and $0.02 per share, respectively.
(3) Not annualized
(4) 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.
See Notes to Financial Statements
44
<PAGE>
ABERDEEN NEW ASIA SERIES
INVESTMENT REVIEW
For the last six months, the Edge Aberdeen New Asia Series returned 1.62%.
During this same period, its benchmark, the Morgan Stanley Capital
International AC Asia Pacific ex Japan Index,* returned 3.07%. All performance
figures assume reinvestment of dividends and exclude the effect of sales
charges.
Our underperformance can be attributed primarily to our underweighting in
Taiwan and our overweighted position in Thailand. While the Far East overall
has continued to grow at a steady rate of around 7%, it is perhaps best to
focus on the successes and failures of the year to obtain a clearer picture of
the future. The biggest disappointment among the markets has been Thailand.
While the country's weak government has been problematic, it has also resulted
in a strong private sector. The economy has suffered a slowdown in exports and
excesses in the property sector, aggravated by a high interest rate environment
designed to support the baht.
While we do not expect any major change in the wake of Hong Kong's
handover to China, we believe current high valuations both for real estate and
stocks do not outweigh the risks. There is widespread belief throughout Asia
that property prices can only rise. As the experience in Thailand shows, this
is not necessarily true. This trend has been restrained in the Philippines, and
we are encouraged by the investment in productive manufacturing assets, which
should enable the country to sustain growth of 6% or over.
Indonesia is enjoying GDP growth of over 6% and inflation under 6%.
However, political succession is a constant worry, and for this reason, we are
unlikely to increase our weighting. The downturn in the electronics cycle has
had a dramatic affect on Korea and Singapore, countries heavily reliant on
exports of these components.
Overall, the companies within the portfolio are experiencing 10-15%
earnings growth and in general, price/earnings ratios are the most attractive
they have been for some years, reinforcing our confidence in future
performance.
OUTLOOK
The economic outlook for the Far East remains as it has been for the last
decade or more. Average real GDP growth is around 7%, economies are generally
well-managed and opportunities for the corporate sector abound. Looking ahead,
we expect the economies of the region to continue to grow strongly over the
next year.
Our focus will remain on the lesser developed countries, which we feel
offer the greatest long-term growth prospects. We recognize that it is critical
to identify those well-managed companies with the right strategies to prosper
in a dynamic economic environment and, therefore, never invest in a company
without first meeting with its management.
* The Morgan Stanley Capital International AC Asia Pacific ex Japan Index is an
unmanaged, commonly used measure of total return foreign stock performance,
excluding Japan.
45
<PAGE>
ABERDEEN NEW ASIA SERIES
SCHEDULE OF INVESTMENTS
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCKS--92.6%
Australia--11.4%
Australian Gas Light Co. Ltd. (Utility-Gas) ...... 50,000 $ 292,179
Commonwealth Bank of Australia--Instalment
Receipt (Banks) ................................. 25,000 218,104
Davids Ltd. (Retail) .............................. 300,000 260,713
Pacific BBA Ltd. (Miscellaneous) .................. 110,000 412,047
QBE Insurance Group Ltd. (Insurance) ............ 90,000 539,407
------------
1,722,450
------------
Hong Kong--22.7%
CDL Hotels International Ltd. (Hotels) ............ 700,000 284,619
Giordano International Ltd. (Retail) ............ 400,000 273,647
HSBC Holdings PLC (Banks) ........................ 24,800 745,870
Hongkong Electric Holdings Ltd.
(Utility-Electric) .............................. 110,000 442,999
Manhattan Card Company Ltd.
(Diversified Financial Services) ............... 650,000 295,752
National Mutual Asia Ltd. (Insurance) ............ 450,000 499,535
Smartone Telecommunications
(Utility-Telephone) (b) ........................ 175,000 397,563
Swire Pacific Ltd. Class B (Miscellaneous) ...... 330,000 500,503
------------
3,440,488
------------
India--6.3%
Grasim Industries Ltd. Sponsored GDR 144A
(Basic Materials) (c) ........................... 22,600 316,400
Industrial Credit & Investment Corporation of
India Ltd. Sponsored GDR (Diversified
Financial Services) (b) ........................ 45,000 646,875
------------
963,275
------------
Indonesia--8.1%
PT Bank Bali (Banks) .............................. 185,000 494,551
PT Duta Anggada Realty (Property) ............... 200,000 193,296
PT Indosat (Utility-Telephone) ..................... 180,000 538,556
------------
1,226,403
------------
Malaysia--8.3%
AMMB Holdings Berhad
(Diversified Financial Services) ............... 50,000 311,014
Malaysian Oxygen Berhad (Chemical) ............... 80,000 405,705
Muhibbah Engineering Berhad (Engineering &
Construction) ................................. 65,000 213,748
Sime UEP Properties Berhad (Property) ............ 153,000 330,369
------------
1,260,836
------------
New Zealand--2.8%
Telecom Corporation of New Zealand Ltd.
(Utility-Telephone) ........................... 85,000 432,057
------------
Philippines--7.1%
Ayala Land, Inc. Class B (Property) ............... 575,000 528,653
Philippine Long Distance Telephone Co.
Sponsored ADR (Utility-Telephone) ............... 8,500 546,125
------------
1,074,778
------------
Singapore--10.1%
Clipsal Industries Ltd. (Electrical Equipment) ... 100,000 354,000
Development Bank of Singapore Ltd. (Banks) ........ 25,000 314,729
Robinson & Co. Ltd. (Retail) ..................... 90,000 468,947
Rothmans Industries Ltd. (Tobacco) ............... 75,000 390,789
------------
1,528,465
------------
SHARES VALUE
----------- ------------
<S> <C> <C>
South Korea--5.6%
Korea Electric Power Corp. Sponsored ADR
(Utility-Electric) .............................. 24,000 $ 440,250
Samsung Electronics Sponsored GDR 144A
Non-Voting Shares (Electronics) (c) ............ 15,248 411,696
------------
851,946
------------
Taiwan--2.2%
Standard Foods Taiwan Ltd. GDR
(Retail-Food) (b) .............................. 35,000 335,125
------------
Thailand--8.0%
Bangkok Bank Public Company Ltd. (Banks) ......... 40,000 274,850
Ruam Pattana Fund II (Closed End Mutual
Fund) .......................................... 1,250,000 376,375
Siam Cement Public Co. Ltd. (Building &
Construction) ................................. 13,500 233,468
Siam Commercial Bank Public Co. Ltd.
(Banks) ....................................... 80,000 327,350
------------
1,212,043
------------
TOTAL COMMON STOCKS
(Identified cost $13,960,794) ................................. 14,047,866
------------
WARRANTS--0.1%
Malaysia--0.1%
AMMB Holdings Berhad Warrants (Banks) (b) ......... 6,000 8,082
------------
TOTAL WARRANTS
(Identified cost $0) .......................................... 8,082
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000)
---------- -------------
<S> <C> <C> <C>
CONVERTIBLE BONDS--0.1%
Malaysia--0.1%
AMMB Holdings Berhad (ICULS)
Cv. 7.50%, '02 (Banks) ...... NR $ 60(d) 21,514
-------------
TOTAL CONVERTIBLE BONDS
(Identified cost $24,024) ................................. 21,514
-------------
NON-CONVERTIBLE BONDS--0.1%
Malaysia--0.1%
AMMB Holdings Berhad 5%, '02
(Banks) ..................... NR 60(d) 20,325
-------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $24,024).................................... 20,325
-------------
TOTAL LONG-TERM INVESTMENTS--92.9%
(Identified cost $14,008,842) .............................. 14,097,787
-------------
SHORT-TERM OBLIGATIONS--7.2%
Brown Brothers Harriman repurchase
agreement, 5.50%, dated 6/30/97 due
7/1/97, repurchase price $1,100,168,
collateralized by U.S. Treasury Note
5.875%, 2/28/99, market value $1,100,000 1,100 1,100,000
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,100,000)................................. 1,100,000
-------------
TOTAL INVESTMENTS--100.1%
(Identified cost $15,108,842) .............................. 15,197,787(a)
Cash and receivables, less liabilities--(0.1%) ............ (19,079)
-------------
NET ASSETS--100.0% .......................................... $ 15,178,708
=============
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,341,350 and gross
depreciation of $1,273,870 for income tax purposes. At June 30, 1997 the
aggregate cost of securities for federal income tax purposes was
$15,130,307.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional buyers. At June 30, 1997,
these securities amounted to a value of $728,096 or 4.8% of net assets.
(d) Par value represents Malaysian Ringgits.
See Notes to Financial Statements
46
<PAGE>
ABERDEEN NEW ASIA SERIES
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of Total Long-Term Investments
(Unaudited)
<TABLE>
<S> <C>
Banks .............................. 17.1%
Basic Materials ..................... 2.2
Building & Construction ............ 1.7
Chemical ........................... 2.9
Closed End Mutual Fund ............... 2.7
Diversified Financial Services ...... 8.9
Electrical Equipment ............... 2.5
Electronics ........................ 2.9
Engineering & Construction ......... 1.5
Hotels .............................. 2.0
Insurance ........................... 7.4
Miscellaneous ........................ 6.5
Property ........................... 7.5
Retail .............................. 7.1
Retail-Food ........................... 2.4
Tobacco .............................. 2.8
Utility-Electric ..................... 6.2
Utility-Gas ........................ 2.1
Utility-Telephone .................. 13.6
------
100.0%
======
</TABLE>
See Notes to Financial Statements
47
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $15,108,842) .................. $15,197,787
Cash ........................................................................... 81,716
Receivables
Investment securities sold ................................................... 103,868
Fund shares sold ............................................................ 28,892
Dividends and interest ...................................................... 25,337
Tax reclaim .................................................................. 340
------------
Total assets ............................................................... 15,437,940
------------
Liabilities
Payables
Investment securities purchased ............................................. 217,141
Investment advisory fee ...................................................... 7,648
Financial agent fee ......................................................... 2,092
Trustees' fee ............................................................... 3,596
Accrued expenses ............................................................ 28,755
------------
Total liabilities ............................................................ 259,232
------------
Net Assets ..................................................................... $15,178,708
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .............................. $14,962,521
Undistributed net investment income .......................................... 75,464
Accumulated net realized gain ................................................ 51,807
Net unrealized appreciation ................................................... 88,916
------------
Net Assets ..................................................................... $15,178,708
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 1,502,474
============
Net asset value and offering price per share ................................. $10.10
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Investment Income
Dividends .............................................................................. $ 164,246
Interest .............................................................................. 29,519
Foreign taxes withheld ............................................................... (11,089)
----------
Total investment income ............................................................... 182,676
----------
Expenses
Investment advisory fee ............................................................... 66,215
Financial agent fee .................................................................. 3,973
Custodian .............................................................................. 26,588
Trustees' fee ........................................................................ 9,597
Printing .............................................................................. 9,582
Professional ........................................................................... 8,486
Miscellaneous ........................................................................ 2,374
----------
Total expenses ........................................................................ 126,815
Less expenses borne by investment adviser ............................................. (44,046)
----------
Net expenses ........................................................................ 82,769
----------
Net investment income .................................................................. 99,907
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ...................................................... 54,192
Net realized loss on foreign currency transactions .................................... (1,657)
Net change in unrealized appreciation (depreciation) on investments .................. 111,496
Net change in unrealized appreciation (depreciation) on foreign currency and foreign
currency transactions ............................................................... 22
----------
Net gain on investments ............................................................... 164,053
----------
Net increase in net assets resulting from operations .................................... $ 263,960
==========
</TABLE>
See Notes to Financial Statements
48
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended From Inception
June 30, 1997 September 17, 1996 to
(Unaudited) December 31, 1996
--------------- ----------------------
<S> <C> <C>
From Operations
Net investment income ............................................................ $ 99,907 $ 58,378
Net realized gain ............................................................... 52,535 3,328
Net change in unrealized appreciation (depreciation) .............................. 111,518 (22,602)
------------ ------------
Net increase in net assets resulting from operations .............................. 263,960 39,104
------------ ------------
From Distributions to Shareholders
Net investment income ............................................................ (20,499) (58,378)
Net realized gains ............................................................... (7,488) --
In excess of net investment income ................................................ -- (512)
------------ ------------
Decrease in net assets from distributions to shareholders ........................ (27,987) (58,890)
------------ ------------
From Share Transactions
Proceeds from sales of shares (585,361 and 1,343,657 shares, respectively) ...... 5,776,921 13,400,256
Net asset value of shares issued from reinvestment of distributions (2,845 and 5,928
shares, respectively) ............................................................ 27,986 58,890
Cost of shares repurchased (248,382 and 186,935 shares, respectively) ............ (2,447,378) (1,854,154)
------------ ------------
Increase in net assets from share transactions .................................... 3,357,529 11,604,992
------------ ------------
Net increase in net assets ...................................................... 3,593,502 11,585,206
Net Assets
Beginning of period ............................................................... 11,585,206 0
------------ ------------
End of period (including undistributed net investment income and distributions in
excess of net investment income of $75,464 and ($3,944), respectively) ............ $ 15,178,708 $ 11,585,206
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Six Months
Ended From Inception
6/30/97 9/17/96 to
(Unaudited) 12/31/96
-------------- ---------------
<S> <C> <C>
Net asset value, beginning of period ......... $ 9.96 $ 10.00
Income from investment operations
Net investment income ........................ 0.07(1) 0.05(1)
Net realized and unrealized gain (loss) ...... 0.10 (0.04)
--------- ---------
Total from investment operations ............ 0.17 0.01
--------- ---------
Less distributions
Dividends from net investment income ......... (0.02) (0.05)
Dividends from net realized gains ............ (0.01) --
--------- ---------
Total distributions ........................ (0.03) (0.05)
--------- ---------
Change in net asset value ..................... 0.14 (0.04)
--------- ---------
Net asset value, end of period ............... $ 10.10 $ 9.96
========= =========
Total return ................................. 1.62%(3) 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 15,179 $ 11,585
Ratio to average net assets of:
Operating expenses ........................... 1.25%(2) 1.25%(2)
Net investment income ........................ 1.51%(2) 2.40%(2)
Portfolio turnover rate ........................ 6%(3) 2%(3)
Average commission rate paid(4) ............... $ 0.0098 $ 0.0109
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.03
and $0.03 per share, respectively.
(2) Annualized
(3) Not annualized
(4) 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.
See Notes to Financial Statements
49
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1--Organization
The Phoenix Edge Series Fund (the "Fund") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company. The Fund is
comprised of the Money Market, Growth, Multi-Sector Fixed Income, Strategic
Allocation (formerly Total Return), International, Balanced, Real Estate
Securities ("Real Estate"), Strategic Theme and Aberdeen New Asia Series.
The Fund was established as part of the December 8, 1986 reorganization of
the Phoenix Home Life Variable Accumulation Account (the Account) from a
management investment company to a unit investment trust under the
Investment Company Act of 1940. The Fund is organized with Series which are
available only to the sub-accounts of the Phoenix Home Life Variable
Accumulation Account, the Phoenix Home Life Variable Universal Life Account,
the PHL Variable Accumulation Account, and the Phoenix Home Life Separate
Accounts B, C, and D.
Each Series has distinct investment objectives. The Money Market Series
seeks to provide maximum current income consistent with capital preservation
and liquidity. The Growth Series seeks to achieve intermediate and long-term
growth of capital, with income as a secondary consideration. The
Multi-Sector Fixed Income Series seeks to provide long-term total return by
investing in a diversified portfolio of high yield and high quality fixed
income securities. The Strategic Allocation Series seeks 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 by investing in three
market segments; stocks, bonds and money market instruments. The
International Series seeks as its investment objective a high total return
consistent with reasonable risk by investing primarily in an internationally
diversified portfolio of equity securities. The Balanced Series seeks to
provide reasonable income, long-term growth and conservation of capital. The
Real Estate Series seeks to achieve capital appreciation and income with
approximately equal emphasis through investments in real estate investment
trusts and companies that operate, manage, develop or invest in real estate.
The Strategic Theme Series seeks long-term appreciation of capital by
investing in securities that the adviser believes are well positioned to
benefit from cultural, demographic, regulatory, social or technological
changes worldwide. The Aberdeen New Asia Series seeks to provide long-term
capital appreciation by investing primarily in diversified equity securities
of issuers organized and principally operating in Asia, excluding Japan.
Note 2--Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
A. Security Valuation
Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the
basis of broker quotations or valuations provided by a pricing service which
utilizes information with respect to recent sales, market transactions in
comparable securities, quotations from dealers, and various relationships
between securities in determining value. Short-term investments having a
remaining maturity of 60 days or less are valued at amortized cost which
approximates market. All other securities and assets are valued at their
fair value as determined in good faith by or under the direction of the
Trustees.
The Money Market Series uses the amortized cost method of security valuation
which, in the opinion of the Trustees, represents the fair value of the
particular security. The Trustees monitor the deviations between the Series'
net asset value per share as determined by using available market quotations
and its amortized cost per share. If the deviation exceeds 1/2 of 1%, the
Board of Trustees will consider what action, if any, should be initiated to
provide fair valuation. The Series attempts to maintain a constant net asset
value of $10 per share.
B. Security Transactions and Related Income
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date, or in the case of certain foreign securities, as soon as
the Fund is notified. The Fund does not amortize premiums except for the
Money Market Series, but does amortize discounts using the effective
interest method. Realized gains and losses are determined on the identified
cost basis.
C. Income Taxes
Each of the Series is treated as a separate taxable entity. It is the policy
of each Series to comply with the requirements of the Internal Revenue Code,
applicable to regulated investment companies, and to distribute
substantially all of its taxable income to its shareholders. In addition,
each Series intends to distribute an amount sufficient to avoid imposition
of any excise tax under Section 4982 of the Code. Therefore, no provision
for federal income taxes or excise taxes has been made.
D. Distributions to Shareholders
Distributions are recorded by each Series on the ex-dividend date and all
distributions are reinvested into the Fund. Income and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences
include the treatment of non-taxable dividends, expiring capital loss
carryforwards, foreign currency gain/loss, partnerships, and losses deferred
due to wash sales and excise tax regulations. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid in capital.
50
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1997
(Unaudited)
E. Foreign Currency Translation
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency
exchange rates between the trade and settlement dates of a portfolio
transaction is treated as a gain or loss on foreign currency. Likewise, the
gain or loss resulting from a change in currency exchange rates between the
date income is accrued and paid is treated as a gain or loss on foreign
currency. The Trust does not separate that portion of the results of
operations arising from changes in exchange rates and that portion arising
from changes in the market prices of securities.
F. Forward Currency Contracts
Each Series may enter into forward currency contracts in conjunction with
the planned purchase or sale of foreign denominated securities in order to
hedge the U.S. dollar cost or proceeds. Forward currency contracts involve,
to varying degrees, elements of market risk in excess of the amount
recognized in the statement of assets and liabilities. Risks arise from the
possible movements in foreign exchange rates or if the counterparty does not
perform under the contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any 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 and their customers. The contract is marked-to-market daily and the
change in market value is recorded by the Series as an unrealized gain (or
loss). When the contract is closed or offset with the same counterparty, the
Series records a realized gain (or loss) equal to the change in the value of
the contract when it was opened and the value at the time it was closed or
offset.
G. Futures Contracts
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Series may enter into financial
futures contracts as a hedge against anticipated changes in the market value
of their portfolio securities. Upon entering into a futures contract, the
Series is required to pledge to the broker an amount of cash and/or
securities equal to the "initial margin" requirements of the futures
exchange on which the contract is traded. Pursuant to the contract, the
Series agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in the value of the contract. Such receipts or
payments are known as variation margins and are recorded by the Series as
unrealized gains or losses. When the contract is closed, the Series records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The potential risk to the Series is that the change in value of the futures
contract may not correspond to the change in value of the hedged
instruments.
H. Options
Each Series may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
Each Series will realize a gain or loss upon the expiration or closing of
the option transaction. Gains and losses on written options are reported
separately in the Statement of Operations. When a written option is
exercised, the proceeds on sales or amounts paid are adjusted by the amount
of premium received. Options written are reported as a liability in the
Statement of Assets and Liabilities and subsequently marked to market to
reflect the current value of the option. The risk associated with written
options is that the change in value of options contracts may not correspond
to the change in value of the hedged instruments. In addition, losses may
arise from changes in the value of the underlying instruments, or if a
liquid secondary market does not exist for the contracts.
Each Series may purchase options which are included in the Series' Schedule
of Investments and subsequently marked to market to reflect the current
value of the option. When a purchased option is exercised, the cost of the
security is adjusted by the amount of premium paid. The risk associated with
purchased options is limited to the premium paid.
I. Trust Expenses
Expenses incurred by the Fund with respect to any two or more Series are
allocated in proportion to the net assets of each Series, except where
allocation of direct expense to each Series or an alternative allocation
method can be more fairly made.
J. Credit Risk
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such
investments may be volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the market
prices of these investments and the income they generate, as well as a
fund's ability to repatriate such amounts.
K. When-Issued and Delayed Delivery Transactions
Each Series may engage in when-issued or delayed delivery transactions. The
Series record when-issued securities on the trade date and maintain
collateral for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis begin earning interest on the
settlement date.
51
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1997
(Unaudited)
L. Repurchase Agreements
A repurchase agreement is a transaction where a Series acquires a security
for cash and obtains a simultaneous commitment from the seller to repurchase
the security at an agreed upon price and date. The Series, through its
custodian, takes possession of securities collateralizing the repurchase
agreement. The collateral is marked to market daily to ensure that the
market value of the underlying assets remains sufficient to protect the
Series in the event of default by the seller. If the seller defaults and the
value of the collateral declines or, if the seller enters insolvency
proceedings, realization of collateral may be delayed or limited.
Note 3--Investment Advisory Fees and Related Party Transactions
As compensation for its advisory services to the Fund, Phoenix Investment
Counsel, Inc. ("PIC"), an indirect majority-owned subsidiary of Phoenix Home
Life Mutual Insurance Company ("PHL") is entitled to a fee, based upon the
following annual rates as a percentage of the average daily net assets of
each separate Series listed below:
<TABLE>
<CAPTION>
Rate for first Rate for next Rate for excess
Series $250 million $250 million over $500 million
- ------------------------------------ ---------------- --------------- ------------------
<S> <C> <C> <C>
Money Market .................. 0.40% 0.35% 0.30%
Multi-Sector Fixed Income ...... 0.50 0.45 0.40
Balanced ........................ 0.55 0.50 0.45
Strategic Allocation ............ 0.60 0.55 0.50
Growth ........................ 0.70 0.65 0.60
International .................. 0.75 0.70 0.65
Strategic Theme .................. 0.75 0.70 0.65
</TABLE>
The investment adviser for the Real Estate Series is Phoenix Realty
Securities, Inc. ("PRS"). PRS is an indirect, wholly-owned subsidiary of
PHL. For its services, PRS is entitled to a fee at an annual rate of 0.75%
of the average daily net assets for the first $1 billion. Pursuant to a
Sub-Advisory Agreement with the Series, PRS delegates certain investment
decisions and research functions to ABKB/LaSalle Securities Limited
Partnership ("ABKB") for which ABKB is paid a fee by PRS equal to 0.45% of
the average daily net assets of the Real Estate Series for the first $1
billion.
Phoenix-Aberdeen International Advisors, LLC ("PAIA") serves as the
investment adviser to the Aberdeen New Asia Series. PAIA is a joint venture
between PM Holdings, Inc., a direct subsidiary of PHL, and Aberdeen Fund
Managers, Inc. ("Aberdeen"), a wholly-owned subsidiary of Aberdeen Trust
PLC. PAIA is entitled to a fee, at an annual rate of 1.00% of the average
daily net assets of the Aberdeen New Asia Series. Pursuant to Sub-advisory
agreements, PAIA delegates certain investment decisions and functions to
other entities. PIC receives a fee of 0.30% of the average daily net assets
of the Aberdeen New Asia Series from PAIA for providing research and other
domestic advisory services, as needed. In addition, PAIA also pays a
sub-advisory fee to Aberdeen of 0.40% of the average daily net assets of the
Aberdeen New Asia Series for implementing certain portfolio transactions and
providing research and other services.
Each Series (except the International, Real Estate, Strategic Theme and
Aberdeen New Asia Series) pays a portion or all of its other operating
expenses (not including management fee, interest, taxes, brokerage fees and
commissions), up to 0.15% of its average net assets. The International, Real
Estate, Strategic Theme and Aberdeen New Asia Series pay other operating
expenses up to 0.40%, 0.25%, 0.25% and 0.25%, respectively, of its average
net assets. Expenses above these limits are paid by the Advisers, PIC, PRS,
PAIA and/or PHL and/or PHL Variable Insurance Company.
As Financial Agent to the Fund and to each Series, Phoenix Equity Planning
Corporation ("PEPCO") receives a fee at an annual rate of 0.06% of the
average daily net assets of each Series for bookkeeping, administrative and
pricing services.
At June 30, 1997, PHL and affiliates held shares in the Phoenix Edge Series
Fund and/or in the underlying unit investment trusts which had the following
aggregate value:
<TABLE>
<S> <C>
Growth Series .................. $7,522,072
Real Estate Series ............ 7,693,097
Strategic Theme Series ......... 2,572,136
Aberdeen New Asia Series ...... 3,019,905
</TABLE>
52
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1997
(Unaudited)
Note 4--Purchases and Sales of Securities
Purchases and sales of securities during the six months ended June 30, 1997
(excluding U.S. Government and agency securities, short-term securities,
options and forward currency contracts) aggregated the following:
<TABLE>
<CAPTION>
Purchases Sales
---------------- ---------------
<S> <C> <C>
Growth Series ........................ $2,163,752,829 $2,236,130,828
Multi-Sector Fixed Income Series ...... 93,356,800 69,187,574
Strategic Allocation Series ............ 621,240,071 657,164,018
International Series .................. 142,106,374 123,535,335
Balanced Series ........................ 145,273,897 163,898,779
Real Estate Series ..................... 16,657,755 1,913,367
Strategic Theme Series ............... 89,446,361 85,084,464
Aberdeen New Asia Series ............... 4,058,739 781,016
</TABLE>
There were no purchases or sales of such securities in the Money Market
Series.
Purchases and sales of long-term U.S. Government and agency securities
during the six months ended June 30, 1997 aggregated the following:
<TABLE>
<CAPTION>
Purchases Sales
-------------- ------------
<S> <C> <C>
Multi-Sector Fixed Income Series ...... $ 57,663,042 $64,496,161
Strategic Allocation Series ............ 103,651,416 74,134,244
Balanced Series ........................ 13,255,047 10,157,884
</TABLE>
There were no purchases or sales of long-term U.S. Government and agency
securities in the Money Market, Growth, International, Real Estate,
Strategic Theme or Aberdeen New Asia Series.
At June 30, 1997, the following Series had outstanding written call
options:
<TABLE>
<CAPTION>
Shares Expiration Exercise Market
Balanced Series: Subject to Call Date Price Value
---------------- ----------------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Bristol-Myers Squibb Co. .................. 8,000 7/97 $ 80 $ 26,000
Colgate-Palmolive Co. ..................... 20,000 7/97 70 1,250
Eli Lilly & Co. ........................... 8,200 7/97 105 48,175
Intel Corp. ................................. 3,800 7/97 180 238
International Business Machines Corp. ...... 9,000 7/97 90 27,000
PepsiCo, Inc. .............................. 28,000 7/97 40 7,000
Procter & Gamble Co. ........................ 6,000 7/97 150 2,625
T. Rowe Price Associates .................. 10,000 7/97 55 10,000
---------
$122,288
=========
Strategic Theme Series:
-----------------------
Dell Computer Corp. ........................ 4,000 8/97 110 $ 55,000
=========
</TABLE>
53
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1997
(Unaudited)
Written call option activity for the six months ended June 30, 1997
aggregated the following:
<TABLE>
<CAPTION>
Strategic Allocation Series
-----------------------------
# of Amount
Options of Premiums
------------ ----------------
<S> <C> <C>
Options outstanding at December 31, 1996 ......... -- $ --
Options written ................................. 5,299 1,543,694
Options cancelled in closing purchase transactions (5,149) (1,503,833)
Options expired ................................. -- --
Options exercised ................................. (150) (39,861)
-------- --------------
Options outstanding at June 30, 1997 ............ -- $ --
======== ==============
<CAPTION>
Balanced Series Strategic Theme Series
----------------------- ----------------------
# of Amount # of Amount
Options of Premiums Options of Premiums
--------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1996 ......... -- $ -- -- $ --
Options written ................................. 967 138,688 40 33,879
Options cancelled in closing purchase transactions (37) (12,950) -- --
Options expired ................................. -- -- -- --
Options exercised ................................. -- -- -- --
----- ----------- --- --------
Options outstanding at June 30, 1997 ............ 930 $ 120,536 40 $33,879
===== =========== === ========
</TABLE>
Note 5--Forward Currency Contracts
At June 30, 1997, the International Series had entered into various forward
currency contracts which contractually obligate the Series to deliver
currencies at specified dates. Open short contracts were as follows:
<TABLE>
<CAPTION>
In Net
Contracts Exchange Settlement Unrealized
to Deliver For Date Value Appreciation
- --------------- --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
FL 20,000,000 US 10,400,957 8/1/97 $10,201,830 $199,127
========
</TABLE>
FL = Dutch Florin
US = U.S. Dollar
Note 6--Capital Loss Carryovers
At December 31, 1996, the Strategic Theme Series had available for federal
income tax purposes unused capital losses of $396,065 expiring in 2003.
Under current tax law, capital losses realized after October 31, 1996 may be
deferred and treated as occurring on the first day of the following tax
year. For the calendar year ended December 31, 1996, the Growth and Aberdeen
New Asia Series elected to defer $613 and $1,755, respectively, in losses
occurring between November 1, 1996 and December 31, 1996.
54
<PAGE>
THE PHOENIX EDGE SERIES FUND
101 Munson Street
Greenfield, Massachusetts 01301
Board of Trustees
C. Duane Blinn
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Philip R. Reynolds
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
Officers
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
David R. Pepin, Executive Vice President
William J. Newman, Senior Vice President
James D. Wehr, Senior Vice President
Hugh Young, Senior Vice President
Curtiss O. Barrows, Vice President
Mary E. Canning, Vice President
Jeanne H. Dorey, Vice President
Jean Claude Gruet, Vice President
William E. Keen, III, Vice President
David Lui, Vice President
William R. Moyer, Vice President
Scott C. Noble, Vice President
C. Edwin Riley, Jr., Vice President
Barbara Rubin, Vice President
Leonard J. Saltiel, Vice President
Julie L. Sapia, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
Investment Advisers
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
Phoenix Realty Securities, Inc.
(Real Estate Securities Series)
38 Prospect Street
Hartford, Connecticut 06115-0479
Phoenix-Aberdeen International Advisors, LLC
(Aberdeen New Asia Series)
56 Prospect Street
Hartford, Connecticut 06115-0480
Custodians
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(Aberdeen New Asia Series and International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust Company
(Real Estate Securities Series)
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
- --------------------------------------------------------------------------------
This report is not authorized for distribution to prospective investors in The
Phoenix Edge Series Fund unless preceded or accompanied by an effective
Prospectus which includes information concerning the Fund's Record and other
pertinent information.
- --------------------------------------------------------------------------------
<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 Semi-annual
Report to Shareholders for the period ended June 30, 1997,
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.
1.8 Amendment to Declaration of Trust, establishing the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
1.9 Amendment to Declaration of Trust, establishing five new
Series. [To be filed by Amendment.]
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 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.
5.3 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.
5.4 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Phoenix Investment Counsel, Inc. filed via
Edgar with Post-Effective Amendment No. 19 on September 3,
1996.
5.5 Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc., covering the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
5.6 Form of Subadvisory Agreement among Registrant, Phoenix
Investment Counsel, Inc. and J. P. Morgan Investment
Management, Inc., covering the Research Enhanced Index
Series, filed via Edgar with Post-Effective Amendment No.
22 on July 15, 1997.
C-1
<PAGE>
5.7 Form of Subadvisory Agreement among the Registrant, Phoenix
Realty Securities, Inc. and Duff & Phelps Investment
Management Co., covering the Phoenix Real Estate Securities
Series, filed via Edgar.
6. Not Applicable.
7. Not Applicable.
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, Multi-Sector Fixed
Income, Strategic Income 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 and Asia
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 dated May 1, 1997 covering
the Real Estate Securities and Enhanced Index Series, filed
via Edgar.
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. 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.
10.4 Opinion and Consent of Counsel covering shares of the
Research Enhanced Index Series filed via Edgar with
Post-Effective Amendment No. 22 on July 15, 1997.
10.5 Opinion and Consent of Counsel covering shares of the
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Growth
& Income, Phoenix Value Equity and Schafer Mid-Cap Value
Series. [To be filed by Amendment.]
11. Written Consent of Price Waterhouse LLP, filed via Edgar
with Post-Effective Amendment No. 22 on July 15, 1997.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Financial Data Schedule, filed via Edgar herewith 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
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- AS OF NOVEMBER 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 5
Nifty Fifty Series 0
Seneca Mid-Cap Series 0
Value Series 0
Growth & Income Series 0
Schafer Mid-Cap Series 0
- -------------------
*Phoenix Mutual Life Insurance Company purchased 1 share of the Money Market
Series at a price of $10 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.; 801-48190 for for Phoenix Realty
Securities, Inc.; 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
C-4
<PAGE>
ITEM 31. MANAGEMENT SERVICES
All management-related service contracts are discussed in Part A or B
of this Registration Statement.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) (1) 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.
(2) 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. 23 with respect to
the Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and
Schafer Mid-Cap 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 12th day of December, 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 12th day of December, 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)
Exhibit 5.7
Form of Subadvisory Agreement
<PAGE>
THE PHOENIX EDGE SERIES FUND
SUBADVISORY AGREEMENT
---------------------
November 19, 1997
Duff & Phelps Investment Management Co.
55 East Monroe Street
Chicago, Illinois
RE: Subadvisory Agreement
Gentlemen:
The Phoenix Edge Series Fund (the "Fund") is a diversified open-end investment
company of the series type registered under the Investment Company Act of 1940
(the "Act"), and is subject to the rules and regulations promulgated thereunder.
The shares of the Fund are offered or may be offered in several series,
including the Real Estate Securities Series (the "Series").
Phoenix Realty Securities, Inc. (the "Adviser") evaluates and recommends series
advisers for the Series and is responsible for the day-to-day management of the
Series.
1. Employment as a Subadviser. The Adviser, being duly authorized, hereby
employs Duff & Phelps Investment Management Co. (the "Subadviser") as a
discretionary series adviser to invest and reinvest the assets of the
Series on the terms and conditions set forth herein. The services of the
Subadviser hereunder are not to be deemed exclusive; the Subadviser may
render services to others and engage in other activities which do not
conflict in any material manner in the Subadviser's performance hereunder.
2. Acceptance of Employment; Standard of Performance. The Subadviser accepts
its employment as a discretionary series adviser of the Series and agrees
to use its best professional judgment to make investment decisions for the
Series in accordance with the provisions of this Agreement and as set forth
in Schedule D attached hereto and made a part hereof.
3. Services of Subadviser. In providing management services to the Series, the
Subadviser shall be subject to the investment objectives, policies and
restrictions of the Fund as they apply to the Series and as set forth in
the Fund's then current Prospectus and Statement of Additional Information
(as
<PAGE>
2
the same may be modified from time to time and provided to the Subadviser
by Adviser), and to the investment restrictions set forth in the Act and
the Rules thereunder, to the supervision and control of the Trustees of the
Fund (the "Trustees"), and to instructions from the Adviser. The Subadviser
shall not, without the Fund's prior approval, effect any transactions which
would cause the Series at the time of the transaction to be out of
compliance with any of such restrictions or policies.
4. Transaction Procedures. All series transactions for the Series will be
consummated by payment to, or delivery by, the Custodian(s) from time to
time designated by the Fund (the "Custodian"), or such depositories or
agents as may be designated by the Custodian in writing, of all cash and/or
securities due to or from the Series. The Subadviser shall not have
possession or custody of such cash and/or securities or any responsibility
or liability with respect to such custody. The Subadviser shall advise the
Custodian and confirm in writing to the Fund all investment orders for the
Series placed by it with brokers and dealers at the time and in the manner
set forth in Schedule A hereto (as amended from time to time). The Fund
shall issue to the Custodian such instructions as may be appropriate in
connection with the settlement of any transaction initiated by the
Subadviser. The Fund shall be responsible for all custodial arrangements
and the payment of all custodial charges and fees, and, upon giving proper
instructions to the Custodian, the Subadviser shall have no responsibility
or liability with respect to custodial arrangements or the act, omissions
or other conduct of the Custodian.
5. Allocation of Brokerage. The Subadviser shall have authority and discretion
to select brokers and dealers to execute Series transactions initiated by
the Subadviser, and to select the markets on or in which the transactions
will be executed.
A. In placing orders for the sale and purchase of Series securities for
the Fund, the Subadviser's primary responsibility shall be to seek the best
execution of orders at the most favorable prices. However, this
responsibility shall not obligate the Subadviser to solicit competitive
bids for each transaction or to seek the lowest available commission cost
to the Fund, so long as the Subadviser reasonably believes that the broker
or dealer selected by it can be expected to obtain a "best execution"
market price on the particular transaction and determines in good faith
that the commission cost is reasonable in relation to the value of the
brokerage and research services (as defined in Section 28(e)(3) of the
Securities Exchange Act of 1934) provided
3
<PAGE>
by such broker or dealer to the Subadviser, viewed in terms of either that
particular transaction or of the Subadviser's overall responsibilities with
respect to its clients, including the Fund, as to which the Subadviser
exercises investment discretion, notwithstanding that the Fund may not be
the direct or exclusive beneficiary of any such services or that another
broker may be willing to charge the Fund a lower commission on the
particular transaction.
B. Subject to the requirements of paragraph A above, the Adviser shall
have the right to require that transactions giving rise to brokerage
commissions, in an amount to be agreed upon by the Adviser and the
Subadviser, shall be executed by brokers and dealers that provide brokerage
or research services to the Fund or that will be of value to the Fund in
the management of its assets, which services and relationship may, but need
not, be of direct benefit to the Series. In addition, subject to paragraph
A above and the applicable Conduct Rules of the National Association of
Securities Dealers, Inc., the Fund shall have the right to request that
series transactions be executed by brokers and dealers by or through whom
sales of shares of the Fund are made.
C. The Subadviser shall not execute any Series transactions for the
Series with a broker or dealer that is an "affiliated person" (as defined
in the Act) of the Fund, the Subadviser or the Adviser without the prior
written approval of the Fund. The Fund will provide the Subadviser with a
list of brokers and dealers that are "affiliated persons" of the Fund or
Adviser.
6. Proxies. The Fund, or the Adviser as its authorized agent, will vote all
proxies solicited by or with respect to the issuers of securities in which
assets of the Series may be invested. At the request of the Fund, the
Subadviser shall provide the Fund with its recommendations as to the voting
of particular proxies.
7. Fees for Services. The compensation of the Subadviser for its services
under this Agreement shall be calculated and paid by the Adviser in
accordance with the attached Schedule C. Pursuant to the Investment
Advisory Agreement between the Fund and the Adviser, the Adviser is solely
responsible for the payment of fees to the Subadviser.
8. Limitation of Liability. The Subadviser shall not be liable for any action
taken, omitted or suffered to be taken by it in its best professional
judgment, in good faith and believed by it to be authorized or within the
discretion or rights or
<PAGE>
4
powers conferred upon it by this Agreement, or in accordance with specific
directions or instructions from the Fund, provided, however, that such acts
or omissions shall not have constituted a breach of the investment
objectives, policies and restrictions applicable to the Series and that
such acts or omissions shall not have resulted from the Subadviser's
willful misfeasance, bad faith or gross negligence, a violation of the
standard of care established by and applicable to the Subadviser in its
actions under this Agreement or a breach of its duty or of its obligations
hereunder (provided, however, that the foregoing shall not be construed to
protect the Subadviser from liability under the Act).
9. Confidentiality. Subject to the duty of the Subadviser and the Fund to
comply with applicable law, including any demand of any regulatory or
taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Series and the actions of
the Subadviser and the Fund in respect thereof.
10. Assignment. This Agreement shall terminate automatically in the event of
its assignment, as that term is defined in Section 2(a)(4) of the Act. The
Subadviser shall notify the Fund in writing sufficiently in advance of any
proposed change of control, as defined in Section 2(a)(9) of the Act, as
will enable the Fund to consider whether an assignment as defined in
Section 2(a)(4) of the Act will occur, and to take the steps necessary to
enter into a new contract with the Subadviser.
11. Representations, Warranties and Agreements of the Subadviser. The
Subadviser represents, warrants and agrees that:
A. It is registered as an "Investment Adviser" under the Investment
Advisers Act of 1940 ("Advisers Act").
B. It will maintain, keep current and preserve on behalf of the
Fund, in the manner required or permitted by the Act and the Rules
thereunder, the records identified in Schedule B (as Schedule B may
be amended from time to time). The Subadviser agrees that such
records are the property of the Fund, and will be surrendered to the
Fund or to Adviser as agent of the Fund promptly upon request of
either.
C. It has or shall adopt a written code of ethics complying with the
requirements of Rule 17j-l under the Act and will provide the Fund
and Adviser with a copy of the code of ethics and evidence of its
adoption.
<PAGE>
5
Subadviser acknowledges receipt of the written code of ethics
adopted by and on behalf of the Fund (the "Code of Ethics").
Within 10 days of the end of each calendar quarter while this
Agreement is in effect, a duly authorized compliance officer of the
Subadviser shall certify to the Fund and to Adviser that the
Subadviser has complied with the requirements of Rule 17j-l during
the previous calendar quarter and that there has been no violation of
its code of ethics, or the Code of Ethics, or if such a violation has
occurred, that appropriate action was taken in response to such
violation. The Subadviser shall permit the Fund and Adviser to
examine the reports required to be made by the Subadviser under Rule
17j-l(c)(1) and this subparagraph.
D. Reference is hereby made to the Declaration of Trust dated
February 18, 1986 establishing the Fund, a copy of which has been
filed with the Secretary of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto
so filed with the Secretary of the Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto
so filed or hereafter filed. The name The Phoenix Edge Series Fund
refers to the Trustees under said Declaration of Trust, as Trustees
and not personally, and no Trustee, shareholder, officer, agent or
employee of the Fund shall be held to any personal liability in
connection with the affairs of the Fund; only the trust estate under
said Declaration of Trust is liable. Without limiting the generality
of the foregoing, neither the Subadviser nor any of its officers,
directors, partners, shareholders or employees shall, under any
circumstances, have recourse or cause or willingly permit recourse to
be had directly or indirectly to any personal, statutory, or other
liability of any shareholder, Trustee, officer, agent or employee of
the Fund or of any successor of the Fund, whether such liability now
exists or is hereafter incurred for claims against the trust estate.
12. Amendment. This Agreement may be amended at any time, but only by written
agreement among the Subadviser, the Adviser and the Fund, which amendment,
other than amendments to Schedules A, B, and D, is subject to the approval
of the Trustees and the Shareholders of the Fund as and to the extent
required by the Act.
13. Effective Date; Term. This Agreement shall become effective on the date set
forth on the first page of this Agreement, and shall continue in effect
until the
<PAGE>
6
first meeting of the shareholders of the Series, and, if its renewal is
approved at that meeting in the manner required by the Act, shall continue
in effect thereafter only so long as its continuance has been specifically
approved at least annually by the Trustees in accordance with Section 15(a)
of the Investment Company Act, and by the majority vote of the
disinterested Trustees in accordance with the requirements of Section 15(c)
thereof.
14. Termination. This Agreement may be terminated by any party, without
penalty, immediately upon written notice to the other parties in the event
of a breach of any provision thereof by a party so notified, or otherwise
upon thirty (30) days' written notice to the other parties, but any such
termination shall not affect the status, obligations or liabilities of any
party hereto to the other parties.
15. Applicable Law. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the
Commonwealth of Massachusetts.
16. Severability. If any term or condition of this Agreement shall be invalid
or unenforceable to any extent or in any application, then the remainder of
this
<PAGE>
7
Agreement shall not be affected thereby, and each and every term and
condition of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
THE PHOENIX EDGE SERIES FUND
By: /s/ Philip R. McLoughlin
------------------------------
Philip R. McLoughlin
President
PHOENIX REALTY SECURITIES, INC.
By: /s/ Barbara Rubin
------------------------------
Barbara Rubin
President
ACCEPTED:
DUFF & PHELPS INVESTMENT
MANAGEMENT CO.
By: /s/ William R. Moyer
------------------------------
William R. Moyer
Vice President
SCHEDULES: A. Operational Procedures
B. Record Keeping Requirements
C. Fee Schedule
D. Subadviser Functions
<PAGE>
SCHEDULE A
OPERATIONAL PROCEDURES
In order to minimize operational problems, it will be necessary for a flow of
information to be supplied to State Street Bank and Trust Company (the
"Custodian"), the custodian for the Fund.
The Subadviser must furnish the Custodian with daily information as to executed
trades, or, if no trades are executed, with a report to that effect, no later
than 5 p.m. (Eastern Standard time) on the day of the trade (confirmation
received from broker). The necessary information can be sent via facsimile
machine to the Custodian. Information provided to the Custodian shall include
the following:
1. Purchase or sale;
2. Security name;
3. CUSIP number (if applicable);
4. Number of shares and sales price per share;
5. Executing broker;
6. Settlement agent;
7. Trade date;
8. Settlement date;
9. Aggregate commission or if a net trade;
10. Interest purchased or sold from interest bearing security;
11. Other fees;
12. Net proceeds of the transaction;
13. Exchange where trade was executed; and
14. Identified tax lot (if applicable).
When opening accounts with brokers for, and in the name of, the Fund, the
account must be a cash account. No margin accounts are to be maintained in the
name of the Fund. Delivery instructions are as specified by the Custodian. The
Custodian will supply the Subadviser daily with a cash availability report. This
will normally be done by telex so that the Subadviser will know the amount
available for investment purposes.
<PAGE>
SCHEDULE B
RECORDS TO BE MAINTAINED BY THE SUBADVISER
1. (Rule 31a-1(b)(5)) A record of each brokerage order, and all other series
purchases and sales, given by the Subadviser on behalf of the Fund for, or
in connection with, the purchase or sale of securities, whether executed or
unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellations thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
series securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase
and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Fund,
(b) The Adviser (Phoenix Realty Securities, Inc.)
(c) The Subadviser, and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical qualifications
of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions
or other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage commissions or other
compensation.
<PAGE>
3. (Rule 31a-(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the
purchase or sale of series securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members who
participate in the authorization. There shall be retained as part of this
record: any memorandum, recommendation or instruction supporting or
authorizing the purchase or sale of series securities and such other
information as is appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required to
be maintained by registered investment advisers by rule adopted under
Section 204 of the Investment Advisers Act of 1940, to the extent such
records are necessary or appropriate to record the Subadviser's
transactions for the Fund.
- ------------------------------------
*Such information might include: current financial information, annual and
quarterly reports, press releases, reports by analysts and from brokerage
firms (including their recommendation; i.e., buy, sell, hold) or any
internal reports or subadviser review.
<PAGE>
SCHEDULE C
SUBADVISORY FEE
(a) For services provided to the Fund, the Adviser will pay to the
Subadviser, on or before the 10th day of each month, a fee, payable in arrears,
at the annual rate of 0.45% of the average daily net asset values of the Series
up to $1 billion; 0.35% of such values from $1 billion to $2 billion; and 0.30%
of such values in excess of $2 billion. The fees shall be prorated for any month
during which this agreement is in effect for only a portion of the month. In
computing the fee to be paid to the Subadviser, the net asset value of the Fund
and each Series shall be valued as set forth in the then current registration
statement of the Fund.
<PAGE>
SCHEDULE D
SUBADVISER FUNCTIONS
With respect to managing the investment and reinvestment of the Series'
assets, the Subadviser shall provide, at its own expense:
(a) Investment research, advice and analysis, including, without
limitation, initial and ongoing i) assessment of national, regional
and specific real estate markets and real estate related equities, and
ii) detailed analysis of real estate investment trust assets
considered for purchase and held by the Series with respect to inter
alia local market conditions, fair market value, overall property
condition, insurance converages and deductibles, tenant composition
and vacancies, compliance matters relating to zoning, handicap
accessibility, environmental, and other applicable codes, and such
other matters as the Adviser shall from time to time request;
(b) An investment program for the Series consistent with its investment
objectives based upon the development, review and adjustment of
buy/sell strategies approved from time to time by the Board of
Trustees and Adviser;
(c) Implementation of the investment program for the Series based upon the
foregoing criteria;
(d) Quarterly reports, in form and substance acceptable to the Adviser,
with respect to: i) compliance with the Code of Ethics and the
Subadviser's code of ethics; ii) compliance with procedures adopted
from time to time by the Trustees of the Fund relative to securities
eligible for resale under Rule 144A under the Securities Act of 1933,
as amended; iii) diversification of Series assets in accordance with
the then prevailing prospectus and statement of additional information
pertaining to the Series and governing laws; iv) compliance with
governing restrictions relating to the fair valuation of securities
for which market quotations are not readily available or considered
"illiquid" for the purposes of complying with the Series' limitation
on acquisition of illiquid securities; v) any and all other reports
reasonably requested in accordance with or described in this
Agreement; and, vi) the implementation of the Series' investment
program, including, without limitation, analysis of Series
performance;
<PAGE>
(e) Attendance by appropriate representatives of the Subadviser at
meetings requested by the Adviser or Trustees at such time(s) and
location(s) as reasonably requested by the Adviser or Trustees; and
(f) Participation, overall assistance and support in marketing the Series,
including, without limitation, meetings with pension fund
representatives, broker/dealers who have a sales agreement with
Phoenix Equity Planning Corporation, and other parties requested by
the Adviser.
<PAGE>
Exhibit 8.3
Custodian Contract
<PAGE>
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES LISTED ON APPENDIX 1
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By It....................................................1
2. Duties of the Custodian with Respect to Property
of each Fund Held by the Custodian in the United States..................................................2
2.1 Holding Securities..............................................................................2
2.2 Delivery of Securities..........................................................................2
2.3 Registration of Securities......................................................................4
2.4 Bank Accounts...................................................................................4
2.5 Availability of Federal Funds...................................................................5
2.6 Collection of Income............................................................................5
2.7 Payment of Fund Moneys..........................................................................5
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.............................6
2.9 Appointment of Agents...........................................................................7
2.10 Deposit of Fund Assets in U.S. Securities System................................................7
2.11 Fund Assets Held in the Custodian's Direct Paper System.........................................8
2.12 Segregated Account..............................................................................9
2.13 Ownership Certificates for Tax Purposes.........................................................9
2.14 Proxies.........................................................................................9
2.15 Communications Relating to Fund Securities.....................................................10
3. Duties of the Custodian with Respect to Property of
each Fund Held Outside of the United States.............................................................10
3.1 Appointment of Foreign Sub-Custodians..........................................................10
3.2 Assets to be Held..............................................................................10
3.3 Foreign Securities Systems.....................................................................10
3.4 Holding Securities.............................................................................11
3.5 Agreements with Foreign Banking Institutions...................................................11
3.6 Access of Independent Accountants of each Fund.................................................11
3.7 Reports by Custodian...........................................................................11
3.8 Transactions in Foreign Custody Account........................................................12
3.9 Liability of Foreign Sub-Custodians............................................................12
3.10 Liability of Custodian.........................................................................12
3.11 Reimbursement for Advances.....................................................................13
3.12 Monitoring Responsibilities....................................................................13
3.13 Branches of U.S. Banks.........................................................................13
3.14 Tax Law........................................................................................13
4. Payments for Sales or Repurchase or Redemptions
of Shares of each Fund..................................................................................14
5. Proper Instructions.....................................................................................14
6. Actions Permitted Without Express Authority.............................................................15
7. Evidence of Authority...................................................................................15
8. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value
and Net Income..........................................................................................15
9. Records 16
10. Opinion of Fund's Independent Accountants...............................................................16
11. Reports to Fund by Independent Public Accountants.......................................................16
12. Compensation of Custodian...............................................................................16
13. Responsibility of Custodian.............................................................................16
14. Effective Period, Termination and Amendment.............................................................18
15. Successor Custodian.....................................................................................18
16. Interpretive and Additional Provisions..................................................................19
17. Additional Funds........................................................................................19
18. Massachusetts Law to Apply..............................................................................20
19. Prior Contracts.........................................................................................20
20. Shareholder Communications..............................................................................20
21. Limitation of Liability................................................................................21
</TABLE>
<PAGE>
MASTER CUSTODIAN CONTRACT
This Contract between each fund or series of a fund listed on Appendix 1
which evidences its agreement to be bound hereby by executing a copy of this
Contract (each such fund, any and all separate series or portfolios thereof and
any additional portfolios or separate series thereof which become subject to
this Contract pursuant to Section 17 hereof, are individually hereafter referred
to as a "Fund"), and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, each of the Funds has previously entered into a Custodian Contract
with the Custodian;
WHEREAS, the Custodian and each of the Funds desire to replace such
existing Custodian Contracts with this Master Custodian Contract between the
Custodian and all of the Funds;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
Each Fund hereby employs the Custodian as the custodian of the assets of
such Fund, including securities which such Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to be
held outside the United States ("foreign securities") pursuant to the provisions
of such Fund's governing documents (domestic securities and foreign securities
are sometimes collectively referred to herein as "Securities"). Each Fund agrees
to deliver to the Custodian all securities and cash of such Fund, and all
payments of income, payments of principal or capital distributions received by
it with respect to all securities owned by such Fund from time to time, and the
cash consideration received by it for such new or treasury shares each class of
capital stock or beneficial interest, as applicable, of such Fund, ("Shares") as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of a Fund held or received by such Fund and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Fund from time to time employ
one or more sub-custodians, located in the United States but only in accordance
with an applicable vote by the Board of the Fund, and provided that the
Custodian shall have no more or less responsibility or liability to the Fund on
account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Fund shall approve in writing the
terms of any subcustodian agreement with a United States subcustodian. The
Custodian may employ as sub-custodian for each Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE>
2. Duties of the Custodian with Respect to Property of each Fund Held By the
Custodian in the United States
--------------------------------------------------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Fund all non-cash property, to be held by it in the
United States including all domestic securities owned by such Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury (each, a "U.S.
Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System of
the Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Fund held by the Custodian or in a U.S. Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from such Fund, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of such Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by such Fund;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of such Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
such Fund or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
2
<PAGE>
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of such Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by such
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and such Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any
loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of
the Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by such Fund prior to the receipt of
such collateral;
11) For delivery as security in connection with any borrowings by such
Fund requiring a pledge of assets by such Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
such Fund, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by such Fund ;
3
<PAGE>
13) For delivery in accordance with the provisions of any agreement among
such Fund, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by such Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for such Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of such Fund ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from such Fund, a certified copy of a
resolution of the Board or of the Executive Committee of such Fund
signed by an officer of such Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of such Fund to be
delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities shall
be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of each Fund
or in the name of any nominee of each Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to each Fund, unless
a Fund has authorized in writing the appointment of a nominee to be used in
common with other registered investment companies having the same
investment adviser as such Fund, or in the name or nominee name of any
agent appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian under the terms of this Contract shall be in "street name"
or other good delivery form. If, however, a Fund directs the Custodian to
maintain securities in "street name", the Custodian shall utilize
commercially reasonable means to timely collect income due such Fund on
such securities and to timely notify each Fund of relevant corporate
actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Fund , subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of such
Fund, other than cash maintained by such Fund in a bank account established
and used
4
<PAGE>
in accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for each Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem necessary
or desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company Act
of 1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Fund be approved by vote of a majority of the Board of such
Fund. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between a Fund and the
Custodian, the Custodian shall, upon the receipt of Proper Instructions
from such Fund, make federal funds available to such Fund as of specified
times agreed upon from time to time by such Fund and the Custodian in the
amount of checks received in payment for Shares of such Fund which are
deposited into such Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to Securities held hereunder to which each Fund shall be
entitled either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Unless otherwise agreed to by the
parties, income due each Fund on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith,
other than to provide each Fund with such information or data as may be
necessary to assist each Fund in arranging for the timely delivery to the
Custodian of the income to which each Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions from a Fund,
which may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the following
cases only:
1) Upon the purchase of Securities, options, futures contracts or options
on futures contracts for the account of such Fund but only (a) against
the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment
5
<PAGE>
Company Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose) registered
in the name of such Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer; (b)
in the case of a purchase effected through a U.S. Securities System,
in accordance with the conditions set forth in Section 2.10 hereof;
(c) in the case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section 2.11; (d) in the
case of repurchase agreements entered into between such Fund and the
Custodian, or another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase by such Fund of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from such Fund or (e) for
transfer to a time deposit account of such Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt of
a confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from such Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of Securities
owned by such Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by such Fund as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by such Fund,
including but not limited to the following payments for the account of
such Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of such Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
5) For the payment of any dividends on Shares of such Fund declared
pursuant to the governing documents of such Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from such Fund, a certified copy of a resolution
of the Board or of the Executive Committee of such Fund signed by an
officer of such Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
6
<PAGE>
purpose to be a proper purpose, and naming the person or persons to
whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except
as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of Securities for the account of such Fund is
made by the Custodian in advance of receipt of the securities purchased in
the absence of specific Proper Instructions from such Fund to so pay in
advance, the Custodian shall be absolutely liable to such Fund for such
securities to the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times, subject to
the applicable Fund's prior approval, in its discretion appoint (and may at
any time remove) any other bank or trust company which is itself qualified
under the Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of this Article
2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Exchange Act, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "U.S.
Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of each Fund in a U.S. Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the U.S. Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of each Fund
which are maintained in a U.S. Securities System shall identify by
book-entry those securities belonging to each Fund;
3) The Custodian shall pay for securities purchased for the account of
each Fund upon (i) receipt of advice from the U.S. Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of each Fund. The Custodian shall
transfer securities sold for the account of each Fund upon (i) receipt
7
<PAGE>
of advice from the U.S. Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of each Fund. Copies of all advices from the
U.S. Securities System of transfers of securities for the account of
each Fund shall identify each Fund, be maintained for each Fund by the
Custodian and be provided to each Fund at its request. Upon request,
the Custodian shall furnish each Fund confirmation of each transfer to
or from the account of each Fund in the form of a written advice or
notice and shall furnish to each Fund copies of daily transaction
sheets reflecting each day's transactions in the U.S. Securities
System for the account of each Fund.
4) The Custodian shall provide each Fund with any report obtained by the
Custodian on the U.S. Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from each Fund the initial
certificate required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to each Fund for the benefit of such Fund
for any loss or damage to such Fund resulting from use of the U.S.
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the U.S.
Securities System; at the election of the affected Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claim against the U.S. Securities System or any other person
which the Custodian may have as a consequence of any such loss or
damage if and to the extent that such Fund has not been made whole for
any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by each Fund in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from each Fund ;
2) The Custodian may keep securities of each Fund in the Direct Paper
System only if such securities are represented in an account of the
Custodian in the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
8
<PAGE>
3) The records of the Custodian with respect to securities of each Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to each Fund;
4) The Custodian shall pay for securities purchased for the account of
each Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
each Fund. The Custodian shall transfer securities sold for the
account of each Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for the
account of each Fund;
5) The Custodian shall furnish each Fund confirmation of each transfer to
or from the account of each Fund, in the form of a written advice or
notice, of Direct Paper on the next business day following such
transfer and shall furnish to each Fund copies of daily transaction
sheets reflecting each day's transactions in the Direct Paper System
for the account of each Fund;
6) The Custodian shall provide each Fund with any report on its system of
internal accounting control as each Fund may reasonably request from
time to time.
2.12 Pledged Account. The Custodian shall upon receipt of Proper Instructions
from a Fund establish and maintain a pledged account or accounts for and on
behalf of such Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by the
Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among such Fund , the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by such Fund, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by such Fund or commodity futures
contracts or options thereon purchased or sold by such Fund, (iii) for the
purposes of compliance by such Fund with the procedures required by
Investment Company Act Release No. 10666, and subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper Instructions from such Fund ,
a certified copy of a resolution of the Board or of the Executive Committee
of such Fund signed by an
9
<PAGE>
officer of such Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of each Fund held by it and in connection with
transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
such Fund or a nominee of such Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the applicable Fund such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.15 Communications Relating to Fund Securities. Subject to the provisions of
Section 2.3, the Custodian shall transmit promptly to each Fund all written
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by such
Fund and the maturity of futures contracts purchased or sold by such Fund)
received by the Custodian from issuers of the securities being held for
such Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to each Fund all written information received by the
Custodian from issuers of the securities whose tender or exchange is sought
and from the party (or his agents) making the tender or exchange offer. If
a Fund desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, such Fund shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of each Fund Held Outside
of the United States
--------------------------------------------------------------------------
3.1 Appointment of Foreign Sub-Custodians. Each Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for such Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of such Fund's Board, the Custodian and such Fund may
agree to amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, a Fund may instruct the
Custodian to cease the employment of any one or more such sub-custodians
for maintaining custody of such Fund's assets.
10
<PAGE>
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or each Fund may determine to be reasonably
necessary to effect such Fund's foreign securities transactions. The
Custodian shall identify on its books as belonging to each Fund, the
foreign securities of each Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and each Fund, assets of each Fund shall be
maintained in a clearing agency which acts as a securities depository or in
a book-entry system for the central handling of securities located outside
of the United States (each a "Foreign Securities System") only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof (Foreign Securities Systems and
U.S. Securities Systems are collectively referred to herein as the
"Securities Systems"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3.6
hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including each Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash
property of each Fund which are maintained in such account shall identify
by book-entry those securities and other non-cash property belonging to
each Fund and (ii) the Custodian shall require that securities and other
non-cash property so held by the foreign sub-custodian be held separately
from any assets of the foreign sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall provide that: (a) the assets of each Fund will
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of the foreign banking institution or its creditors or
agents, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for the assets of each Fund will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each Fund; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for each
Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian;
and (e) assets of each Fund held by the foreign sub-custodian will be
subject only to the instructions of the Custodian or its agents. Agreements
with
11
<PAGE>
foreign banking institutions shall contain those provisions required by
subparagraph (c) of Section 17f-5 under the Investment Company Act of 1940.
3.6 Access of Independent Accountants of each Fund. Upon request of each Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of each Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to each Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of each Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of such Fund's
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of such Fund indicating, as
to securities acquired for such Fund, the identity of the entity having
physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3.8, the provisions of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis to the foreign
securities of each Fund held outside the United States by foreign
sub-custodians. (b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account of
each Fund and delivery of securities maintained for the account of each
Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such securities from such
purchaser or dealer. (c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's nominee to the
same extent as set forth in Section 2.3 of this Contract, and each Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of a Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that such Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
12
<PAGE>
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by Section 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this Section
3.10, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to each Fund for any
loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If, pursuant to Proper Instructions, a Fund
requires the Custodian to advance cash or securities for any purpose for
the benefit of a Fund including the purchase or sale of foreign exchange or
of contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Contract, except such as may arise from events or circumstances for
which the Custodian or a sub-custodian are liable pursuant to Sections 3.9
and 3.10 above, or from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Fund shall be security therefor and
should such Fund fail to repay the Custodian promptly, the Custodian shall
upon prior written notice be entitled to utilize available cash and to
dispose of such Fund's assets to the extent necessary to obtain
reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to each
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian and such other information needed
to permit the Fund to comply with Section 17f-5 under the 1940 Act. Such
information shall be similar in kind and scope to that furnished to each
Fund in connection with the initial approval of this Contract. In addition,
the Custodian will promptly inform each Fund in the event that the
Custodian learns of a material adverse change in the financial condition of
a foreign sub-custodian or any material loss of the assets of each Fund or
in the case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity
13
<PAGE>
will decline below $200 million (U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody of a Fund's assets
are maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by
Article 1 of this Contract. (b) Cash held for each Fund in the United
Kingdom shall be maintained in an interest bearing account established for
each Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on any Fund or the Custodian as
custodian of such Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the responsibility
of each Fund to notify the Custodian of the obligations imposed on each
Fund or the Custodian as custodian of each Fund by the tax law of
jurisdictions other than those mentioned in the above sentence, including
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist each Fund with respect to any claim for
exemption or refund under the tax law of jurisdictions for which each Fund
has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of each Fund
-----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of each Fund and deposit into the account of each Fund such
payments as are received for Shares of each Fund issued or sold from time to
time by each Fund. The Custodian will provide timely notification to each Fund
and the Transfer Agent of any receipt by it of payments for Shares of such Fund.
From such funds as may be available for the purpose but subject to the
limitations of each Fund's governing documents and any applicable votes of the
Board of each Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of each Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of each Fund, the Custodian shall honor checks drawn on
the
14
<PAGE>
Custodian by a holder of Shares, which checks have been furnished by such
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between each Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing signed
or initialed by one or more person or persons as the Board of each Fund shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. Each Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of each Fund
accompanied by a detailed description of procedures approved by the Board,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board and the
Custodian are satisfied that such procedures afford adequate safeguards for such
Fund's assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from each
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the applicable Fund;
1) surrender securities in temporary form for securities in definitive
form;
2) endorse for collection, in the name of each Fund, checks, drafts and
other negotiable instruments; and
3) in general, attend to all ministerial details in connection with the
sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of each Fund except as otherwise
directed by the Board of each Fund.
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<PAGE>
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to have been properly executed by or on behalf
of each Fund. The Custodian may receive and accept a certified copy of a vote of
the Board of each Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board pursuant to the governing documents of each Fund as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
---------------------------------------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of each Fund to keep the books of
account of each Fund and/or compute the net asset value per share of the
outstanding shares of each Fund or, if directed in writing to do so by each Fund
, shall itself keep such books of account and/or compute such net asset value
per share. If so directed, the Custodian shall also calculate daily the net
income of each Fund as described in each Fund's currently effective Prospectus
and shall advise each Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of each Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Fund shall be made at the time or times
described from time to time in each Fund's currently effective Prospectus.
9. Records
-------
The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of each Fund under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of each Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the applicable
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the request of any Fund, supply such Fund with a tabulation
of securities owned by such Fund and held by the Custodian and shall, when
requested to do so by a Fund and for such compensation as shall be agreed upon
between such Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as each Fund may from time
to time request, to obtain from year to year favorable opinions from each Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of each Fund's Form N-1A,
16
<PAGE>
and Form N-SAR or other annual reports to the Securities and Exchange Commission
and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
--------------------------------------------------
The Custodian shall provide each Fund, at such times as each Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
each Fund to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, determine in accordance with the fee
schedule attached hereto as Schedule B, as amended from time to time as agreed
by each Fund and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to any Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for a Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to any Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
17
<PAGE>
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts provided Custodian has maintained an adequate
disaster recovery plan; (ii) errors by a Fund or its investment advisor in their
instructions to the Custodian provided such instructions have been in accordance
with this Contract; (iii) the insolvency of or acts or omissions by a Securities
System; (iv) any delay or failure of any broker, agent or intermediary, central
bank or other commercially prevalent payment or clearing system to deliver to
the Custodian's sub-custodian or agent securities purchased or in the remittance
or payment made in connection with securities sold; (v) any delay or failure of
any company, corporation, or other body in charge or registering or transferring
securities in the name of the Custodian, a Fund, the Custodian's sub-custodians,
nominees or agents or any consequential losses arising out of such delay or
failure to transfer such securities including non-receipt of bonus, dividends
and rights and other accretions or benefits; (vi) delays or inability to perform
its duties due to any disorder in market infrastructure with respect to any
particular security or Securities System; and (vii) any provision of any present
or future law or regulation or order of the United States of America, or any
state thereof, or any other country, or political subdivision thereof or of any
court of competent jurisdiction.
Except as expressly provided in Section 3.9, the Custodian shall be liable
for the acts or omissions of a foreign banking institution appointed pursuant to
the provisions of Article 3 to the same extent as set forth in Article 1 hereof
with respect to sub-custodians located in the United States.
If a Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to a Fund being liable for the payment of money or incurring liability
of some other form, such Fund, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If a Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlements) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of such Fund shall be security
therefor and should such Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Fund's assets to the extent necessary to obtain reimbursement.
18
<PAGE>
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to each Fund act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of each Fund has approved the initial use of
a particular Securities System by each Fund, as required by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not with
respect to a Fund act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board
has approved the initial use of the Direct Paper System by each Fund; provided
further, however, that a Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of its governing documents, and further provided, that a Fund may at any time by
action of its Board (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, each Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination as provided
herein.
15. Successor Custodian
-------------------
If a successor custodian for a Fund shall be appointed by the Board of such
Fund, the Custodian shall, upon termination, and upon receipt of a certified
copy of such vote, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of such
Fund then held by it hereunder and shall transfer to an account of the successor
custodian all of the securities of such Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of the
applicable Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the Custodian
on or before the date when such
19
<PAGE>
termination shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
the Custodian on behalf of such Fund and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on behalf
of such Fund and to transfer to an account of such successor custodian all of
the securities of such Fund held in any Securities System. Thereafter, such bank
or trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of a Fund to procure the certified copy of the vote referred to above or
of the Board to appoint a successor custodian, the Custodian shall be entitled
to fair compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and each
Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the governing documents of any Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
17. Additional Funds
----------------
In the event that any mutual funds in addition to the Funds are hereafter
established which desire to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such fund shall become a
Fund hereunder, subject to the delivery by the new Fund of resolutions
authorizing the appointment of the Custodian and such other supporting or
related documentation as the Custodian may request. All references to the "Fund"
are to each of the Funds listed on Appendix 1 individually, as if this Contract
were between each such individual Fund and the Custodian.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
20
<PAGE>
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between each of the Funds and the Custodian relating to the custody of
such Fund's assets.
20. Shareholder Communications
--------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs each Fund to indicate whether such Fund authorizes
the Custodian to provide such Fund's name, address, and share position to
requesting companies whose stock each Fund owns. If a Fund tells the Custodian
"no", the Custodian will not provide this information to requesting companies.
If a Fund tells the Custodian "yes" or do not check either "yes" or "no" below,
the Custodian is required by the rule to treat such Fund as consenting to
disclosure of this information for all securities owned by such Fund or any
funds or accounts established by each Fund. For each Fund's protection, the Rule
prohibits the requesting company from using such Fund's name and address for any
purpose other than corporate communications. Please indicate below whether each
Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the name,
address, and share positions of each Fund listed on
Appendix 1.
NO [X] The Custodian is not authorized to release the
name, address, and share positions of each Fund listed
on Appendix 1.
21. Limitation of Liability.
------------------------
The execution of this Contract has been authorized by each Fund's Board.
This Contract is executed on behalf of each Fund or, in the case of a Fund
organized as a business trust, the trustees of such Fund as trustees and not
individually and the obligations of each Fund under this Contract are not
binding upon any of such Fund's trustees, officers or shareholders individually
but are binding only upon the assets and property of such Fund. A Certificate of
Trust in respect of each Fund organized as a business trust is on file with the
Secretary of the Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of May, 1997.
EACH OF THE FUNDS LISTED ON APPENDIX 1
By: /s/ Michael E. Haylon
--------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
--------------------------
Executive Vice President
<PAGE>
APPENDIX 1
Fund Names
(as of May 1, 1997)
Phoenix California Tax Exempt Bonds, Inc.
The Phoenix Edge Series Fund
Real Estate Securities Series
Phoenix Income and Growth Fund
Phoenix Multi-Portfolio Fund
Phoenix Diversified Income Portfolio
Phoenix Emerging Markets Bond Portfolio
Phoenix Endowment Equity Portfolio
Phoenix Real Estate Securities Portfolio
Phoenix Mid Cap Portfolio
Phoenix Tax-Exempt Bond Portfolio
Phoenix Multi-Sector Fixed Income Fund, Inc.
Phoenix Multi-Sector Short Term Bond Fund
Phoenix Series Fund
Phoenix Aggressive Growth Fund Series
Phoenix Balanced Fund Series
Phoenix Convertible Fund Series
Phoenix Growth Fund Series
Phoenix High Yield Fund Series
Phoenix Money Market Series
Phoenix U.S. Government Securities Fund Series
Phoenix Strategic Allocation Fund, Inc.
Phoenix Strategic Equity Series Fund
Phoenix Equity Opportunities Fund
Phoenix Micro Cap Fund
Phoenix Small Cap Fund
Phoenix Strategic Theme Fund
Phoenix Duff & Phelps Institutional Mutual Funds
Enhanced Reserves Portfolio
Real Estate Equity Securities Portfolio
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of each Fund for use as
sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- ----------------------------
Fund's Authorized Officer
Date:
-------------------------
<PAGE>
[LOGO]State Street
SCHEDULE B
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
Effective June 1, 1996
Phoenix Duff and Phelps Funds
- --------------------------------------------------------------------------------
I. Administration
Domestic Custody - Maintain custody of fund assets. Settle portfolio
purchases and sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash transactions.
Monitor corporate actions. Report portfolio positions. The custody fee
shown below is an annual charge, billed and payable monthly, based on
average monthly net assets.
Average Monthly Net Assets Annual Fees in Basis Points
-------------------------- ---------------------------
First $3 Billion .5
Next $2 Billion .375
Thereafter .25
II. Domestic Portfolio Trades - For each line item processed
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $ 6.00
New York Physical Settlements $25.00
Physical Maturities-delivery and collection fee $33.00
All other trades $16.00
III. International Custody - Maintain custody of funds assets. Settle portfolio
purchases and sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash transactions in
local and base currency. Report foreign taxes. File foreign tax reclaims.
Monitor corporate actions. Report portfolio positions.
<PAGE>
[LOGO]State Street
A. Country Grouping
- ---------------------
Group A Group B Group C Group D Group E
- ------- ------- ------- ------- -------
Austria Australia Denmark Indonesia Argentina
Canada Belgium Finland Malaysia Bangladesh
Euroclear Hong Kong France Mexico Brazil
Germany Netherlands Ireland Portugal Chile
Japan New Zealand Italy South Korea China
Singapore Luxembourg Spain Columbia
Switzerland Norway Sri Lanka Cypress
Philippines Sweden Greece
Thailand Taiwan Hungary
United Kingdom India
Israel
Pakistan
Peru
Turkey
Uruguay
Venezuela
B. Transaction Charges
- ------------------------
Group A Group B Group C Group D Group E
- ------- ------- ------- ------- -------
$26 $30 $45 $60 $75
C. Holding Charges in Basis Points (Annual Fee)
- -------------------------------------------------
Assets Group A Group B Group C Group D Group E
- ------ ------- ------- ------- ------- -------
First $100 MM 5.0 8.0 13.0 15.0 25.0
Next $100 MM 4.0 6.0 10.0 13.0 25.0
Excess 3.0 5.0 8.0 13.0 25.0
IV. Options
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
<PAGE>
[LOGO]State Street
V. Lending of Securities
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned securities $15.00
Deliver securities collateral versus receipt of
loaned securities $25.00
Loan administration -- mark-to-market per day, per loan $ 3.00
VI. Interest Rate Futures
Transactions -- no security movement $ 8.00
VII. Coupon Bonds
Monitoring for calls and processing coupons --
for each coupon issue held -- monthly charge $ 5.00
VIII. Holdings Charge
For each issue maintained -- monthly charge $ 5.00
IX. Principal Reduction Payments Per Paydown $10.00
<PAGE>
[LOGO]State Street
X. Special Services
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to negotiation.
Fees for tax accounting/recordkeeping for options, financial futures,
and other special items will be negotiated separately.
Account Position Appraisal
--------------------------
Special appraisal by industry classification:
Monthly fee - per portfolio $50.00
XI. Out-of-Pocket Expenses
----------------------
A billing for the recovery of applicable out-of-pocket expenses will
be made as of the end of each month. Out-of-pocket expenses include,
but are not limited to the following:
Telephone
Wire Charges ($4.70 per wire in and $4.55 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer - $15 each
PTC Deposit/Withdrawal for same day turnarounds - $50.00
XII. Payment
The above fees will be charged against the fund's custodian checking
account five (5) days after the invoice is mailed to the fund's
offices.
<PAGE>
[LOGO]State Street
PHOENIX DUFF AND PHELPS FUNDS STATE STREET BANK & TRUST CO.
By /s/ Nancy G. Curtiss By /s/ Charles R. Whittemore, Jr.
------------------------------ ------------------------------
Title Treasurer Title Vice President
------------------------------ ------------------------------
Date June 13, 1997 Date June 11, 1996
------------------------------ ------------------------------
<PAGE>
Exhibit 27
FDS Schedules
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 1
<NAME> Money Market Series
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 124,306
<INVESTMENTS-AT-VALUE> 124,306
<RECEIVABLES> 381
<ASSETS-OTHER> 494
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 125,181
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 446
<TOTAL-LIABILITIES> 446
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,735
<SHARES-COMMON-STOCK> 12,473
<SHARES-COMMON-PRIOR> 13,136
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 124,735
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,487
<OTHER-INCOME> 0
<EXPENSES-NET> (336)
<NET-INVESTMENT-INCOME> 3,151
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,151)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,252
<NUMBER-OF-SHARES-REDEEMED> (17,230)
<SHARES-REINVESTED> 315
<NET-CHANGE-IN-ASSETS> (6,626)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 336
<AVERAGE-NET-ASSETS> 126,713
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 2
<NAME> Phoenix Edge Growth Series
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 1,255,899
<INVESTMENTS-AT-VALUE> 1,378,220
<RECEIVABLES> 27,585
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,405,808
<PAYABLE-FOR-SECURITIES> 39,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 921
<TOTAL-LIABILITIES> 40,544
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,170,060
<SHARES-COMMON-STOCK> 70,131
<SHARES-COMMON-PRIOR> 65,391
<ACCUMULATED-NII-CURRENT> 76
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,807
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 122,321
<NET-ASSETS> 1,365,264
<DIVIDEND-INCOME> 6,663
<INTEREST-INCOME> 3,789
<OTHER-INCOME> 0
<EXPENSES-NET> (4,553)
<NET-INVESTMENT-INCOME> 5,899
<REALIZED-GAINS-CURRENT> 73,628
<APPREC-INCREASE-CURRENT> 41,571
<NET-CHANGE-FROM-OPS> 121,098
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,563)
<DISTRIBUTIONS-OF-GAINS> (77,550)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,570
<NUMBER-OF-SHARES-REDEEMED> (6,150)
<SHARES-REINVESTED> 4,320
<NET-CHANGE-IN-ASSETS> 129,869
<ACCUMULATED-NII-PRIOR> 739
<ACCUMULATED-GAINS-PRIOR> 76,729
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,029
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,553
<AVERAGE-NET-ASSETS> 1,291,690
<PER-SHARE-NAV-BEGIN> 18.89
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (1.18)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.47
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 3
<NAME> Multi-Sector Fixed Income Series
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 168,024
<INVESTMENTS-AT-VALUE> 170,768
<RECEIVABLES> 7,636
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 178,404
<PAYABLE-FOR-SECURITIES> 15,824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,981
<TOTAL-LIABILITIES> 20,805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151,962
<SHARES-COMMON-STOCK> 15,281
<SHARES-COMMON-PRIOR> 14,026
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (61)
<ACCUMULATED-NET-GAINS> 2,954
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,744
<NET-ASSETS> 157,599
<DIVIDEND-INCOME> 46
<INTEREST-INCOME> 6,029
<OTHER-INCOME> 0
<EXPENSES-NET> (482)
<NET-INVESTMENT-INCOME> 5,593
<REALIZED-GAINS-CURRENT> 2,994
<APPREC-INCREASE-CURRENT> (1,671)
<NET-CHANGE-FROM-OPS> 6,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,080)
<DISTRIBUTIONS-OF-GAINS> (1,292)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,867
<NUMBER-OF-SHARES-REDEEMED> (3,332)
<SHARES-REINVESTED> 720
<NET-CHANGE-IN-ASSETS> 12,555
<ACCUMULATED-NII-PRIOR> 427
<ACCUMULATED-GAINS-PRIOR> 1,251
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 371
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 497
<AVERAGE-NET-ASSETS> 149,741
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 4
<NAME> Strategic Allocation Series
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 352,714
<INVESTMENTS-AT-VALUE> 373,832
<RECEIVABLES> 46,283
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 420,118
<PAYABLE-FOR-SECURITIES> 22,549
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 330
<TOTAL-LIABILITIES> 22,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 347,662
<SHARES-COMMON-STOCK> 27,119
<SHARES-COMMON-PRIOR> 27,418
<ACCUMULATED-NII-CURRENT> 32
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,118
<NET-ASSETS> 397,239
<DIVIDEND-INCOME> 1,242
<INTEREST-INCOME> 4,766
<OTHER-INCOME> 0
<EXPENSES-NET> (1,314)
<NET-INVESTMENT-INCOME> 4,694
<REALIZED-GAINS-CURRENT> 28,434
<APPREC-INCREASE-CURRENT> 3,696
<NET-CHANGE-FROM-OPS> 36,824
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,077)
<DISTRIBUTIONS-OF-GAINS> (4,640)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,670
<NUMBER-OF-SHARES-REDEEMED> (2,639)
<SHARES-REINVESTED> 671
<NET-CHANGE-IN-ASSETS> 22,995
<ACCUMULATED-NII-PRIOR> 415
<ACCUMULATED-GAINS-PRIOR> 4,632
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,314
<AVERAGE-NET-ASSETS> 384,477
<PER-SHARE-NAV-BEGIN> 13.65
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 1.18
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.65
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 5
<NAME> Phoenix Edge International Series
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 172,949
<INVESTMENTS-AT-VALUE> 204,821
<RECEIVABLES> 935
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 205,756
<PAYABLE-FOR-SECURITIES> 108
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,515
<TOTAL-LIABILITIES> 1,623
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,744
<SHARES-COMMON-STOCK> 12,886
<SHARES-COMMON-PRIOR> 11,895
<ACCUMULATED-NII-CURRENT> 198
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,121
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,070
<NET-ASSETS> 204,133
<DIVIDEND-INCOME> 1,576
<INTEREST-INCOME> 734
<OTHER-INCOME> 0
<EXPENSES-NET> (864)
<NET-INVESTMENT-INCOME> 1,446
<REALIZED-GAINS-CURRENT> 15,138
<APPREC-INCREASE-CURRENT> 7,003
<NET-CHANGE-FROM-OPS> 23,587
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,639)
<DISTRIBUTIONS-OF-GAINS> (4,631)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,805
<NUMBER-OF-SHARES-REDEEMED> (1,283)
<SHARES-REINVESTED> 468
<NET-CHANGE-IN-ASSETS> 31,465
<ACCUMULATED-NII-PRIOR> 1,391
<ACCUMULATED-GAINS-PRIOR> 4,615
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 684
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 864
<AVERAGE-NET-ASSETS> 183,991
<PER-SHARE-NAV-BEGIN> 14.52
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.84
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792359
<NAME> Phoenix Edge Series Fund
<SERIES>
<NUMBER> 6
<NAME> Edge Balanced
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 202,785
<INVESTMENTS-AT-VALUE> 216,233
<RECEIVABLES> 1,207
<ASSETS-OTHER> 108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217,548
<PAYABLE-FOR-SECURITIES> 194
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 630
<TOTAL-LIABILITIES> 824
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 189,228
<SHARES-COMMON-STOCK> 17,130
<SHARES-COMMON-PRIOR> 16,942
<ACCUMULATED-NII-CURRENT> 35
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,014
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,447
<NET-ASSETS> 216,724
<DIVIDEND-INCOME> 663
<INTEREST-INCOME> 3,295
<OTHER-INCOME> 0
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