As filed with the Securities and Exchange Commission on July 15, 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. 22 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 25 [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 RICHARD J. WIRTH, ESQ.
THE PHOENIX EDGE SERIES FUND C/O PHOENIX HOME LIFE MUTUAL
C/O PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
INSURANCE COMPANY ONE AMERICAN ROW
ONE AMERICAN ROW HARTFORD, CT 06115
HARTFORD, CONNECTICUT 06115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
It is proposed that this filing will become effective (check
appropriate box):
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On May 1, 1997 pursuant to paragraph (b), or
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] On ( ) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] On ( ) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
-------------------
Declaration Required By Rule 24f-2: Pursuant to Rule 24f-2 under the Investment
Company Act of 1940, the Registrant has chosen to register an indefinite number
or amount of securities under the Securities Act of 1933. On February 21, 1997,
the Registrant filed its Rule 24f-2 Notice for the Registrant's most recent
fiscal year.
-------------------
================================================================================
<PAGE>
THE PHOENIX EDGE SERIES FUND
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS (PART A) AND
STATEMENT OF ADDITIONAL INFORMATION (PART B)
OF INFORMATION REQUIRED BY FORM N-1A
PURSUANT TO RULE 495(A)
<TABLE>
<CAPTION>
PART A
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Introduction
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Introduction; Investment Objectives and Policies; Other
Special Investment Methods; The Fund and Its Management
5. Management of the Fund..................................... The Fund and Its Management; Custodian, Transfer Agent
and Dividend Paying Agent
6. Capital Stock and Other Securities......................... The Fund and Its Management; Shares of Beneficial Interest;
Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered....................... Purchase of Shares; Net Asset Value; Redemption of Shares
8. Redemption or Repurchase................................... Purchase of Shares; Net Asset Value; Redemption of Shares
9. Pending Legal Proceedings.................................. Not Applicable
PART B
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------- -------------------------------------------
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Table of Contents
12. General Information and History............................ The Phoenix Edge Series Fund; Investing in the Fund
13. Investment Objectives and Policies......................... Investment Policies; Investment Restrictions;
Portfolio Turnover
14. Management of the Fund..................................... Management of the Fund
15. Control Persons and Principal Holders of Securities........ Management of the Fund
16. Investment Advisory and Other Services..................... Management of the Fund; The Investment Adviser
17. Brokerage Allocation and Other Practices................... Brokerage Allocation
18. Capital Stock and Other Securities......................... Investing In the Fund; Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered.................................. Determination of Net Asset Value; Investing in the Fund;
Redemption of Shares
20. Tax Status................................................. Taxes
21. Underwriters............................................... Not Applicable
22. Calculation of Yield Quotations of Money
Market Funds.............................................. Money Market Series
23. Financial Statements....................................... Financial Statements
</TABLE>
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS:
101 Munson Street P.O. Box 8027
Greenfield, MA Boston, MA 02266-8027
PROSPECTUS
July 15, 1997
The Phoenix Edge Series Fund (formerly "The Big Edge Series Fund"), a
Massachusetts business trust (the "Fund"), is an open-end management investment
company which is intended to meet a wide range of investment objectives with its
ten separate Series. Generally, each Series operates as if it were a
separate fund.
The shares of the Fund are not directly offered to the public. You can
invest in the Fund only by buying a Variable Accumulation Annuity Contract from
Phoenix Home Life Mutual Insurance Company ("Phoenix"), or by buying a Variable
Universal Life Insurance Policy, also offered by Phoenix, or by buying a
Variable Accumulation Annuity Contract offered by PHL Variable Insurance Company
("PHL Variable"), or by buying a Variable Universal Life Insurance Policy
offered by Phoenix Life and Annuity Company ("PLAC"), and directing the
allocation of your payment or payments to the Subaccount(s) corresponding to the
Series in which you wish to invest. The Subaccounts will, in turn, invest in
shares of the Fund. Not all Series may be offered through a particular Contract
or Policy. The Fund also offers its shares through other Phoenix products.
The investment objectives of the Series are as follows:
Multi-Sector Fixed Income ("Multi-Sector") Series. The investment objective
of the Multi-Sector Series is to seek long-term total return by investing in a
diversified portfolio of fixed income securities market sectors encompassing
high yield (high risk) and high quality fixed income securities. THE RISKS OF
INVESTING IN THESE SECURITIES ARE OUTLINED IN SECTION "INVESTMENT OBJECTIVES AND
POLICIES" OF THIS PROSPECTUS.
Money Market Series. The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity. The Money Market Series invests exclusively in high quality money
market instruments. AN INVESTMENT IN THE MONEY MARKET SERIES IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE.
Growth Series. The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
Strategic Allocation ("Allocation") Series. The investment objective of the
Allocation Series (formerly the "Total Return Series") is to realize as high a
level of total rate of return over an extended period of time as is considered
consistent with prudent investment risk. The Allocation Series invests in
stocks, bonds and money market instruments in accordance with the Adviser's
appraisal of investments most likely to achieve the highest total rate of
return.
Balanced Series. The investment objectives of the Balanced Series are
reasonable income, long-term capital growth and conservation of capital. It is
intended that this Series will invest in common stocks and fixed income
securities, with emphasis on income-producing securities which appear to have
some potential for capital enhancement.
International Series. The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions (see "Other Special Investment Methods"). The
International Portfolio provides a means for investors to invest a portion of
their assets outside the United States.
Real Estate Securities ("Real Estate") Series. The investment objective of
the Real Estate Series is to seek capital appreciation and income with
approximately equal emphasis. The Real Estate Series intends under normal
circumstances to invest in marketable securities of publicly traded real estate
investment trusts (REITs) and companies that operate, develop, manage and/or
invest in real estate located primarily in the United States.
Strategic Theme ("Theme") Series. The investment objective of the Theme
Series is to seek long-term appreciation of capital. This Series seeks to
identify securities benefiting from long-term trends present in the United
States and abroad. The Series intends to invest primarily in common stocks
believed by the Adviser to have substantial potential for capital growth. Since
many trends may be early in their development and no history of industry growth
patterns are available, securities owned may present a high degree of risk.
Aberdeen New Asia ("Asia") Series. This Series seeks as its investment
objective long-term capital appreciation. It is intended that this Series will
invest primarily in a diversified portfolio of equity securities of issuers
located in at least three different countries throughout Asia, other than Japan.
Research Enhanced Index ("Enhanced Index") Series. The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500"). It is intended that the
Series will invest in a portfolio of undervalued common stocks and other equity
securities which
2-1
<PAGE>
appear to offer growth potential and an overall volatility of return similar to
that of the S&P 500.
There can be no assurance that any Series will achieve its objectives. See
"Investment Objectives and Policies."
This Prospectus gives you the facts about the Fund and each of its Series
that you should know before directing investment in the Fund, and it should be
read and kept for future reference. A Statement of Additional Information dated
July 15, 1997, which contains further information about the Fund, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. A free copy of the Statement of Additional
Information may be obtained by calling Variable Products Operations of Phoenix
at (800) 447-4312, or by writing to Phoenix Variable Products Mail Operations at
PO Box 8027, Boston, Massachusetts 02266-8027.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus should be read and retained
for future reference.
2-2
<PAGE>
THE PHOENIX EDGE SERIES FUND
TABLE OF CONTENTS
Heading Page
- ----------------------------------------------------------------
Fund Expenses............................................ 2-4
Financial Highlights..................................... 2-5
Introduction............................................. 2-10
Investment Objectives and Policies....................... 2-11
Multi-Sector Series.................................. 2-11
Money Market Series.................................. 2-12
Growth Series........................................ 2-13
Allocation Series.................................... 2-13
International Series................................. 2-13
Balanced Series...................................... 2-15
Real Estate Series................................... 2-15
Theme Series......................................... 2-17
Asia Series.......................................... 2-17
Enhanced Index Series................................ 2-18
Other Special Investment Methods......................... 2-18
Convertible Securities............................... 2-18
Repurchase Agreements................................ 2-18
Options.............................................. 2-18
Financial Futures and Related Options................ 2-19
Foreign Securities................................... 2-19
Leverage............................................. 2-20
Private Placements & Rule 144A Securities............ 2-20
Mortgage-backed Securities........................... 2-20
Lending of Portfolio Securities...................... 2-21
When-Issued Securities............................... 2-21
Investment Restrictions.................................. 2-21
Portfolio Turnover....................................... 2-21
The Fund and Its Management.............................. 2-22
Investment Advisers.................................. 2-22
Portfolio Managers................................... 2-22
Balanced Series.................................. 2-22
Allocation Series................................ 2-22
Multi-Sector Series.............................. 2-23
Growth Series.................................... 2-23
International Series............................. 2-23
Money Market Series.............................. 2-23
Real Estate Series............................... 2-23
Theme Series..................................... 2-23
Asia Series...................................... 2-23
Enhanced Index Series............................ 2-23
Advisory Fees........................................ 2-23
Financial Agent...................................... 2-24
Expenses............................................. 2-24
Portfolio Transactions and Brokerage................. 2-24
Performance History.................................. 2-24
Shares of Beneficial Interest............................ 2-25
Purchase of Shares....................................... 2-26
Net Asset Value.......................................... 2-26
Redemption of Shares..................................... 2-26
Dividends and Distributions.............................. 2-26
Taxes ................................................. 2-27
Custodian, Transfer Agent and
Dividend Paying Agent................................ 2-27
Other Information........................................ 2-27
No dealer, salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this Prospectus,
and if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund, the Investment Advisers or
the Distributor. This Prospectus does not constitute an offering in any state in
which such offering may not be lawfully made.
2-3
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder in
each Series of the Fund will incur. Expenses borne by these separate accounts
and by the owners of the contracts and policies are not reflected in the table.
Please refer to the applicable Variable Contract prospectus for such charges.
The expenses and fees set forth in the table (except for Enhanced Index Series)
are for the fiscal year ended December 31, 1996.
SHAREHOLDER TRANSACTION EXPENSES
ALL SERIES
----------
Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends.......................... None
Deferred Sales Load................................................. None
Redemption Fees..................................................... None
Exchange Fees....................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets for the year ending December 31,
1996)
<TABLE>
<CAPTION>
ALLO- MONEY ENHANCED
GROWTH MULTI-SECTOR CATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME ASIA INDEX
------ ------------ ------ ------ ------------- -------- ----------- ----- ---- -----
Management Fees
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees ...... .63% .50% .58% .40% .75% .55% .75% .75% 1.00% .45%
12b-1 Fees......................... None None None None None None None None None None
Other Operating Expenses
(After Reimbursement).......... .09%(1) .15%(1) .12%(1) .15%(1) .29%(1) .13%(1) .25%(2) .25%(3) .25%(4) .10%(1)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses. .72% .65% .70% .55% 1.04% .68% 1.00% 1.00% 1.25% .55%
</TABLE>
EXAMPLE:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. As noted above, the Fund charges
no redemption fees of any kind.
<TABLE>
<CAPTION>
ALLO- MONEY ENHANCED
GROWTH MULTI-SECTOR CATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME ASIA INDEX
------ ------------ ------ ------ ------------- -------- ----------- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.................. $ 7 $ 7 $ 7 $ 6 $ 11 $ 7 $ 10 $ 10 $ 13 $ 6
3 Years................. $23 $21 $22 $18 $ 33 $22 $ 32 $ 32 $ 40 $18
5 Years................. $40 $36 $39 $31 $ 57 $38 $ 55 $ 55 $ 69 N/A
10 Years................ $89 $81 $87 $69 $127 $85 $122 $122 $151 N/A
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR PERFORMANCE. ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE PURPOSE OF THE TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR WILL BEAR DIRECTLY OR INDIRECTLY AT
THE FUND LEVEL. SEE "THE FUND AND ITS MANAGEMENT."
(1) Phoenix Investment Counsel, Inc. ("PIC") has agreed to reimburse the Series
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 and Enhanced Index Series,
which are .40% and .10%, respectively. If these reimbursements had not been
in place for the fiscal year ended December 31, 1996, total operating
expenses for the Multi-Sector Series would have been approximately .67% of
the average net assets of such Series. Without reimbursement, the total
operating expenses are estimated to be approximately .70% of the average
net assets of the Enhanced Index Series for the fiscal year ending
December 31, 1997.
(2) Phoenix Realty Securities, Inc. and/or Phoenix and/or PHL Variable have
agreed to reimburse the Real Estate Series' operating expenses for the
amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ended December 31, 1996, total operating expenses for the Real Estate Series
would have been approximately 1.43% of average net asset of such Series.
(3) Phoenix Investment Counsel, Inc. and/or Phoenix and/or PHL Variable have
agreed to reimburse the Theme Series' operating expenses for the amount, if
any, by which such Series' operating expenses other than the management fees
for any fiscal year exceed .25% of the average net assets of such Series. If
this reimbursement had not been in place for the fiscal year ending December
31, 1996, total operating expenses for the Theme Series would have been
approximately 1.28% of the average net assets of such Series.
(4) Phoenix-Aberdeen International Advisors, LLC and/or Phoenix and/or PHL
Variable have agreed to reimburse the Asia Series' operating expenses for
the amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ending December 31, 1996, total operating expenses for the Asia Series would
have been approximately 2.87% of the average net assets of such Series.
2-4
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
The following tables set forth certain financial information for the
respective fiscal years of the Fund. The annual information has been extracted
from the Fund's audited financial statements for the respective periods. The
financial information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon is included in the Annual Report
to Shareholders dated December 31, 1996, which is included in the Statement of
Additional Information. The Statement of Additional Information and the Fund's
most recent Annual Report (which contains a discussion of the Fund's
performance) are available at no charge upon request.
MONEY MARKET SERIES
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income.... 0.50 0.56 0.38(1) 0.28(1) 0.35 0.58 0.79 0.88 0.72 0.63
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations............. 0.50 0.56 0.38 0.28 0.35 0.58 0.79 0.88 0.72 0.63
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.... (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72) (0.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. - - - - - - - - - -
--- --- --- --- --- --- --- --- --- ---
Net asset value,
end of period.............. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return(2)............ 4.98% 5.55% 3.77% 2.80% 3.50% 5.80% 7.90% 8.80% 7.20% 6.30%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $131,361 $102,943 $ 94,586 $ 72,946 $ 69,962 $ 51,692 $ 38,709 $ 28,808 $ 22,294 $ 10,749
Ratio to average net assets of:
Operating expenses....... .55% 0.53%(3) 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 4.89% 5.57% 3.85% 2.84% 3.49% 5.76% 7.87% 8.96% 7.24% 6.30%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $.003
and $0.01 per share, respectively.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) For the year ended December 31, 1995, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
GROWTH SERIES
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81 $ 9.84
Income from investment operations
Net investment income.... 0.19 0.20 0.23(1,3) 0.16(3) 0.22(3) 0.39(3) 0.35(3) 0.27(3) 0.32(3) 0.19(3)
Net realized and
unrealized gain.......... 2.10 4.60 0.02 2.77 1.25 4.64 0.10 2.88 0.02 0.45
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations............. 2.29 4.80 0.25 2.93 1.47 5.03 0.45 3.15 0.34 0.64
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.18) (0.17) (0.23) (0.15) (0.23) (0.37) (0.35) (0.27) (0.32) (0.21)
Dividends from net realized
gains.................... (1.35) (2.19) (0.92) (1.20) (0.66) (1.95) - (0.09) - (1.46)
------ ------ ------ ------ ------ ------ --- ------ --- ------
Total distributions.... (1.53) (2.36) (1.15) (1.35) (0.89) (2.32) (0.35) (0.36) (0.32) (1.67)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.76 2.44 (0.90) 1.58 0.58 2.71 0.10 2.79 0.02 (1.03)
---- ---- ------ ---- ---- ---- ---- ---- ---- ------
Net asset value,
end of period.............. $ 18.89 $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81
========== ======== ======== ======== ======= ======== ======== ======== ======== ========
Total Return(2)............ 12.58% 30.85% 1.48% 19.69% 10.29% 43.83% 3.98% 36.06% 3.83% 7.05%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $1,235,395 $985,389 $616,221 $446,368 $245,565 $102,259 $ 40,061 $ 29,931 $ 18,051 $ 18,860
Ratio to average net assets of:
Operating expenses....... 0.72% 0.75%(4) 0.80% 0.79% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 1.03% 1.12% 1.38% 0.97% 1.66% 2.14% 3.19% 2.51% 3.64% 2.34%
Portfolio turnover rate.... 167% 173% 185% 185% 214% 237% 272% 285% 326% 251%
Average commission
rate paid(5)............... $ 0.0455 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $.003
per share.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-5
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
(formerly known as the Bond Series)
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08 $ 10.07
Income from investment operations
Net investment income.... 0.79(1) 0.83(1,3) 0.72(1,3) 0.66(1,3) 0.66(3) 0.74(3) 0.80(3) 0.99(3) 0.92(3) 1.06(3)
Net realized and unrealized
gain (loss).............. 0.43 1.22 (1.28) 0.84 0.25 0.85 (0.37) (0.25) (0.01) (0.93)
---- ---- ------ ---- ---- ---- ------ ------ ------ ------
Total from investment
operations............. 1.22 2.05 (0.56) 1.50 0.91 1.59 0.43 0.74 0.91 0.13
---- ---- ------ ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.78) (0.81) (0.73) (0.66) (0.66) (0.74) (0.80) (1.00) (0.88) (1.12)
Dividends from net realized
gains.................... (0.32) - - (0.15) - - - - - -
------ --- --- ------ --- --- --- --- --- ---
Total distributions.... (1.10) (0.81) (0.73) (0.81) (0.66) (0.74) (0.80) (1.00) (0.88) (1.12)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.12 1.24 (1.29) 0.69 0.25 0.85 (0.37) (0.26) 0.03 (0.99)
---- ---- ------ ---- ---- ---- ------ ------ ---- ------
Net asset value,
end of period.............. $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08
======== ======== ======== ======= ======= ======= ====== ======== ======= ========
Total Return(2)............ 12.42% 23.54% (5.47%) 15.90% 10.03% 19.41% 5.14% 8.30% 10.36% 1.12%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $145,044 $109,046 $74,686 $79,393 $43,090 $21,957 $13,558 $ 13,947 $ 11,081 $ 8,389
Ratio to average net assets of:
Operating expenses...... 0.65% 0.65%(4) 0.66% 0.65% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income... 7.80% 8.55% 7.62% 6.71% 7.47% 8.65% 9.26% 10.99% 10.37% 10.90%
Portfolio turnover rate..... 191% 147% 181% 169% 166% 269% 318% 340% 262% 67%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.002, $.007, $.006 and $.005 per share, respectively.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
STRATEGIC ALLOCATION SERIES
(formerly known as the Total Return Series)
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of period...... $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87 $ 9.85
Income from investment operations
Net investment income.... 0.32 0.45 0.36(1,3) 0.23(3) 0.37(3) 0.42(3) 0.58(3) 0.51(3) 0.46(3) 0.34(3)
Net realized and unrealized
gain (loss).............. 0.91 1.84 (0.56) 1.17 0.99 2.76 0.02 1.38 (0.24) 0.91
---- ---- ------ ---- ---- ---- ---- ---- ------ ----
Total from investment
operations............. 1.23 2.29 (0.20) 1.40 1.36 3.18 0.60 1.89 0.22 1.25
---- ---- ------ ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income................... (0.31) (0.45) (0.37) (0.23) (0.37) (0.42) (0.58) (0.52) (0.41) (0.40)
Dividends from net realized
gains.................... (0.90) (0.89) (0.46) (0.32) (1.10) (0.86) - - - (0.83)
------ ------ ------ ------ ------ ------ --- --- --- ------
Total distributions.... (1.21) (1.34) (0.83) (0.55) (1.47) (1.28) (0.58) (0.52) (0.41) (1.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Change in net asset value.. 0.02 0.95 (1.03) 0.85 (0.11) 1.90 0.02 1.37 (0.19) 0.02
---- ---- ------ ---- ------ ---- ---- ---- ------ ----
Net asset value,
end of period.............. $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87
======== ======== ======== ======== ======== ======== ======== ======== ======= ========
Total Return(2)............ 9.05% 18.22% (1.45%) 11.02% 10.67% 29.44% 5.62% 19.88% 2.33% 12.58%
Ratios/supplemental data:
Net assets, end of period
(thousands).............. $374,244 $353,838 $289,083 $256,011 $163,628 $ 98,415 $ 62,839 $ 57,901 $ 59,109 $ 68,099
Ratio to average net assets of:
Operating expenses....... 0.70% 0.67%(4) 0.74% 0.74% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.... 2.26% 3.28% 2.71% 1.82% 2.90% 3.48% 5.39% 4.73% 4.62% 3.67%
Portfolio turnover rate.... 287% 170% 220% 269% 326% 255% 302% 302% 314% 359%
Average commission
rate paid(5)............... $ 0.0530 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(3) Computed using average shares outstanding.
(4) For the year ended December 31, 1995, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-6
<PAGE>
INTERNATIONAL SERIES
<TABLE>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- --------
Net asset value,
<S> <C> <C> <C> <C> <C> <C> <C>
beginning of period....................... $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07 $ 10.00
Income from investment operations
Net investment income(4)................ 0.11 0.12 0.08 0.07(2) 0.09 0.24(2) 0.07(2)
Net realized and unrealized gain (loss). 2.25 1.02 (0.07) 3.32 (1.40) 1.53 (0.88)
---- ---- ------ ---- ------ ---- ------
Total from investment operations...... 2.36 1.14 0.01 3.39 (1.31) 1.77 (0.81)
---- ---- ---- ---- ------ ---- ------
Less distributions:
Dividends from net investment income.... (0.19) (0.04) (0.03) - (0.04) (0.24) (0.07)
Dividends from net realized gains....... (0.33) (0.25) (0.34) - - (0.41) -
Distributions from paid in capital...... - - - - - (0.02) (0.05)
In excess of net investment income...... (0.02) - - - - - -
------ --- --- --- --- --- ---
Total distributions................... (0.54) (0.29) (0.37) - (0.04) (0.67) (0.12)
------ ------ ------ --- ------ ------ ------
Change in net asset value................. 1.82 0.85 (0.36) 3.39 (1.35) 1.10 (0.93)
----- ----- ------ ---- ------ ---- ------
Net asset value, end of period............ $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07
======== ======== ======== ========= ======== ======= ========
Total Return(3)........................... 18.65% 9.59% 0.03% 38.44% (12.89%) 19.78% (8.10%)
Ratios/supplemental data:
Net assets, end of period (thousands)... $172,668 $134,455 $134,627 $ 61,242 $ 13,772 $ 6,119 $ 2,010
Ratio to average net assets of:
Operating expenses...................... 1.04% 1.07% 1.10% 1.15% 1.50% 1.50% 1.50%(1)
Net investment income................... 0.80% 0.95% 0.64% 0.49% 1.13% 2.44% 1.82%(1)
Portfolio turnover rate................... 142% 249% 172% 193% 74% 104% 48%(1)
Average commission rate paid(5)........... $ 0.0213 N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.05,
$0.02 and $0.07, respectively.
(3) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(4) Computed using average shares outstanding.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
BALANCED SERIES
<TABLE>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/92 TO
<CAPTION>
1996 1995 1994 1993 12/31/92
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................... $ 12.30 $ 10.53 $ 11.31 $ 10.77 $ 10.00
Income from investment operations
Net investment income.......................................... 0.36 0.40(4) 0.38(2,4) 0.32(2,4) 0.19(4)
Net realized and unrealized gain (loss)........................ 0.89 2.02 (0.70) 0.60 0.77
---- ---- ------ ---- ----
Total from investment operations............................ 1.25 2.42 (0.32) 0.92 0.96
---- ---- ------ ---- ----
Less distributions:
Dividends from net investment income........................... (0.35) (0.40) (0.36) (0.32) (0.19)
Dividends from net realized gains.............................. (1.14) (0.25) (0.10) (0.06) -
------ ------ ------ ------ ---
Total distributions........................................ (1.49) (0.65) (0.46) (0.38) (0.19)
------ ------ ------ ------ ------
Change in net asset value.......................................... (0.24) 1.77 (0.78) 0.54 0.77
------ ------ ------ ---- ----
Net asset value, end of period..................................... $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77
======== ======== ======== ======== ========
Total Return(3).................................................... 10.56% 23.28% (2.80%) 8.57% 9.72%(7)
Ratios/supplemental data:
Net assets, end of period (thousands).......................... $204,285 $193,302 $161,105 $158,144 $ 54,467
Ratio to average net assets of:
Operating expenses............................................. 0.68% 0.65%(5) 0.69% 0.70% 0.50%(1)
Net investment income.......................................... 2.93% 3.44% 3.44% 3.16% 3.59%(1)
Portfolio turnover rate............................................ 229% 223% 171% 161% 110%(1)
Average commission rate paid(6).................................... $ 0.0641 N/A N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.001
and $0.001 per share, respectively.
(3) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for all periods shown.
(4) Computed using average shares outstanding.
(5) For the year ended December 31, 1995, the ratio of operating expenses to
average net assets excludes the effect of expense offsets for custodian
fees; if expense offsets were included, the ratio would not significantly
differ.
(6) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
(7) Not annualized.
2-7
<PAGE>
REAL ESTATE SECURITIES SERIES
<TABLE>
<CAPTION>
FROM
YEAR INCEPTION
ENDED 5/1/95 TO
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................ $ 11.33 $ 10.00
Income from investment operations
Net investment income....................................................... 0.50(2) 0.33(2)
Net realized and unrealized gain............................................ 3.14 1.42
---- ----
Total from investment operations........................................ 3.64 1.75
---- ----
Less distributions:
Dividends from net investment income........................................ (0.50) (0.33)
Dividends from net realized gains........................................... (0.15) (0.06)
Tax return of capital....................................................... - (0.03)
--- ------
Total distributions..................................................... (0.65) (0.42)
------ ------
Change in net asset value....................................................... 2.99 1.33
---- ----
Net asset value, end of period.................................................. $ 14.32 $ 11.33
========= ========
Total Return(4)................................................................. 33.09% 17.79%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)....................................... $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses.......................................................... 1.00% 1.00%(1)
Net investment income....................................................... 4.36% 4.80%(1)
Portfolio turnover rate......................................................... 21% 10%(3)
Average commission rate paid(5)................................................. $ 0.0468 N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.05
and $0.07 per share, respectively.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
1/29/96 TO
12/31/96
--------
<S> <C>
Net asset value, beginning of period........................................................... $ 10.00
Income from investment operations
Net investment income...................................................................... 0.04(2)
Net realized and unrealized gain........................................................... 0.99
----
Total from investment operations....................................................... 1.03
----
Less distributions:
Dividends from net investment income....................................................... (0.04)
Tax return of capital...................................................................... (0.01)
------
Total distributions.................................................................... (0.05)
------
Change in net asset value...................................................................... 0.98
----
Net asset value, end of period................................................................. $ 10.98
========
Total Return(4)................................................................................ 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)...................................................... $ 25,972
Ratio to average net assets of:
Operating expenses......................................................................... 1.00%(1)
Net investment income...................................................................... 0.64%(1)
Portfolio turnover rate........................................................................ 391%(3)
Average commission rate paid(5)................................................................ $ 0.0587
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.02
per share.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
2-8
<PAGE>
ABERDEEN NEW ASIA SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
9/17/96 TO
12/31/96
--------
<S> <C>
Net asset value, beginning of period........................................................... $ 10.00
Income from investment operations
Net investment income...................................................................... 0.05(2)
Net realized and unrealized gain (loss).................................................... (0.04)
------
Total from investment operations....................................................... 0.01
----
Less distributions:
Dividends from net investment income....................................................... (0.05)
------
Total distributions.................................................................... (0.05)
------
Change in net asset value...................................................................... (0.04)
------
Net asset value, end of period................................................................. $ 9.96
=========
Total Return(4)................................................................................ 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)...................................................... $ 11,585
Ratio to average net assets of:
Operating expenses......................................................................... 1.25%(1)
Net investment income...................................................................... 2.40%(1)
Portfolio turnover rate........................................................................ 2%(3)
Average commission rate paid(5)................................................................ $ 0.0109
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.03
per share.
(3) Not annualized.
(4) Total return information does not reflect expenses that apply to the
separate accounts or related contracts; inclusion of these charges would
reduce total return for the period shown.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
RESEARCH ENHANCED INDEX SERIES
This Series commenced operations as of July 15, 1997; accordingly,
data for this Series is not yet available.
2-9
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
This Prospectus describes the shares offered by and the operations of The
Phoenix Edge Series Fund (the "Fund"). The Fund is an open-end management
investment company established as a business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated February 18, 1986
(the "Declaration of Trust"). The Declaration of Trust, as amended authorizes
the assets and shares of the Fund to be divided into series (the "Series"). Each
Series has a different investment objective, as described on the cover page of
this Prospectus, and is designed to meet different investment needs. In many
respects, each Series operates as if it were a separate mutual fund.
Shares of the Fund are sold to the Phoenix Home Life Variable Accumulation
Account (the "VA Account") to fund the benefits under Variable Accumulation
Annuity Contracts ("Contracts") issued by Phoenix; to the Phoenix Home Life
Variable Universal Life Account (the "VUL Account") to fund the benefits under
Variable Universal Life Insurance Policies ("Policies") also issued by Phoenix;
to the PHL Variable Accumulation Account ("PHL VA Account") to fund benefits
under Contracts issued by PHL Variable; and to the Phoenix Life and Annuity
Variable Universal Life Account (the "PLAC Account") to fund benefits under
Policies issued by PLAC. The VA Account, PHL VA Account, VUL Account and PLAC
VUL Account (collectively the "Accounts") invest in shares of the Fund in
accordance with allocation instructions received from Contract Owners and
Policyowners. Such allocation rights are further described in the accompanying
Prospectus for the Contracts or Policies. Phoenix redeems shares to the extent
necessary to provide benefits under the Contracts and Policies. Phoenix may
establish other separate accounts which may purchase shares in the Fund.
When making allocations from time to time, a Contract Owner or Policyowner
should understand that investment return will affect benefits and the value of
the Contract or Policy. The accompanying Prospectus for the respective Accounts
contains a description of the relationship between increases or decreases in the
net asset value of Fund shares and any distributions on such shares, and the
benefits provided under the Contract or Policy.
The Trustees have authority to issue an unlimited number of shares of
beneficial interest of each Series. An interest in the Fund is limited to the
assets of the Series in which shares are held, and shareholders are entitled to
a pro rata share of all dividends and distributions arising from the net income
and capital gains on the investments of such Series.
PHOENIX, PHL VARIABLE AND PLAC
Shares of the Fund are currently sold to the Accounts as the investment base
for Variable Accumulation Annuity Contracts and Variable Universal Life
Insurance Policies issued by Phoenix, PHL Variable and PLAC. Phoenix is a mutual
life insurance company whose Executive Office is at One American Row, Hartford,
Connecticut 06102-5056, and its main administrative office is at 100 Bright
Meadow Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office
is at 99 Troy Road, East Greenbush, New York 12061. Phoenix is the nation's 14th
largest mutual life insurance company and has total assets of approximately
$15.5 billion. Phoenix sells insurance policies and annuity contracts through
its own field force of full time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
PHL Variable is a wholly-owned indirect subsidiary of Phoenix. Its Executive
Office is at One American Row, Hartford, Connecticut 06102-5056 and its main
administrative office is at 100 Bright Meadow Boulevard, Enfield, Connecticut
06083-1900. PHL Variable is a Connecticut stock company. On December 31, 1996,
it had assets of $189.5 million.
PLAC is an indirect wholly-owned subsidiary of Phoenix. Its Executive Office
is at One American Row, Hartford, Connecticut 06102-5056, and its main
administrative office is at 100 Bright Meadow Boulevard, Enfield, Connecticut
06083-1900. PLAC is a Connecticut stock company originally chartered in Missouri
in March 1996 as Savers Life Insurance Company of America and redomiciled to
Connecticut in April 1997. On December 31, 1996, it had admitted assets of $11.5
million.
The interests and rights of a Contract Owner or Policyowner in the shares is
subject to the terms of the Contract or Policy and is described in the
accompanying Prospectus for that particular product. The rights of the Accounts
as shareholders should be distinguished from the rights of Contract Owners and
Policyowners described in the accompanying Prospectus and in the Contract or
Policy for that particular product. As long as shares of the Fund are sold only
to the Accounts, the terms "shareholder" or "shareholders" in this Prospectus
refer to the Accounts.
THE INVESTMENT ADVISERS
The investment adviser of the Money Market, Multi-Sector, Balanced,
Allocation, Growth, International, Enhanced Index and Theme Series is Phoenix
Investment Counsel ("PIC" or "Adviser"). PIC is an indirect, less than
wholly-owned subsidiary of Phoenix. For its services, PIC is paid an investment
advisory fee based on the assets of each Series of the Fund as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
Rate for
Rate for First Rate for Next Excess Over
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market..... .40% .35% .30%
Multi-Sector..... .50% .45% .40%
Balanced......... .55% .50% .45%
Allocation....... .60% .55% .50%
Growth........... .70% .65% .60%
International.... .75% .70% .65%
Theme............ .75% .70% .65%
Enhanced Index... .45% .45% .45%
The total advisory fee of 0.75% of the aggregate net assets of the
International and Theme Series is greater than that paid by most mutual funds;
however, the Board of Trustees of the Fund has determined that it is similar to
fees charged by other mutual funds whose investment objectives are similar to
those of the International and Theme Series. Each Series (except the
International, Real Estate, Theme, Asia and Enhanced Index Series) pays a
portion or all of its other operating expenses, up to .15% of its average net
assets. The International, Real Estate, Theme, Asia and Enhanced Index Series
pay
2-10
<PAGE>
other operating expenses up to .40%, .25%, .25%, .25% and .10% of their average
net assets, respectively.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the Enhanced Index
Series to J.P. Morgan Investment Management, Inc. ("J.P. Morgan" or
"Subadviser") for which it is paid a fee by PIC. In accordance with the
subadvisory agreement between the Fund and J.P. Morgan, J.P. Morgan is paid a
monthly fee at the annual rate of 0.25% of the average aggregate daily net asset
values of the Enhanced Index Series up to $100 million; and 0.20% of such value
in excess of $100 million. The subadvisory agreement relating to the Enhanced
Index Series provides, among other things, that J.P. Morgan shall effectuate the
purchase and sale of securities for the Series and provide related advisory
services.
The investment adviser for the Real Estate Series is Phoenix Realty
Securities, Inc. ("PRS" or "Adviser"). PRS is a wholly-owned indirect subsidiary
of Phoenix. For its services, PRS is paid an investment advisory fee based on
the assets of the Series of the Fund as follows:
PHOENIX REALTY SECURITIES, INC.
-------------------------------
Rate for
Rate for First Rate for Next Excess Over
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate...... .75% .70% .65%
The Real Estate Series pays a portion or all of its other expenses up to
.25% of its total net assets. Pursuant to a subadvisory agreement with the Fund,
PRS delegates certain investment decisions and research functions to
ABKB/LaSalle Securities Limited Partnership ("ABKB") for which ABKB is paid a
fee by PRS. In accordance with the subadvisory agreement between the Fund and
ABKB, ABKB is paid a monthly fee at the annual rate of 0.45% of the average
aggregate daily net asset values of the Series up to $1 billion; 0.35% of such
value between $1 billion and $2 billion; and 0.30% of such value in excess of $2
billion. The subadvisory agreement relating to the Real Estate Series provides,
among other things, that ABKB shall effectuate the purchase and sale of
securities for the Series and provide related advisory services.
The Asia Series is managed by Phoenix-Aberdeen International Advisors, LLC
("PAIA" or "Adviser"). PAIA is a joint venture between PM Holdings, Inc., a
direct subsidiary of Phoenix, and Aberdeen Fund Managers, Inc., a wholly-owned
subsidiary of Aberdeen Asset Management plc. For its services, PAIA is paid an
investment advisory fee based on the assets of the Series of the Fund as
follows:
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series...... 1.00%
The Asia Series pays a portion or all of its other operating expenses up to
.25% of its total net assets.
OFFERING PRICES
Shares in each of the Series of the Fund are offered to the Accounts
continuously at the net asset value determined at the close of business on the
day the application is accepted and paperwork is complete and in good working
order. For information on pricing for initial and subsequent purchase payments
under Contracts or Policies, see the accompanying prospectus.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
To the extent that shares are sold to the Accounts in order to fund the
benefits under the Contracts or Policies, the structure of the Fund permits
Contract Owners and Policyowners, within the limitations described in the
Contracts or Policies, to allocate their investments in response to or in
anticipation of changes in market or economic conditions.
Each Series has a different investment objective and is designed to meet
different investment needs. The differences in objectives and policies among the
Series can be expected to affect the investment return of each Series and the
degree of market and financial risk to which each Series is subject. The
investment objective of each Series is deemed to be a fundamental policy which
may not be changed without the approval of a vote of a majority of the
outstanding shares of that Series. Since certain risks are inherent in the
ownership of any security, there can be no assurance that any Series will
achieve its investment objective. The investment policies of each Series also
will affect the rate of portfolio turnover. A high rate of portfolio turnover
generally involves correspondingly greater transaction costs, which must be
borne directly by each Series. The portfolio turnover rate for each Series,
except the Money Market Series (which does not normally pay brokerage
commissions), is included under "Financial Highlights." The rate for several
Series has been, and is expected to be, in excess of 100%; accordingly, such
Series will pay more in brokerage commissions than would be the case if they had
lower portfolio turnover rates. (See "Portfolio Transactions and Brokerage.")
MULTI-SECTOR SERIES
The Multi-Sector Series' investment objective is to seek long-term total
return by investing in a diversified portfolio of high yield (high risk) and
high quality fixed income securities. Distributions of income are reinvested to
purchase additional shares. The Series will seek to achieve its objective by
investing, under normal conditions, at least 80% of the value of the total
assets of the Series in the following sectors of the fixed income securities
markets: high yield (high risk) fixed income securities, (sometimes referred to
as "junk bonds"), high quality fixed income securities, fixed income securities
including preferred stocks, convertible securities, debt obligations, foreign
debt obligations, certificates of deposit, commercial paper, bankers'
acceptances, and government obligations issued or guaranteed by federal, state
or municipal governments or their agencies or instrumentalities. The Series'
remaining assets may be invested in common stock and other equity securities
when such investments are consistent with its primary investment objective or
are acquired as part of a unit consisting of a combination of fixed income
securities and equity securities (see "Other Special Investment Methods").
Higher yields are available ordinarily from securities in the lower rated
categories of recognized rating agencies (Ba to Ca by Moody's Investors Service,
Inc. ("Moody's") or BB to CC by Standard & Poor's Corporation ("S&P")) and from
unrated securities of comparable quality. However, the Multi-Sector Series will
not invest in securities in the two lowest rating categories (Ca and C for
Moody's and CC and
2-11
<PAGE>
C for S&P) unless PIC believes that the financial condition of the issuer, or
the protections afforded to the particular securities, is stronger than
otherwise would be indicated by the low ratings. When the investment objective
of this Series can be met by investing in securities in higher rating
categories, such investments will be made. Moreover, the Series may retain
securities whose ratings have changed. The Appendix contains a more detailed
description of such ratings.
When a more conservative investment strategy is necessary for temporary
defensive purposes, the Series may retain cash or invest part or all of its
assets in cash equivalents or in other fixed income securities deemed by
management to be consistent with a temporary defensive posture.
Risk Factors. While the Multi-Sector Series' management will seek to
minimize risk through diversification and continual evaluation of current
developments in interest rates and economic conditions, the market prices of
lower rated securities generally fluctuate more than those of higher rated
securities, and using credit ratings helps to evaluate the safety of principal
and interest but does not assess market risk. Economic downturns and interest
rate increases may cause a higher incidence of lower-rated securities' defaults.
Such fluctuations in the market value of portfolio securities subsequent to
their acquisition by the Multi-Sector Series will not normally affect cash
income from such securities but will be reflected in the Series' net asset
value. Additionally, with lower rated securities there is a greater possibility
that an adverse change in the financial condition of the issuer, particularly a
highly leveraged issuer, may affect its ability to make payments of income and
principal. Also, because the Series intends to invest primarily in securities in
the lower rating categories, the achievement of its goals will be more dependent
on management's credit analysis ability than would be the case if the Series
were investing in securities in the higher rated categories. Lower-rated
securities may be thinly traded and therefore harder to value and more
susceptible to adverse publicity concerning the issuer. In addition, legislation
may be enacted in the future that could depress the price of lower-rated
securities.
The Multi-Sector Series may invest in debt obligations that do not make any
interest payments for a specified period of time prior to maturity or until
maturity ("deferred coupon" or "zero coupon" obligations). The value of these
obligations may fluctuate more in response to interest rate changes than would
the value of debt obligations that make current interest payments. In addition,
because the Series will accrue income on these securities prior to the receipt
of each payment, it may have to dispose of portfolio securities to distribute
income to the Accounts for tax purposes. (See the Statement of Additional
Information.)
MONEY MARKET SERIES
The investment objective of the Money Market Series is to provide maximum
current income consistent with capital preservation and liquidity. The Series
seeks to achieve its objective by investing in a managed portfolio of the
following high quality money market instruments:
(a) obligations issued or guaranteed as to principal and interest
by the United States Government or its agencies, authorities
or instrumentalities;
(b) obligations issued by U.S. banks and savings and loan associations (such
as bankers' acceptances, certificates of deposit and time deposits,
including dollar-denominated obligations of foreign branches of U.S.
banks and U.S. branches of foreign banks) and dollar-denominated
obligations unconditionally guaranteed as to payment by such banks or
savings and loan associations, which at the date of investment have
capital, surplus, and undivided profits in excess of $100,000,000 as of
the date of their most recently published financial statements; and
obligations of other banks or savings and loan associations if such
obligations are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation;
(c) commercial paper which at the date of investment is issued or guaranteed
by a company whose commercial paper is rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., or F-1 by Fitch's
Investors Service or, if not rated, is issued or guaranteed by a company
which at the date of the investment has an outstanding debt issue rated
AA or higher by Standard & Poor's or Aa or higher by Moody's;
(d) other corporate obligations maturing in one year or less which at the
date of investment are rated AA or higher by Standard & Poor's or Aa or
higher by Moody's; and
(e) repurchase agreements with recognized securities dealers and member
banks of the Federal Reserve System with respect to any of the foregoing
obligations.
All of the Money Market Series investments will mature in 397 days or less.
In addition, the average maturity of the Series' portfolio securities based on
their dollar value will not exceed 90 days. By limiting the maturity of its
investments, the Money Market Series seeks to lessen the changes in the value of
its assets caused by market factors.
Generally, investments will be limited to securities rated in the two
highest short-term rating categories by at least two nationally recognized
statistical rating organizations, or by one such organization if only one has
rated the security, and comparable unrated securities. In addition, no more than
5% of the Series' total assets will be invested in securities of any one issuer
or in securities not rated in the highest short-term rating category. Moreover,
no more than the greater of 1% of the Series' total assets or $1 million will be
invested in the securities of any one issuer that are not in the highest
short-term rating category.
This Series, consistent with its investment objective, will attempt to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. It is
expected that the Series' portfolio transactions will be generally with issuers
or dealers acting as principal. Accordingly, this Series will normally not pay
any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the
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period of time remaining to maturity of the security. Long-term obligations may
fluctuate more in value than short-term obligations. If interest rates increase
after a security is purchased, the security, if sold, could be sold for a loss.
On the other hand, if interest rates decline after a purchase, the security, if
sold, could be sold at a profit. If, however, the security is held to maturity,
no gain or loss will be realized as a result of interest rate fluctuations,
although the day-to-day valuation of the portfolio could fluctuate. Substantial
withdrawals of the amounts held in the Money Market Series could require it to
sell portfolio securities at a time when a sale might not be favorable. The
value of a portfolio security also may be affected by other factors, including
factors bearing on the creditworthiness of its issuer.
GROWTH SERIES
The investment objective of the Growth Series is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. The
Series seeks to achieve its investment objective by investing principally in
common stocks of corporations believed by PIC to offer growth potential over
both the intermediate and the long term. In pursuing capital growth, emphasis is
placed on the selection of securities of well-established corporations with
aggressive and experienced managements. This Series may invest not more than 20%
of the market value of its total assets in convertible securities, that is, debt
securities and preferred stocks which are convertible into, or carry the right
to purchase, common stock or other equity securities. It is not intended at this
time that this Series will invest in warrants.
Although the Growth Series will not make a practice of short-term trading,
purchases and sales of securities will be made whenever necessary to achieve the
investment objective of the Series without regard to the resulting brokerage
costs.
PIC intends to diversify investments of the Series among a number of
corporations without concentration in any particular industry. When, in the
opinion of the Fund management, a temporary defensive position is warranted, the
Series may maintain part or all of its assets in cash or short-term investments
such as United States Treasury bills and commercial paper; it may also invest in
preferred stocks, nonconvertible bonds, notes, government securities or other
fixed-income securities for temporary defensive purposes.
ALLOCATION SERIES
The investment objective of the Allocation Series (formerly designated the
"Total Return Series") is to realize as high a level of total rate of return
over an extended period of time as is considered consistent with prudent
investment risk. The Series seeks to achieve its investment objective by
investing in three market segments: stocks, bonds, and money market instruments.
In addition to trading techniques described fully in the Statement of Additional
Information, the Series has retained the flexibility to write (sell) covered
call options, to purchase call and put options and to enter into financial
futures contracts.
The Allocation Series will adjust the mix of investments among the three
market segments to capitalize on perceived variations in return potential
produced by the interaction of changing financial markets and economic
conditions. It is expected that such adjustments normally will be made in a
gradual manner over a period of time. THERE ARE NO MINIMUM OR MAXIMUM
PERCENTAGES AS TO THE AMOUNT OF THE SERIES' ASSETS WHICH MAY BE INVESTED IN EACH
OF THE MARKET SEGMENTS. MAJOR CHANGES IN INVESTMENT MIX MAY OCCUR SEVERAL TIMES
A YEAR OR OVER SEVERAL YEARS, DEPENDING UPON MARKET AND ECONOMIC CONDITIONS AND
EXCEPT FOR RESTRICTIONS NOTED HEREIN AND UNDER "INVESTMENT RESTRICTIONS," THE
INVESTMENT ADVISER HAS COMPLETE FLEXIBILITY IN DETERMINING THE AMOUNT AND NATURE
OF COMMON STOCK, DEBT OR MONEY MARKET INSTRUMENTS IN WHICH THE SERIES MAY
INVEST.
Investments in one of the three market segments will be made with a specific
purpose in mind. Investments in the stock segment will be for the purpose of
attempting to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Investments in the bond
segment will be for the purpose of attempting to achieve as high a total rate of
return on an annual basis as is considered consistent with the preservation of
capital values and may include investments of up to 5% of the Series' total
assets in high risk fixed income securities (commonly referred to as "junk
bonds"). Investments in the money market segment will be for the purpose of
attempting to achieve high current income, the preservation of capital, and
liquidity. The types of securities in each of these three market segments in
which the Allocation Series will invest are listed in the Statement of
Additional Information.
Cash may be held to provide for expenses and anticipated redemption payments
and so that orderly redemption payments may be carried out in accordance with
the Allocation Series' investment policies.
See Multi-Sector Series and Money Market Series for a description of risks
generally associated with investing in the Allocation Series.
INTERNATIONAL SERIES
The International Series seeks as its investment objective a high total
return consistent with reasonable risk. It intends to achieve its objective by
investing primarily in an internationally diversified portfolio of equity
securities. It intends to reduce its risk by engaging in hedging transactions
involving options, futures contracts and foreign currency transactions (see
"Other Special Investment Methods"). Investments may be made for capital growth
or for income or any combination thereof for the purpose of achieving a high
overall return.
There is no limitation on the percentage or amount of the International
Series assets which may be invested for capital growth or income, and therefore
at any particular time the investment emphasis may be placed solely or primarily
on growth of capital or on income. In determining whether the International
Series will be invested for capital growth or income, the Adviser will analyze
the international equity and fixed income markets and seek to assess the degree
of risk and level of return that can be expected from each market. The
International Series will invest primarily in non-United States issuers, and
under normal circumstances, more than 80% of the International Series' total
assets will be invested in non-United States issuers located in not less than
three foreign countries.
In pursuing its objective, the International Series will invest primarily in
common stocks of established non-United States companies believed to have
potential for capital growth, income or both. However, there is no requirement
that the International Series
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invest exclusively in common stocks or other equity securities. The
International Series may invest in other types of securities including, but not
limited to, convertible securities, preferred stocks, bonds, notes and other
debt securities of companies (including Euro-currency instruments and
securities) or obligations of domestic or foreign governments and their
political subdivisions, and in foreign currency transactions. The Series may
invest up to 10% of its total assets in bonds (sometimes referred to as "junk
bonds") considered to be less than investment grade (but which are not in
default at the time of investment), which may subject the Series to risks
attendant to such bonds (see "Risk Factors" below). When the Adviser believes
that the total return potential in debt securities equals or exceeds the
potential return on equity securities, the Series may substantially increase its
holdings in debt securities. The International Series may establish and maintain
part or all of its assets in reserves for temporary defensive purposes or to
enable it to take advantage of buying opportunities. The International Series
reserves may be invested in domestic as well as foreign short-term money market
instruments including, but not limited to, government obligations, certificates
of deposit, bankers' acceptances, time deposits, commercial paper, short-term
corporate debt securities and repurchase agreements. The International Series
may also engage in certain options transactions, and enter into futures
contracts and related options for hedging purposes, invest in repurchase
agreements and lend portfolio securities (see "Other Special Investment
Methods").
The International Series also may invest in the securities of other
investment companies subject to the limitations contained in the 1940 Act (see
"Investment Restrictions" in the Statement of Additional Information). In
certain countries, investments may be made only by investing in other investment
companies that, in turn, are authorized to invest in the securities that are
issued in such countries. The Fund's purchase of securities of such other
investment companies may result in the layering of expenses such that
shareholders indirectly bear a proportionate part of the expenses for such
investment companies including operating costs and investment advisory and
administrative fees.
The International Series makes investments in various countries. Under
normal circumstances, business activities in a number of different foreign
countries will be represented in the International Series' investments. The
International Series may, from time to time, have more than 25% of its assets
invested in any major industrial or developed country which in the view of the
Adviser poses no unique investment risk. The International Series may purchase
securities of companies, wherever organized, which have their principal
activities and interests outside the United States. Under exceptional economic
or market conditions abroad, the International Series may, for temporary
defensive purposes, invest all or a major portion of its assets in U.S.
government obligations or securities of companies incorporated in and having
their principal activities in the United States. The International Series also
may invest its reserves in domestic short-term money-market instruments as
described above.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily will consider the
following factors: prospects for relative economic growth among foreign
countries; expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; the
outlook for currency relationships and the range of individual investment
opportunities available to the international investor.
The International Series may make investments in developing countries, which
involve exposure to economic structures that are generally less diverse and
mature than in the United States, and to political systems which may be less
stable. A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. In the past, markets of
developing countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of return to
investors. The Adviser believes that these characteristics can be expected to
continue in the future.
Generally, the Series will not trade in securities for short-term profits
but, when circumstances warrant, securities may be sold without regard to the
length of time held.
Risk Factors. There are substantial and different risks involved which
should be carefully considered by any investor considering foreign investments.
For example, there is generally less publicly available information about
foreign companies than is available about companies in the United States.
Foreign companies are generally not subject to uniform audit and financial
reporting standards, practices and requirements comparable to those in the
United States. In addition, if it should become necessary, the Fund could
encounter difficulties involving legal processes abroad.
Foreign securities involve currency risks. Exchange rates are determined by
forces of supply and demand in the foreign exchange markets, and these forces
are in turn affected by a range of economic, political, financial, governmental
and other factors. Exchange rate fluctuations can affect the Portfolio's net
asset value and dividends either positively or negatively depending upon whether
foreign currencies are appreciating or depreciating in value relative to the
U.S. dollar. Exchange rates fluctuate over both the short and long term. The
U.S. dollar value of a foreign security tends to decrease when the value of the
dollar rises against the foreign currency in which the security is denominated
and tends to increase when the value of the dollar falls against such currency.
Fluctuations in exchange rates also may affect the earning power and asset value
of the foreign entity issuing the security. Dividend and interest payments may
be repatriated based on the exchange rate at the time of disbursement, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as those
in the United States. In most foreign markets, volume and liquidity are less
than in the United States and, at times, volatility of price can be greater than
in the United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on United States exchanges. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the United States.
There also is the possibility of adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, political or social instability, or diplomatic
developments which could adversely affect
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investments, assets or securities transactions of the International Series in
some foreign countries. The International Series is not aware of any investment
or exchange control regulations which might substantially impair the operations
of the Series as described, although this could change at any time.
Particular risks are posed by investments in third world countries or
so-called "emerging markets." These securities may be especially volatile based
on relative economic, political and market conditions present in these
countries. The economics of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade. Certain emerging market countries are either comparatively
undeveloped or are in the process of becoming developed and may consequently be
economically based on a relatively few or closely interdependent industries. A
high proportion of the shares of many emerging market issuers also may be held
by a limited number of large investors trading significant blocks of securities.
While the Adviser will strive to be sensitive to publicized reversals of
economic conditions, political unrest and adverse changes in trading status,
unanticipated political and social developments may affect the values of a
Portfolio's investments in such countries and the availability of additional
investments in such countries.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts ("ADRs"), which are traded in the United States on exchanges
or over the counter and are sponsored and issued by domestic banks. ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. ADRs do not eliminate all the risk
inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, the
International Series can avoid currency risks during the settlement period for
either purchases or sales. In general, there is a large, liquid market in the
United States for many ADRs. The information available for ADRs is subject to
the accounting, auditing and financial reporting standards of the domestic
market or exchange on which they are traded, which standards are more uniform
and more exacting than those to which many foreign issuers may be subject. The
International Series also may invest in European Depository Receipts ("EDRs"),
which are receipts evidencing an arrangement with a European bank similar to
that for ADRs and are designed for use in the European securities markets. EDRs
are not necessarily denominated in the currency of the underlying security.
The dividends and interest payable on certain of the International Series'
foreign securities may be subject to foreign withholding taxes, thus reducing
the net amount available for distribution to the International Series'
shareholders. Investors should understand that the expense ratio of the
International Series can be expected to be higher than those of investment
companies investing in domestic securities since the costs of operation are
higher.
Since the International Series may invest up to 10% of its total assets in
bonds considered to be less than investment grade, it may be exposed to greater
risks than if it did not invest in such bonds. With lower rated bonds, there is
a greater possibility that an adverse change in the financial condition of the
issuer may affect its ability to pay principal and interest. See "Risk Factors"
described in connection with the Multi-Sector Series for additional information
regarding investing in lower rated securities.
BALANCED SERIES
The Balanced Series seeks as its investment objectives reasonable income,
long-term capital growth and conservation of capital. The Balanced Series
intends to invest based on combined considerations of risk, income, capital
enhancement and protection of capital value.
The Balanced Series may invest in any type or class of security. Normally,
the Balanced Series will invest in common stocks and fixed income securities;
however, it also may invest in securities convertible into common stocks. At
least 25% of the value of its assets will be invested in fixed income senior
securities. The overall economic and financial outlook determines the allocation
of assets between fixed income and common stock investments. Fixed income
investments are typically made in high quality, lower risk securities. Common
stock investments are made in companies with intermediate and long-term earnings
growth potential such as are invested in by the Growth Series. The Series
attempts to invest in common stocks belonging to fundamentally attractive
sectors and industries and strives to be overweighted in these areas relative to
their representation in broad market indices such as the Standard & Poor's 500.
The current outlook and the asset allocation are continuously reviewed.
The Series may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes and may
invest in deferred or zero coupon debt obligations. (See "Other Special
Investment Methods" and the Statement of Additional Information.)
In implementing the investment objectives of this Series, management will
select securities believed to have potential for the production of current
income, with emphasis on securities that also have potential for capital
enhancement. In an effort to protect its assets against major market declines,
or for other temporary defensive purposes, the Balanced Series may actively
pursue a policy of retaining cash or investing part or all of its assets in cash
equivalents, such as government securities and high grade commercial paper.
REAL ESTATE SERIES
The Real Estate Series seeks as its investment objective capital
appreciation and income with approximately equal emphasis. It intends under
normal circumstances to invest in marketable securities of publicly traded real
estate investment trusts ("REITs") and companies that are principally engaged in
the real estate industry. Under normal circumstances, the Series intends to
invest at least 75% of the value of its assets in these securities.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. Generally,
REITs can be classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of
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their assets in real estate mortgages and derive income from the collection of
interest payments. Hybrid REITs combine the characteristics of both equity REITs
and mortgage REITs. The Series intends to emphasize investment in equity REITs.
In determining whether an issuer is "principally engaged" in the real estate
industry, PRS seeks companies which derive at least 50% of their gross revenues
or net profits from the ownership, development, construction, financing,
management or sale of commercial, industrial or residential real estate. The
equity securities of real estate companies considered for purchase by the Series
will consist of shares of beneficial interest, marketable common stock, rights
or warrants to purchase common stock, and securities with common stock
characteristics such as preferred stock and debt securities convertible into
common stock.
The Real Estate Series also may invest up to 25% of its total assets in (a)
marketable debt securities of companies principally engaged in the real estate
industry; (b) mortgage-backed securities such as mortgage pass-through
certificates, real estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs"); or (c) short-term investments
listed below.
The Real Estate Series invests in debt securities only if, at the date of
investment, they are rated within the four highest grades as determined by
Moody's (Aaa, Aa, A or Baa) or by S&P (AAA, AA, A or BBB) or, if not rated or
rated under a different system, are judged by PRS to be of equivalent quality to
debt securities so rated. Securities rated Baa or BBB are medium grade
investment obligations that may have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments in the case of such obligations
than is the case for higher grade securities. The Series may, but is not
obligated to, dispose of debt securities whose credit quality falls below
investment grade. Unrated debt securities may be less liquid than comparable
rated debt securities and may involve somewhat greater risk than rated debt
securities.
For temporary defensive purposes (as when market conditions in real estate
securities are extremely adverse such that PRS believes there are extraordinary
risks associated with investment therein), the Series may invest up to 100% of
its total assets in short-term investments such as money market instruments
consisting of securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; repurchase agreements; certificates of deposit
and bankers' acceptances issued by banks or savings and loan associations having
net assets of at least $500 million as of the end of their most recent fiscal
year; high-grade commercial paper rated at time of purchase, in the top two
categories by a national rating agency or determined to be of comparable quality
by PRS at the time of purchase; and other long- and short-term instruments
which are rated A or higher by S&P or Moody's at the time of purchase.
Risk Factors. The Real Estate Series is non-diversified under the federal
securities laws. As a non-diversified portfolio, there is no restriction under
the Investment Company Act of 1940 (the "1940 Act") on the percentage of assets
that may be invested at any time in the securities of any one issuer. To the
extent that the Real Estate Series is not fully diversified, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified. In
addition, investments by the Real Estate Series in securities of companies
providing mortgage servicing will be subject to the risks associated with
refinancings and their impact on servicing rights.
Although the Real Estate Series does not invest directly in real estate, it
does invest primarily in real estate securities and accordingly, the value of
shares of the Real Estate Series will fluctuate in response to changes in
economic conditions within the real estate industry. Risks associated with the
direct ownership of real estate and with the real estate industry in general
include, among other things, possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; over-building; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability to third
parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from flood, earthquakes or other natural
disasters; limitations on and variations in rents; dependency on property
management skill; the appeal of properties to tenants; and changes in interest
rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to the risks of financing projects. The Series may invest in new or
unseasoned REIT issuers and it may be difficult or impossible for PRS to
ascertain the value of each of such REIT's underlying assets, management
capabilities and growth prospects. In addition, REITs are subject to heavy cash
flow dependency, default by borrowers, self-liquidation, and the possibilities
of failing to qualify for the exemption from tax or distributed income under the
Internal Revenue Code of 1986, as amended (the "Code") and failing to maintain
their exemptions from the 1940 Act. REITs whose underlying assets include
long-term health care properties, such as nursing, retirement and assisted
living homes may be impacted by federal regulations concerning the health care
industry. The Series will indirectly bear its proportionate share of any
expenses paid by the Series itself.
REITs (especially mortgage REITs) are subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations usually rises. Conversely, when interest rates rise, the value of a
REIT's investment in fixed rate obligations can be expected to decline. In
contrast, as interest rates on adjustable rate mortgage loans are reset
periodically, yields on a REIT's investment in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
In addition, investing in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be more subject to abrupt or erratic price movements than larger capitalization
stocks included in the S&P 500 Index.
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THEME SERIES
The Theme Series seeks as its investment objective long-term appreciation of
capital through investing in securities of companies that the Adviser believes
are particularly well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide. Examples of thematic
investing would include investing in oil and gas exploration companies during
the energy shortage years of the late 1970s, owning companies which benefited
from lower inflation trends during the early 1980s, investing in companies
acquiring cellular franchises in the late 1980s and technology companies during
the 1990s.
The Adviser will not concentrate its investments in amounts greater than 25%
of the assets of the Series in any particular "industry(ies)" or group(s) of
"industries" without shareholder approval. In determining when and whether to
invest in particular industries, the Adviser will establish strategic (major
changes affecting markets for prolonged periods) and tactical (focused,
short-term) investment themes. Investment themes shall generally reflect trends
which appear likely to drive stocks with similar technologies and products or
which embody broad social, economic, political and technological considerations;
offer substantial appreciation potential; present a visionary idea or creative
solution; and exhibit some independence from economic cycles. The Adviser may
change investment themes once it has determined that an investment theme has
become saturated or fully exploited. The Adviser may pursue one or more
investment themes at any time.
The Adviser will seek to identify companies which, in addition to being
considered well positioned to benefit from investment themes identified, are
also believed to possess attributes such as, but not limited to, good financial
resources, satisfactory return on capital, enhanced industry position and
superior management skills.
The Theme Series also may invest in preferred stocks, investment grade bonds
(Moody's Investors Service, Inc. rating Baa or higher or Standard & Poor's
Ratings Group rating BBB or higher), convertible preferred stocks and
convertible debentures if in the judgment of the Adviser the investment would
further its investment objective. The Series may also engage in certain options
transactions and enter into financial futures contracts and related options for
hedging purposes. The Series also may invest up to 35% of its assets in the
securities of foreign issuers. See "Other Special Investment Methods." Each
security held will be monitored to determine whether it is contributing to the
basic objective of long-term appreciation of capital.
For temporary defensive purposes (as when market conditions for growth
stocks are adverse), investments may be made in fixed income securities with or
without warrants or conversion features. In addition, for such temporary
defensive purposes, the Series may pursue a policy of retaining cash or
investing part or all of its assets in cash equivalents. When the Series' assets
are held in cash or cash equivalents, it is not investing in securities intended
to meet the Series' investment objective.
Risk Factors. To the extent that the Series invests in a single investment
theme, it may be more susceptible to adverse economic, political or regulatory
developments than would be the case if it invested in a broader spectrum of
themes. In addition, the Series' investments in common stocks of companies with
limited operating history may result in higher volatility in returns. Further,
the successful effectuation of the thematic investment strategy used by the
Adviser is dependent upon the Adviser's ability to anticipate emerging market
trends, exploit such investment opportunities and to thereafter divest of such
securities upon saturation. No assurances can be given that the investment
strategies utilized will positively correlate with any or all such marketplace
trends or that other, possibly more profitable, investment trends could be
overlooked.
ASIA SERIES
The investment objective of the Asia Series is to provide long term capital
appreciation. It is intended that this Series will achieve its objective by
investing under normal market conditions at least 65% of its total assets in a
diversified portfolio of common stocks, convertible securities and preferred
stocks of issuers organized and principally operating in Asia, excluding Japan
(i.e., companies which derive a significant proportion (at least 50%) of their
revenues or profits from goods produced or sold, investments made or services
performed in such countries or which have at least 50% of their assets situated
in such countries) and whose principal securities are actively traded on
recognized stock exchanges of such countries. The Series does not intend to
invest in securities which are traded in markets in Japan or in countries
organized under the laws of Japan.
The Series will invest in countries having more established markets in
regions of Asian countries. The Asian countries to be represented in the Series
ordinarily will consist of three or more of the following countries: China, Hong
Kong, India, Indonesia, South Korea, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, Taiwan and Thailand. From time to time, the Series may
invest in South Pacific nations such as Australia and New Zealand. There is no
requirement that the Series, at any given time, invest in any one particular
country or in all of the countries listed above or in any other Asian countries
or other developing markets that are open to foreign investment. In determining
the appropriate distribution of investments among various countries and
geographic regions, the Adviser ordinarily will consider the following factors:
prospects for relative economic growth among Asian countries; expected levels of
inflation; relative price levels of the various capital markets; governmental
policies influencing business conditions; the outlook for currency relationships
and the range of individual investment opportunities available to the
international investor. The Series may make investments in developing or
emerging market countries, which involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. A developing country can be
considered to be a country which is in the initial stages of its
industrialization cycle. In the past, markets of developing countries have been
more volatile than the markets of developed countries; however, such markets
often have provided higher rates of return to investors.
In certain countries, investments may be made only by investing in other
investment companies that, in turn, are authorized to invest in the securities
that are issued in such countries. The Series may therefore invest in the
securities of other investment companies subject to the limitations contained in
the 1940 Act (see "Investment Restrictions" in the Statement of Additional
Information). The Series' purchase of the securities of other investment
companies (and closed-end companies) results in the layering of expenses
including operating costs, investment advisory and administrative fees.
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The Series may establish and maintain reserves of up to 100% of its assets
for temporary defensive purposes under abnormal market or economic conditions.
The Series' reserves may be invested in domestic as well as foreign short-term
money market instruments including, but not limited to, government obligations,
certificates of deposit, bankers' acceptances, time deposits, commercial paper,
short-term corporate debt securities and repurchase agreements. When the Series'
assets are held in cash or cash equivalents, it is not investing in securities
intended to meet the Series' investment objective.
See International Series for a description of risks associated with foreign
investments.
Additional discussion regarding risks involved in investing in the Series
are described in the "Other Special Investment Methods" section below.
ENHANCED INDEX SERIES
The investment objective of the Enhanced Index Series is to seek high total
return by investing in a broadly diversified portfolio of equity securities of
large and medium capitalization companies within market sectors reflected in the
S&P 500. Under normal market conditions, the Series shall invest at least 80% of
its net assets in common stocks and other equity securities. The Series seeks to
achieve its investment objective by investing in a portfolio of undervalued
common stock and other equity securities which appear to offer growth potential
and an overall volatility of return similar to that of the S&P 500.
The S&P 500 is a market weighted compilation of 500 common stocks selected
on a statistical basis by Standard & Poor's Corporation. The S&P 500 is
typically composed of issues in the industrial, financial, public utilities and
transportation sectors. Most stocks that comprise the S&P 500 are traded on the
New York Stock Exchange, although some are traded on the American Stock Exchange
and in the over-the-counter market.
The Adviser and/or Subadviser will seek to reduce the Series' volatility
relative to the S&P 500 by attempting to generally match the Series' equities
holdings to various risk characteristics of the S&P 500 such as market
capitalization, weightings, and diversification. The Subadviser uses fundamental
analysis and systematic stock valuation to exclude stocks within economic
sectors which appear to be extremely overvalued. See "Other Special Investment
Methods."
The Series may retain cash or invest part or all of its assets in money
market instruments and cash equivalents for temporary or defensive purposes.
Money market instruments sought for investment for such purposes include
obligations issued or guaranteed by the U.S. Government or any of its
instrumentalities or agencies, commercial paper, bank obligations, repurchase
agreements and other debt obligations of the U.S. Government and foreign
issuers.
Risk Factors. While the Adviser shall seek to reduce volatility relative to
the S&P 500 through diversification and continual evaluation of index equities,
the value of the Series assets are expected to positively correlate with changes
in the S&P 500 and the stock market generally. Consequently, economic downturns
and interest rate increases may cause a precipitous decrease in the value of the
Series holdings.
The Series commenced operations on July 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.
OTHER SPECIAL INVESTMENT METHODS
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CONVERTIBLE SECURITIES
Each Series may invest in convertible securities. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics such as
(1) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (2) a lesser degree of fluctuation in value than the
underlying stock since they have fixed income characteristics and (3) the
potential for capital appreciation if the market price of the underlying common
stock increases. Up to 5% of each Series' assets may be invested in convertible
securities that are rated below investment grade (commonly referred to as "junk"
securities). Such securities present greater credit and market risks than
investment grade securities. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by a Series is
called for redemption, the Series may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
REPURCHASE AGREEMENTS
The Money Market, Real Estate, International, Theme, Enhanced Index and Asia
Series may invest in repurchase agreements. However, no more than 10% of a
Series' net assets will be invested in repurchase agreements having maturities
of more than seven days. A repurchase agreement is a transaction where a Series
buys a security at one price and the seller simultaneously agrees to buy that
same security back at a higher price. Repurchase agreements will be entered into
with commercial banks, brokers and dealers considered by the Board of Trustees
and the Adviser acting at the Board's direction, to be creditworthy. In
addition, the repurchase agreements are always fully collateralized by the
underlying instrument and are marked to market every business day. However, the
use of repurchase agreements involves certain risks such as default by, or
insolvency of, the other party to the transaction.
OPTIONS
The Multi-Sector, Money Market, Growth, Allocation, Balanced, International,
Theme, Enhanced Index and Asia Series may write (sell) covered call options on
securities owned by them, including securities into which convertible securities
are convertible, provided that such call options are listed on a national
securities exchange. Generally, when a Series writes a covered call option, it
will acquire the underlying security or will have absolute and immediate right
to acquire that security without additional consideration upon conversion or
exchange of other securities held by the Series. The Money Market,
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Growth and Multi-Sector Series may only purchase call options for the purpose of
terminating a call option previously written. The Allocation, Balanced,
International and Theme Series also may buy exchange-traded call and put options
on equity and debt securities and on stock market indexes. The International,
Enhanced Index and Theme Series also may write or buy Over-the-Counter (OTC)
options, buy put options on securities indices and enter into options
transactions on a foreign currency. Generally, a put option on a securities
index is similar to a put option on an individual security, except that the
value of the option depends on the weighted value of the group of securities
comprising the index and all settlements are made in cash. The International,
Theme, Enhanced Index and Asia Series also may invest up to 5% of its net assets
in warrants and stock rights, which are almost identical to call options except
that they are issued by the issuer of the underlying security rather than an
option writer. However, no more than 2% of its net assets will be invested in
warrants and stock rights not traded on the New York Stock Exchange or American
Stock Exchange. A complete description of options, warrants and stock rights,
and their associated risks is contained in the Statement of Additional
Information. Options are forms of "derivatives" in that their value is dependent
on fluctuations in the value of other securities.
The Fund understands the position of the staff of the Securities and
Exchange Commission (the "SEC") to be that purchased OTC options and the assets
used as "cover" for written OTC options are illiquid securities. The Fund has
adopted procedures for engaging in OTC options transactions for the purpose of
reducing any potential adverse effect of such transactions upon the liquidity of
the International Series. A brief description of these procedures and related
limitations appears in the Statement of Additional Information.
FINANCIAL FUTURES AND RELATED OPTIONS
The Allocation and Balanced Series may enter into financial futures
contracts for the purchase or sale of debt obligations traded on exchanges
regulated by the Commodity Futures Trading Commission to hedge against
anticipated changes in interest rates that would otherwise have an adverse
effect upon the value of debt securities in its portfolio. A futures contract on
a debt obligation is a binding contractual commitment which, if held until
maturity, will result in an obligation to make or accept delivery of obligations
having a standard face value and rate of return. Hedging is the initiation of an
offsetting position in the futures market which is intended to minimize the risk
associated with a position's underlying securities in the cash market. The
purchase of such futures contracts will not be for speculation but will be
solely for protection of the Series against declines in value. Immediately after
entering into a futures contract for the receipt or delivery of a security, the
value of the securities called for by all of the Allocation or Balanced Series'
futures contracts (both receipts and delivery) will not exceed 10% of such
Series' total assets.
The International, Theme, Enhanced Index and Asia Series also may enter into
financial futures contracts and related options to hedge against anticipated
changes in the market value of its portfolio securities or securities which it
intends to purchase or in the exchange rate of foreign currencies. The
International, Theme and Asia Series will not purchase or sell any financial
futures contract or related option if, immediately thereafter, the sum of the
cash or U.S. Treasury bills committed with respect to its existing futures and
related options positions and the premiums paid for related options would exceed
5% of the market value of the Series' total assets.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or a
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There is also the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
even though the purchase or sale of the contract would not have resulted in a
loss. Futures are forms of derivatives.
A complete description of financial futures and related options is contained
in the Statement of Additional Information.
FOREIGN SECURITIES
The International and Asia Series will purchase foreign securities as
discussed above. In addition, the other Series may invest up to 25% (or 35% as
to the Theme Series) of total net asset value in foreign securities. The
Multi-Sector Series may invest up to 35% of total net asset value in foreign
debt securities. The Series, other than the International, Theme and Asia
Series, will purchase foreign debt securities only if issued in U.S. dollar
denominations. The Enhanced Index Series may invest in securities of foreign
corporations, provided that such securities are included in the S&P 500 or
traded on a U.S. exchange. Investments in foreign securities, particularly those
of non-governmental issuers, involve considerations which are not ordinarily
associated with investing in domestic issuers. Those considerations are
discussed under "International Series."
Foreign Currency Transactions. The value of the assets of the Series
invested in foreign securities, as measured in United States dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Series may incur costs in connection
with conversions between various currencies. The Series will conduct foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. At the time of the purchase of a forward
foreign currency exchange contract, any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily equal to the market value of the contract, minus the
Series' initial margin deposit with respect thereto, will be deposited in a
segregated account with the Fund's custodian bank to collateralize fully the
position and thereby ensure that it is not leveraged.
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When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. A
Series also may hedge its foreign currency exchange rate risk by engaging in
currency financial futures and options transactions. For more information about
foreign currency transactions, see the Statement of Additional Information.
LEVERAGE
The Theme and Enhanced Index Series may, from time to time, increase its
ownership of securities holdings above the amounts otherwise possible by
borrowing from banks at fixed amounts of interest and investing the borrowed
funds. The Fund will borrow only from banks, and only if immediately after such
borrowing the value of the assets of the Series (including the amount borrowed),
less its liabilities (not including any borrowings) is at least three times the
amount of funds borrowed for investment purposes. The Fund may borrow up to 25%
of the net assets of such Series, not including the proceeds of any such
borrowings. However, the amount of the borrowings will be dependent upon the
availability and cost of credit from time to time. If, due to market
fluctuations or other reasons, the value of such Series' assets computed as
provided above become less than three times the amount of the borrowings for
investment purposes, the Fund, within three business days, is required to reduce
bank debt to the extent necessary to meet the required 300% asset coverage.
Interest on money borrowed will be an expense of those Series with respect
to which the borrowing has been made. Because such expense otherwise would not
be incurred, the net investment income of such Series is not expected to be as
high as it otherwise would be during periods when borrowings for investment
purposes are substantial.
Bank borrowings for investment purposes must be obtained on an unsecured
basis. Any such borrowing also must be made subject to an agreement by the
lender that any recourse is limited to the assets of such Series with respect to
which the borrowing has been made.
Any investment gains made with the additional monies borrowed in excess of
interest paid will cause the net asset value of such Series' shares to rise
faster than otherwise would be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover its cost
(including any interest paid on the monies borrowed) to such Series, the net
asset value of the Series will decrease faster than otherwise would be the case.
PRIVATE PLACEMENTS AND RULE 144A SECURITIES
Each Series may purchase securities which have been privately issued and are
subject to legal restrictions on resale or which are issued to qualified
institutional investors under special rules adopted by the SEC. Such securities
may offer higher yields than comparable publicly traded securities. Such
securities ordinarily can be sold by the Series in secondary market transactions
to certain qualified investors pursuant to rules established by the SEC, in
privately negotiated transactions to a limited number of purchasers or in a
public offering made pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"). Public sales of such
securities by the Fund may involve significant delays and expense. Private sales
often require negotiation with one or more purchasers and may produce less
favorable prices than the sale of similar unrestricted securities. Public sales
generally involve the time and expense of the preparation and processing of a
registration statement under the 1933 Act (and the possible decline in value of
the securities during such period) and may involve the payment of underwriting
commissions. In some instances, the Series may have to bear certain costs of
registration in order to sell such shares publicly. Except in the case of
securities sold to qualifying institutional investors under special rules
adopted by the SEC for which the Trustees determine the secondary market is
liquid, Rule 144A Securities will be considered illiquid. Trustees may determine
the secondary market is liquid based upon the following factors which will be
reviewed periodically as required pursuant to procedures adopted by the Series:
the number of dealers willing to purchase or sell the security; the frequency of
trades; dealer undertakings to make a market in the security; and the nature of
the security and its market. Investing in Rule 144A Securities could have the
effect of increasing the level of these Series' illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Each Series may invest up to 15% of its net assets in illiquid
securities.
MORTGAGE-BACKED SECURITIES
The Real Estate Series also may invest in mortgage-backed securities such as
mortgage pass-through certificates, real estate mortgage investment conduit
("REMIC") certificates and collateralized mortgage obligations ("CMOs"). CMOs
are hybrid instruments with characteristics of both mortgage-backed and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal on a
CMO are paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by Government National Mortgage Association
(GNMA), or Federal National Mortgage Association. CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired. REMICs
are similar to CMOs and are fixed pools of mortgages with multiple classes of
interests held by investors.
The Series also may invest in pass-through securities that are derived from
mortgages. A pass-through security is formed when mortgages are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
The Series may purchase pass-through securities at a premium or at a
discount. The value of pass-through securities in which the Series may invest
will fluctuate with changes in interest rates. The value of such securities
varies inversely with interest rates, except that when interest rates decline,
the value of pass-through securities may not
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increase as much as other debt securities because of the prepayment feature.
Changes in the value of such securities will not affect interest income from
those obligations but will be reflected in the Series' net asset value.
A particular risk associated with pass-through securities involves the
volatility of prices in response to changes in interest rates, or prepayment
risk. Prepayment rates are important because of their effect on the yield and
price of securities. Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages' scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Although the
pattern of prepayments is estimated and reflected in the price paid for
pass-through securities at the time of purchase, the actual prepayment behavior
of mortgages cannot be known at that time. Therefore, it is not possible to
predict accurately the realized yield or average life of a particular issue of
pass-through securities. Prepayments that occur faster than estimated adversely
affect yields for pass-throughs purchased at a premium (that is, a price in
excess of principal amount) and may cause a loss of principal because the
premium may not have been fully amortized at the time the obligation is repaid.
The opposite is true for pass-throughs purchased at a discount. Furthermore, the
proceeds from prepayments usually are reinvested at current market rates, which
may be higher than, but usually are lower than, the rates earned on the original
pass-through securities. Prepayments on a pool of mortgage loans are influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors,
net equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed rate mortgage loans will increase during a period
of falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities or
decline in value from declining interest rates because of risk of prepayment.
Pass-through securities are forms of derivatives.
LENDING OF PORTFOLIO SECURITIES
Subject to certain investment restrictions, a Series may, from time to time,
lend securities from its portfolio to brokers, dealers and financial
institutions deemed creditworthy and receive, as collateral, cash or cash
equivalents which at all times while the loan is outstanding will be maintained
in amounts equal to at least 100% (except the Asia Series which will maintain an
amount equal to at least 102%) of the current market value of the loaned
securities. Any cash collateral will be invested in short-term securities which
will increase the current income of the Series lending its securities. A Series
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights and subscription rights. While a
securities loan is outstanding, the Series is to receive an amount equal to any
dividends, interest or other distributions with respect to the loaned
securities. A Series may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans.
Even though securities lending usually does not impose market risks on the
lending Series, a Series would be subject to risk of loss due to an increase in
value if the borrower fails to return the borrowed securities for any reason
(such as the borrower's insolvency). Moreover, if the borrower of the securities
is insolvent, under current bankruptcy law, a Series could be ordered by a court
not to liquidate the collateral for an indeterminate period of time. If the
borrower is the subject of insolvency proceedings and the collateral held may
not be liquidated, the result could be a material adverse impact on the
liquidity of the lending Series.
WHEN-ISSUED SECURITIES
The Enhanced Index Series may commit to purchase new issues of securities on
a when-issued or forward delivery basis for payment and delivery on a later
date. The price and yield are generally fixed on the commitment to purchase
date. During the period between purchase and settlement, the Series does not
earn interest. Upon settlement, the security's market value may become more or
less than the purchase price.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund may not invest more than 25% of the assets of any one Series in any
one industry (except that the Money Market and Allocation Series may invest more
than 25% of their assets in the banking industry and the Real Estate Series may
invest at least 75% of its assets in the real estate industry). If the Fund
makes loans of the portfolio securities of any Series, the market value of the
securities loaned may not exceed 25% of the market value of the total assets of
such Series. The Fund may borrow money from a bank provided such borrowing does
not exceed 10% of the net asset value, not considering any such borrowings as
liabilities.
In addition to the investment restrictions described above, each Series'
investment program is subject to further restrictions which are described in the
Statement of Additional Information. The restrictions for each Series are
fundamental and may not be changed without shareholder approval.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Each Series pays brokerage commissions for purchases and sales of portfolio
securities. A high rate of portfolio turnover involves a correspondingly greater
amount of brokerage commissions and other costs which must be borne directly by
a Series and thus indirectly by its shareholders. It also may result in the
realization of larger amounts of short-term capital gains, which are taxable to
shareholders as ordinary income. The rate of portfolio turnover is not a
limiting factor when the Adviser deems changes appropriate. It is anticipated
that the turnover rate for the Enhanced Index Series generally will not exceed
100%. Although securities for the Theme Series are not purchased for the
short-term, the Adviser's strict sell discipline may result in rates of
portfolio turnover equivalent to those identified by the SEC as appropriate for
capital appreciation funds with substantial short-term trading. The Adviser's
approach dictates that underperforming securities and securities not consistent
with prevailing themes will be sold. Portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Series' securities
(excluding short-term securities). The turnover rate may vary greatly from year
to year and may be affected by cash requirements for redemptions of shares
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of a Series and by compliance with provisions of the Internal Revenue Code,
relieving investment companies which distribute substantially all of their net
income from federal income taxation on the amounts distributed. The rates of
portfolio turnover for each Series (other than the Money Market and Enhanced
Index Series) are set forth under "Financial Highlights." For more information
regarding the consequences related to a high portfolio turnover rate, see
"Portfolio Transactions and Brokerage" and "Dividends, Distributions and Taxes"
in the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
The Fund is a mutual fund, technically known as an open-end, diversified
investment company. The Board of Trustees supervises the business affairs and
investments of the Fund, which is managed on a daily basis by the Fund's
investment advisers. The Fund was organized as a Massachusetts Business Trust on
February 18, 1986. The Fund issues shares of beneficial interest in nine Series.
The Statement of Additional Information contains a list of the members of the
Board of Trustees and the officers of the Fund.
INVESTMENT ADVISERS
The Fund's investment advisers are Phoenix Investment Counsel,
Inc. ("PIC"), Phoenix Realty Securities, Inc. ("PRS") and Phoenix-
Aberdeen International Advisors, LLC ("PAIA," collectively, the
"Advisers"). PIC is located at 56 Prospect Street, Hartford, Connecticut
06115. PRS is located at 38 Prospect Street, Hartford, Connecticut
06115. PAIA is located at One American Row, Hartford, Connecticut
06102.
PIC was originally organized in 1932 as John P. Chase, Inc. In addition to
the Fund, it serves as investment adviser to the Phoenix Series Fund, Phoenix
Strategic Allocation Fund, Inc., Phoenix Strategic Equity Series Fund (all
series other than Equity Opportunities Series), Phoenix Duff & Phelps
Institutional Mutual Funds (all portfolios other than the Real Estate Equity
Securities Portfolio and the Enhanced Reserves Portfolio) and Phoenix
Multi-Portfolio Fund (all portfolios other than the Real Estate Securities
Portfolio) and as subadviser to Chubb America Fund, Inc. and Sun America
Series Trust. PIC also serves as subadviser to the Asia Series.
All of the outstanding stock of PIC is owned by Phoenix Equity Planning
Corporation ("PEPCO"), a subsidiary of Phoenix Duff & Phelps Corporation
("PD&P"). Phoenix owns a controlling interest in PD&P. PEPCO also performs
bookkeeping, pricing and administrative services for the Fund. PEPCO is
registered as a broker-dealer in 50 states. The executive offices of Phoenix are
located at One American Row, Hartford, Connecticut 06102; the executive offices
of PD&P are located at 56 Prospect Street, Hartford, Connecticut 06115, and
the principal offices of PEPCO are located at 100 Bright Meadow Boulevard, P.O.
Box 2200, Enfield, Connecticut 06083-2200.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, serves as subadviser to the
Enhanced Index Series. J.P. Morgan's principal place of business is located at
522 Fifth Avenue, New York, New York 10036. J.P. Morgan presently serves as an
investment manager for corporate, public and union employee benefit funds,
foundations, endowments, insurance companies, government agencies and the
accounts of other institutional investors. J.P. Morgan was founded in 1984 and
as of March 31, 1997 had approximately $184 billion in assets under
management.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. In addition to
the Fund, it serves as investment adviser to the Real Estate Securities
Portfolio of the Phoenix Multi-Portfolio Fund, the Real Estate Equity Securities
Portfolio of the Phoenix Duff & Phelps Institutional Mutual Funds and to the
American Phoenix Investment Portfolio. As of December 31, 1996, PRS had $1.4
billion in assets under management.
PAIA, a Delaware limited liability company formed in 1996 and jointly
owned and managed by PM Holdings, Inc., is a direct subsidiary of Phoenix and
Aberdeen Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset
Management plc. Aberdeen Asset Management is a partially-owned subsidiary of
Phoenix. Aberdeen Fund Managers, Inc. has its principal offices located at 1
Financial Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394.
While many of the officers and directors of the Adviser and subadviser have
extensive experience as investment professionals, due to its recent formation,
the Adviser has no prior operating history. Aberdeen Fund Managers, Inc. also
serves as subadviser to the Asia Series.
Aberdeen Asset Management was founded in 1983, and through subsidiaries
operating from offices in Aberdeen, Scotland; London, England; Singapore; and
Fort Lauderdale, Florida, provides investment management services to unit and
investment trusts, segregated pension funds and other institutional and private
portfolios. As of February 28, 1997, Aberdeen Asset Management and its
advisory subsidiaries, had approximately $4.8 billion in assets under
management.
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. All costs and
expenses (other than those specifically referred to as being borne by the
Advisers) incurred in the operation of the Account and the Fund are borne by the
Fund, Phoenix, PHL Variable or PLAC. A more detailed discussion of the Advisers
and the Investment Advisory Agreements and Investment Subadvisory Agreements is
contained in the Statement of Additional Information.
PORTFOLIO MANAGERS
Balanced Series. Mr. C. Edwin Riley, Jr. serves as portfolio manager of the
Balanced Series and as such is primarily responsible for the day-to-day
management of the Series' portfolio. Mr. Riley is also vice president of Phoenix
Series Fund and portfolio manager of the Balanced Series of that Fund. Mr. Riley
is a managing director, Equities, of Phoenix Investment Counsel, Inc. and
National Securities & Research Corporation. From 1988 to 1995, Mr. Riley served
as senior vice president and director of Equity Management for Nationsbank
Investment Management.
Allocation Series. Ms. Mary E. Canning serves as portfolio manager of the
Allocation Series and, as such, is primarily responsible for the day-to-day
management of the Series' investments. Ms. Canning has served as manager since
August 1996 and as co-manager since June 1996. She has been a vice president of
Phoenix Investment Counsel, Inc. since 1991 and also is a vice president of the
Fund (since 1987) and of Phoenix Series Fund (since 1987). From June 1991 to
November 1995, Ms. Canning was associate portfolio
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<PAGE>
manager, Common Stock, Phoenix Home Life Mutual Insurance Company and held
various other positions with Phoenix Home Life from 1982 to 1991.
Multi-Sector Series. Mr. Curtiss O. Barrows has served as portfolio manager
of the Multi-Sector Series since 1986 and, as such, is primarily responsible for
the day-to-day management of the Series' portfolio. Mr. Barrows also is
portfolio manager of the High Yield Series of the Phoenix Series Fund and is a
vice president of PIC. Mr. Barrows also is portfolio manager, Public Bonds,
Phoenix Home Life Mutual Insurance Company.
Growth Series. Mr. Jean Claude Gruet has served as portfolio manager of the
Growth Series since 1996 and, as such, is primarily responsible for the
day-to-day management of the Series' portfolio. He also is vice president of the
Fund. Mr. Gruet previously was vice president and portfolio manager of Atalanta
Sosnoff Capital Corporation from 1994 to 1996, and was vice president and senior
analyst of UBS Securities from 1989 to 1994.
International Series. Ms. Jeanne Dorey and Mr. David Lui are the coportfolio
managers of the International Series and, as such, are primarily responsible for
the day-to-day management of the Series' investments. Ms. Dorey also is
coportfolio manager of the International Portfolio of Phoenix Multi-Portfolio
Fund and of Phoenix Worldwide Opportunities Fund. Ms. Dorey has served as vice
president of PIC since April 1993, and as vice president of the Fund and
portfolio manager of the Fund, Phoenix Worldwide Opportunities Fund and Phoenix
International Portfolio since February 1993. Since May 1993, she also has served
as vice president of National Securities & Research Corporation, an affiliate of
PIC. From 1990 to 1992, Ms. Dorey was an investment analyst and portfolio
manager with Pioneer Group, Inc. Mr. Lui also is coportfolio manager of Phoenix
Worldwide Opportunities Fund and the International Series of The Phoenix Edge
Series Fund. Mr. Lui previously served as associate portfolio manager of such
funds since June 1995. From 1993 to 1995, Mr. Lui was vice president of Asian
Equities at Alliance Capital Management, and from 1990 to 1993, he was an
associate, Capital Markets, at Bankers Trust.
Money Market Series. Ms. 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, president of PRS and William K.
Morrill, Jr., managing director of ABKB have shared primary responsibility for
managing the assets of the Real Estate Series from its inception. Ms. Rubin has
over 20 years real estate experience and has been associated with Phoenix for
the past 14 years. Mr. Morrill has over 15 years of investment experience and
has been a portfolio manager with ABKB since 1985.
Theme Series. Mr. William J. Newman serves as portfolio manager of the Theme
Series and, as such, is primarily responsible for the day-to-day management of
the Series' portfolio. Mr. Newman joined Phoenix in March 1995 as chief
investment strategist and managing director for Phoenix Investments. Mr. Newman
also is executive vice president of PIC. Most recently, Mr. Newman was chief
investment strategist for Kidder Peabody in New York from May 1993 to December
1994. He was managing director at Bankers Trust from March 1991 to May 1993.
Asia Series. Mr. Hugh Young is the portfolio manager of the Asia Series and,
as such, is primarily responsible for the day-to-day management of the Series'
portfolio. Mr. Young has been employed as an investment director for Abtrust
Fund Managers (Singapore) Limited since 1988. From 1985 to 1988, Mr. Young was
the Far East investment director for Sentinel Funds Management Ltd. From 1984 to
1985, he was an investment manager with Fidelity International Ltd. From 1981 to
1984, he served as investment analyst-overseas investment manager with MGM
Assurance; and from 1980 to 1981, he was an investment analyst with Beardsley
Bishop Escombe, Stockbrokers.
Enhanced Index Series. Mr. Timothy Devlin 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
arbritrager for seven years at Oppenheimer & Co.
ADVISORY FEES
As compensation for its services for all Series, the Advisers are entitled
to a fee at an annual rate of the average daily net assets of the Series,
payable monthly, as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market..... .40% .35% .30%
Multi-Sector..... .50% .45% .40%
Balanced......... .55% .50% .45%
Allocation....... .60% .55% .50%
Growth........... .70% .65% .60%
International.... .75% .70% .65%
Theme............ .75% .70% .65%
Enhanced Index... .45% .45% .45%
The total advisory fee of 0.75% of the aggregate net assets of the
International and Theme Series, is greater than that paid by most mutual funds;
however, the Board of Trustees of the Fund has determined that it is similar to
fees charged by other mutual funds whose investment objectives are similar to
those of the International and Theme Series.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to
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<PAGE>
the Enhanced Index Series to J.P. Morgan for which it is paid a fee by PIC. In
accordance with the subadvisory agreement between the Fund and J.P. Morgan, J.P.
Morgan is paid a monthly fee at the annual rate of 0.25% of the average
aggregate daily net asset values of the Enhanced Index Series up to $100 million
and 0.20% of such value in excess of $100 million. The subadvisory agreement
relating to the Enhanced Index Series provides, among other things, that J.P.
Morgan shall effectuate the and sale of securities for the Series and provide
related advisory services.
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate...... .75% .70% .65%
The total advisory fee of 0.75% of the aggregate net assets of the Real
Estate Series is greater than that paid by most mutual funds; however, the Board
of Trustees of the Fund has determined that it is similar to fees charged by
other mutual funds whose investment objectives are similar to that of the Real
Estate Series. Pursuant to a subadvisory agreement with the Fund, PRS delegates
certain investment decisions and research functions to ABKB/LaSalle Securities
Limited Partnership ("ABKB") for which ABKB is paid a fee by PRS. In accordance
with the subadvisory agreement between the Fund and ABKB, ABKB is paid a monthly
fee at the annual rate of 0.45% of the average aggregate daily net asset values
of the Series up to $1 billion; 0.35% of such value between $1 billion and $2
billion; and 0.30% of such value in excess of $2 billion. The subadvisory
agreement relating to the Real Estate Series provides, among other things, that
ABKB shall maintain certain records for the Series and effectuate the purchase
and sale of securities for the Series. ABKB is not affiliated with PRS, PIC,
Phoenix, PHL Variable or PLAC. The Real Estate Series pays other operating
expenses up to .25% of its average net assets.
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series...... 1.00%
The total advisory fee of 1.00% of the aggregate net assets of the Asia
Series is greater than that paid by most mutual funds; however, the Board of
Trustees of the Fund has determined that it is similar to fees charged by other
mutual funds whose investment objectives are similar to those of the Asia
Series. The Investment Advisory Agreement with the Fund provides that PAIA will
reimburse the Fund for the amount, if any, by which the total operating expenses
(including PAIA's compensation, but excluding interest, taxes, brokerage fees
and commissions and extraordinary expenses) for any fiscal year exceed the level
of expenses which the Series is permitted to bear under the most restrictive
expense limitation.
For providing research and other domestic advisory services to the Series,
PAIA pays to PIC, Inc. a monthly subadvisory fee at an annual rate equivalent to
0.30% of the average aggregate daily net asset value of the Series. For
implementing certain portfolio transactions and providing research and other
services to the Series, PAIA also pays a monthly subadvisory fee to Aberdeen
Fund Managers Inc. equivalent to 0.40% of the average aggregate daily net asset
value of the Series. For implementing certain portfolio transactions, providing
research and other services with regard to investments in particular geographic
areas, Aberdeen Fund Managers Inc. shall engage the services of its affiliates
Abtrust Fund Managers Ltd. and Abtrust Fund Managers (Singapore) Limited for
which such entities shall be paid a fee by Aberdeen Fund Managers Inc.
FINANCIAL AGENT
Under a Financial Agent Agreement, PEPCO acts as financial agent of the Fund
and as such is responsible for certain administrative functions and the
bookkeeping and pricing functions for the Fund. For its services as financial
agent, PEPCO receives a fee based on the average of the aggregate daily net
asset values of the Fund at the annual rate per each $1,000,000 of $600.
EXPENSES
Each Series (except the International, Real Estate, Theme, 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 and Enhanced Index Series pay total
operating expenses other than the management fee up to .40%, .25%, .25%, .25%
and .10%, 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
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<PAGE>
(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
ANNUAL TOTAL RETURNS
--------------------
YEAR MULTI-SECTOR BALANCED ALLOCATION GROWTH
- ---- ------------ -------- ---------- ------
1986......... 19.45% N/A 15.61% 20.15%
1987......... 1.12% N/A 12.58% 7.05%
1988......... 10.36% N/A 2.33% 3.83%
1989......... 8.30% N/A 19.88% 36.06%
1990......... 5.14% N/A 5.62% 3.98%
1991......... 19.41% N/A 29.44% 43.83%
1992......... 10.03% 9.72% 10.67% 10.29%
1993......... 15.90% 8.57% 11.02% 19.69%
1994......... (5.47%) (2.80%) (1.45%) 1.48%
1995......... 23.54% 23.28% 18.22% 30.85%
1996......... 12.42% 10.56% 9.05% 12.58%
REAL ENHANCED
YEAR INTERNATIONAL ESTATE THEME ASIA SERIES INDEX
- ---- ------------- ------ ----- ----------- -----
1986........ N/A N/A N/A N/A N/A
1987........ N/A N/A N/A N/A N/A
1988........ N/A N/A N/A N/A N/A
1989........ N/A N/A N/A N/A N/A
1990........ (8.10%) N/A N/A N/A N/A
1991........ 19.78% N/A N/A N/A N/A
1992........ (12.89%) N/A N/A N/A N/A
1993........ 38.44% N/A N/A N/A N/A
1994........ 0.03% N/A N/A N/A N/A
1995........ 9.59% 17.79% N/A N/A N/A
1996........ 18.65% 33.09% 10.33%* 0.16%* N/A
*Since inception
Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Principal and investment return
(except Money Market Series) will vary and you may have a gain or loss when you
withdraw your money. The Multi-Sector Series includes high yielding, lower-rated
securities which are subject to greater price volatility and may involve greater
risk of default. The market for these securities may be less liquid. While Money
Market Series seeks to maintain a stable value of $10.00 per share, there is no
assurance that it will be able to do so.
Yield calculations of the Money Market Series used for illustration purposes
are based on the consideration of a hypothetical investment account having a
balance of exactly one Share at the beginning of a seven-day period, which
period will end on the date of the most recent financial statements. The yield
for the Series during this seven-day period will be the change in the value of
the hypothetical investment account's original Share. The following is an
example of this yield calculation for the Money Market Series based on a
seven-day period ending December 31, 1996.
Assumptions:
Value of hypothetical pre-existing account with
exactly one share at the beginning of the period:. 10.000000
Value of the same account (excluding capital
changes) at the end of the seven-day period:...... 10.009537
Calculation:
Ending account value.............................. 10.009537
Less beginning account value...................... 10.000000
Net change in account value....................... 0.009537
Base period return:
(adjusted change/beginning account value)......... 0.000954
Current yield = return x (365/7) =................... 4.97%
Effective yield = [(1 + return)365/7]-1 =............ 5.10%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time.
The Advisers have voluntarily agreed to reimburse certain expenses as
described under "Expenses" above. If the Advisers had not reimbursed certain
expenses during the periods shown, the returns for these funds would have been
lower. PERFORMANCE NUMBERS ARE NET OF ALL FUND OPERATING EXPENSES, BUT DO NOT
INCLUDE ANY INSURANCE CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
The Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of each Series and a comparison of that
performance to a securities market index.
SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The Fund currently has ten Series of shares of beneficial interest. Shares
(including fractional shares) of each Series have equal rights with regard to
voting, redemptions, dividends, distributions, and liquidations with respect to
that Series. All voting rights of the Accounts as shareholders are passed
through to the Contract Owners and Policyowners. Shareholders of all Series
currently vote on the election of Trustees and other matters. On matters
affecting an individual Series (such as approval of an Investment Advisory
Agreement or a change in fundamental investment policies), a separate vote of
that Series is required.
Fund shares attributable to any Phoenix, PHL Variable or PLAC assets and
Fund shares for which no timely instructions from Contract Owners or
Policyowners are received will be voted by Phoenix, PHL Variable and PLAC in the
same proportion as those shares in that Series for which instructions are
received.
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<PAGE>
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 indemnification out of the Fund's property
for all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of the Accounts, as shareholders,
incurring loss because of shareholder liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations. Phoenix, PHL
Variable and PLAC, as the sole shareholders, have a fiduciary duty to bear this
risk and Contract Owners and Policyowners should be fully and completely
insulated from risk.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares, without sales charge, for purchase by the
Accounts as an investment medium for the Variable Accumulation Annuity Contracts
and Variable Universal Life Insurance Policies issued by Phoenix, PHL Variable
and PLAC. It is contemplated that in the future other separate accounts of
Phoenix, PHL Variable, PLAC or other insurance companies may purchase shares of
the Fund. Shares of the Fund will not be sold to the public. The Fund
continuously offers shares in each Series to the Accounts at prices equal to the
respective net asset values of those Series. Net asset value is determined in
the manner set forth below under "Net Asset Value."
It is conceivable that, in the future, it may be disadvantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in the Fund simultaneously. Although Phoenix, PHL Variable, PLAC or
the Fund currently do not foresee any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Fund's Board
of Trustees intends to monitor events in order to identify any material
conflicts between such Policyowners and Contract Owners and to determine what
action, if any, including withdrawal by the Separate Account from the Fund,
should be taken in response thereto. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in federal income tax
laws, (3) changes in the investment management of any portfolio of the Fund or
(4) differences in voting instructions between those given by Policyowners and
those given by Contract Owners.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The net asset value per share of a Series is
determined by adding the values of all securities and other assets of the
Series, subtracting liabilities and dividing by the total number of outstanding
shares of the Series.
The Series' investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by the
Trustees or their delegates. Foreign and domestic debt securities (other than
short-term investments) are valued on the basis of broker quotations or
valuations provided by a pricing service approved by the Trustees when such
prices are believed to reflect the fair value of such securities. Foreign and
domestic equity securities are valued at the last sale price or, if there has
been no sale that day, at the last bid price, generally. Short-term investments
having a remaining maturity of less than 61 days are valued at amortized cost,
which the Trustees have determined approximates market. For further information
about security valuations, see the Statement of Additional Information.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem all full and fractional shares of the Fund presented
for redemption. The Fund may, at the discretion of the Trustees and to the
extent consistent with state and federal law, make payment for shares of a
particular Series redeemed in whole or in part in securities or other assets of
such Series taken at current values. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption.
The right to redeem shares or to receive payment with respect to any
redemption only may be suspended for more than seven days for any period during
which trading on the New York Stock Exchange is restricted as determined by the
SEC or such Exchange is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists as defined by the SEC
as a result of which disposal of portfolio securities or determination of the
net asset value of each Series is not reasonably practicable, and for such other
periods as the Securities and Exchange Commission may by order permit for the
protection of shareholders of each Series.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
All dividends and distributions with respect to the shares of any Series
will be payable in shares of such Series at net asset value or, at the option of
the Account as shareholder, in cash.
The net investment income of the Money Market Series will be declared as
dividends daily. Dividends will be distributed and reinvested in additional
shares on the last business day of every month. The net income of the Money
Market Series for Saturdays, Sundays and other days on which the New York Stock
Exchange is closed will be declared as dividends on the next business day.
The Multi-Sector, Growth, Allocation, Balanced, International, Enhanced
Index and Theme Series will distribute substantially all net investment income
and net realized capital gains, if any, to shareholders at least annually,
although it is anticipated that these
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<PAGE>
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
shareholders, which in this case are the Accounts. The International and Asia
Series may incur liability for foreign income and withholding taxes on
investment income. The International and Asia Series intend to qualify for, and
may make an election permitted under, the Code to enable the shareholder
Accounts (and therefore Phoenix) to claim a credit or deduction on Phoenix's
income tax return for the Accounts' pro rata share of the income and withholding
taxes paid by the International and Asia Series to foreign countries. Phoenix
also will treat the foreign income taxes paid by the Series as income. Contract
Owners and Policyowners will not be required to treat the foreign income taxes
paid by the Series as income or be able to claim a credit or deduction for these
taxes on their income tax returns. For a discussion of the taxation of the
Accounts, see "Federal Tax Considerations" included in the Accounts'
prospectuses.
Although the Real Estate Series may be a non-diversified portfolio, the Fund
intends to comply with the diversification and other requirements of the Code
applicable to "regulated investment companies" so that it will not be subject to
U.S. federal income tax on income and capital gain distributions to
shareholders. Accordingly, the Real Estate Series will insure that no more than
25% of its total assets would be invested in the securities of a single issuer
and that at least 50% of its total assets is represented by cash and cash items
and other securities limited in respect of any one issuer to an amount no
greater than 5% of the total value of the assets of the Series.
In addition, if the Real Estate Series has rental income or income from the
disposition of real property acquired as a result of a default on securities the
Real Estate Series may own, the receipt of such income may adversely affect its
ability to retain its tax status as a regulated investment company.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT
- --------------------------------------------------------------------------------
The Custodian of the assets of all Series of the Fund, except the
International, Real Estate, Enhanced Index and Asia Series, is The Chase
Manhattan Bank, N.A., 1 Chase Manhattan Plaza, Floor 3B, New York, NY 10081. The
Custodian of the assets of the International and Asia Series is Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, Attention:
Manager, Securities Division. The Custodian of the assets of the Real Estate and
Enhanced Index Series is State Street Bank & Trust, 1 Heritage Drive, P2N, North
Quincy, Massachusetts 02171. The Fund has authorized the Custodian to appoint
one or more subcustodians of the assets of the Fund held outside the United
States. The securities and other assets of each Series will be held by the
Custodians or any subcustodian separate from the securities and assets of each
other Series.
The Transfer Agent and the Dividend Paying Agent for the Fund's shares is
Phoenix Equity Planning Corporation, 100 Bright Meadow Boulevard, PO Box 2200,
Enfield, Connecticut 06083-2200.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as independent accountants for the Fund and audits its financial
statements annually.
Inquiries and requests for the Statement of Additional Information and the
Annual Report to Shareholders should be directed in writing to Phoenix Variable
Products Mail Operations, PO Box 8027, Boston, Massachusetts 02266-8027, or by
telephoning Variable Products Operations at (800) 447-4312.
2-27
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS:
101 Munson Street P.O. Box 8027
Greenfield, MA Boston, MA 02266-8027
STATEMENT OF ADDITIONAL INFORMATION
July 15, 1997
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Prospectus. Accordingly, this Statement should be read
together with the Fund's current Prospectus, dated July 15, 1997, which may be
obtained by calling Variable Products Operations at (800) 447-4312, or by
writing to Phoenix Variable Products Mail Operations at P.O. Box 8027, Boston,
Massachusetts 02266-8027.
------------------
TABLE OF CONTENTS*
PAGE
The Phoenix Edge Series Fund (2-1).................................. 2
Investment Policies (2-11).......................................... 2
Investment Restrictions (2-21)...................................... 12
Portfolio Turnover (2-21)........................................... 13
Management of the Fund (2-22)....................................... 13
Investment Advisers (2-22).......................................... 21
Brokerage Allocation (2-24)......................................... 22
Determination of Net Asset Value (2-26)............................. 23
Investing In the Fund (2-26)........................................ 24
Redemption of Shares (2-26)......................................... 24
Taxes (2-27)........................................................ 24
Custodian (2-27).................................................... 24
Independent Accountants............................................. 25
Financial Statements................................................ 25
Appendix............................................................ 25
* Numbers in parentheses are cross-references to related sections of the
Prospectus.
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THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
The Phoenix Edge Series Fund (the "Fund") is an open-end investment company
as defined in the Investment Company Act of 1940. It was formed on February 18,
1986 as a Massachusetts Business Trust and commenced operations on December 5,
1986. The Phoenix Home Life Variable Accumulation Account is a separate account
of Phoenix Home Life Mutual Insurance Company ("Phoenix") created on June 21,
1982. The Phoenix Home Life Variable Universal Life Account is a separate
account of Phoenix created on June 17, 1985. The PHL Variable Accumulation
Account is a separate account of PHL Variable Insurance Company ("PHL Variable")
formed on December 7, 1994. The Phoenix Life and Annuity Variable Universal Life
Account is a separate account of Phoenix Life and Annuity Company ("PLAC")
formed in March 1996. The executive offices of the Accounts, Phoenix, PHL
Variable and PLAC are located at One American Row, Hartford, Connecticut. The
Accounts own the majority of the shares of the Fund.
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The investment objectives and policies of each Series are described in the
"Investment Objectives and Policies" section of the Prospectus. The following
specific policies supplement the information contained in that section of the
Prospectus.
MONEY MARKET INSTRUMENTS
Certain money market instruments used extensively by the Money Market and
Allocation Series are described below. They also may be used by the
International, Real Estate, Theme, Enhanced Index and Asia Series and may be
used by the other Series to a very limited extent to invest otherwise idle cash,
or on a temporary basis for defensive purposes.
Repurchase Agreements. Repurchase Agreements are agreements by which a
Series purchases a security and obtains a simultaneous commitment from the
seller (a member bank of the Federal Reserve System or, to the extent permitted
by the Investment Company Act of 1940, a recognized securities dealer) that the
seller will repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. In fact, such a
transaction is a loan of money to the seller of the securities.
A repurchase transaction is usually accomplished either by crediting the
amount of securities purchased to the account of the custodian of the Fund
maintained in a central depository or book-entry system or by physical delivery
of the securities to the Fund's custodian in return for delivery of the purchase
price to the seller. Repurchase transactions are intended to be short-term
transactions with the seller repurchasing the securities, usually within seven
days.
Even though repurchase transactions usually do not impose market risks on
the purchasing Series, if the seller of the repurchase agreement defaults and
does not repurchase the underlying securities, the Series might incur a loss if
the value of the underlying securities declines, and disposition costs may be
incurred in connection with liquidating the underlying securities. In addition,
if bankruptcy proceedings are commenced regarding the seller, realization upon
the underlying securities may be delayed or limited, and a loss may be incurred
if the underlying securities decline in value.
U.S. Government Obligations. Securities issued or guaranteed as to principal
and interest by the United States Government include a variety of Treasury
securities, which differ only in their interest rates, maturities, and times of
issuance. Treasury bills have a maturity of one year or less. Treasury notes
have maturities of one to seven years, and Treasury bonds generally have
maturity of greater than five years.
Agencies of the United States Government which issue or guarantee
obligations include, among others, Export-Import Banks of the United States,
Farmers Home Administration, Federal Housing Administration, Government National
Mortgage Association, Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by, among others, the
Federal National Mortgage Association, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Banks for
Cooperatives and the U.S. Postal Service. Securities issued or guaranteed by the
Export-Import Bank of the United States, Farmer's Home Administration, Federal
Housing Administration, Government National Mortgage Association, Maritime
Administration and Small Business Administration are supported by the full faith
and credit of the U.S. Treasury. Securities issued or guaranteed by Federal
National Mortgage Association and Federal Home Loan Banks are supported by the
right of the issuer to borrow from the Treasury. Securities issued or guaranteed
by the other agencies or instrumentalities listed above are supported only by
the credit of the issuing agency.
Certificates of Deposit. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
Time Deposits. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received.
Bankers' Acceptances. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods). The borrower, as well as the bank, is liable for payment, and the bank
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are traded as
money market securities.
All of the Money Market Series' investments will mature in 397 days or less
and will have a weighted average age of not more than 90 days. By limiting the
maturity of its investments, the Series seeks to
2
<PAGE>
lessen the changes in the value of its assets caused by market factors. This
Series, consistent with its investment objective, will attempt to maximize yield
through portfolio trading. This may involve selling portfolio instruments and
purchasing different instruments to take advantage of disparities of yields in
different segments of the high grade money market or among particular
instruments within the same segment of the market. It is expected that the
Series' portfolio transactions generally will be with issuers or dealers in
money market instruments acting as principal. Accordingly, this Series will
normally not pay any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the period of time remaining to
maturity of the security. Long-term obligations may fluctuate more in value than
short-term obligations. If interest rates increase after a security is
purchased, the security, if sold, could be sold at a loss. On the other hand, if
interest rates decline after a purchase, the security, if sold, could be sold at
a profit. If, however, the security is held to maturity, no gain or loss will be
realized as a result of interest rate fluctuations, although the day-to-day
valuation of the portfolio could fluctuate. Substantial withdrawals of the
amounts held in the Money Market Series could require it to sell portfolio
securities at a time when a sale might not be favorable. The value of a
portfolio security also may be affected by other factors, including factors
bearing on the credit-worthiness of its issuer. A more detailed discussion of
amortized cost is contained under "Determination of Net Asset Value."
ALLOCATION SERIES: MARKET SEGMENT INVESTMENTS AND TRADING
Market Segment Investments. The Allocation Series seeks to achieve its
investment objective by investing in the three market segments of stocks, bonds,
and money market instruments described below.
(1) STOCK--common stocks and other equity-type securities such as
preferred stocks, securities convertible into common stock and
warrants;
(2) BONDS--bonds and other debt securities with maturities generally
exceeding one year, including:
(a) publicly offered straight debt securities having a rating within
the four highest grades as determined by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's
Corporation (AAA, AA, A or BBB) or, if unrated, those publicly
offered straight debt securities which are judged by the Account
to be of equivalent quality to securities so rated;
(b) obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities;
(c) obligations (payable in U.S. dollars) issued or guaranteed as to
principal and interest by the Government of Canada or of a
Province of Canada or any instrumentality or political
subdivision thereof, provided such obligations have a rating
within the highest grades as determined by Moody's (Aaa, Aa or
A) or Standard & Poor's (AAA, AA or A) and do not exceed 25% of
the Allocation Series' total assets;
(d) publicly offered straight debt securities issued or guaranteed
by a national or state bank or bank holding company (as defined
in the Federal Bank Holding Company Act, as amended) having a
rating within the three highest grades as determined by Moody's
(Aaa, Aa or A) or Standard & Poor's (AAA, AA or A), and
certificates of deposit of such banks; and
(e) high yield, high risk fixed income securities (commonly referred
to as "junk bonds") having a rating below Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Corporation
or unrated securities of comparable quality provided such
securities do not exceed 5% of the Allocation Series' total
assets.
(3) MONEY MARKET--money market instruments and other debt securities with
maturities generally not exceeding one year, including:
(a) those money market instruments described in this Statement of
Additional Information; and
(b) reverse repurchase agreements with respect to any of the
foregoing obligations. Reverse repurchase agreements are
agreements in which the Series, as the seller of the securities,
agrees to repurchase them at an agreed time and price. This
transaction constitutes a borrowing of money by the seller of
the securities. The Series will maintain sufficient funds in a
segregated account with its Custodian to repurchase securities
pursuant to any outstanding reverse repurchase agreement. The
Series is required to maintain at all times asset coverage of at
least 300% for all obligations under reverse repurchase
agreements.
Trading. In order to achieve the Series' investment objective, the timing
and amounts of purchases and sales of particular securities and particular types
of securities (i.e., common stock, debt, money market instruments) will be of
significance. As a result, the Allocation Series intends to use trading as a
means of managing the portfolio of the Series in seeking to achieve its
investment objective. Trading is used primarily in anticipation of, or in
response to, market developments or to take advantage of yield disparities. The
Investment Adviser will engage in trading when it believes that the trade, net
of transaction costs, will improve interest income or capital appreciation
potential, or will lessen capital loss potential. Whether these goals will be
achieved through trading depends on the Investment Adviser's ability to evaluate
particular securities and anticipate relevant market factors, including interest
rate trends and variations. Such trading places a premium on the Investment
Adviser's ability to obtain relevant information, evaluate it properly and take
advantage of its evaluations by completing transactions on a favorable basis. If
the Investment Adviser's evaluations and expectations prove to be incorrect, the
Series' income or capital appreciation may be reduced and its capital losses may
be increased. Portfolio trading involves transaction costs, but, as explained
above, will be engaged in when the Investment Adviser believes that the result
of the trading, net of transaction costs, will benefit the Series. Purchases and
sales of securities will be made,
3
<PAGE>
whenever necessary in the Investment Adviser's view, to achieve the total return
investment objective of the Series without regard to the resulting brokerage
costs.
In addition to the traditional investment techniques for purchasing and
selling, and engaging in trading, the Allocation Series may enter into financial
futures and options contracts.
ENHANCED INDEX SERIES
The investment strategy of the Enhanced Index Series is to earn a total
return modestly in excess of the total return performance of the S&P 500
(including the reinvestment of dividends) while maintaining a volatility of
return similar to the S&P 500. The Series is appropriate for investors who seek
a modestly enhanced total return relative to that of large and medium sized U.S.
companies typically represented in the S&P 500. The Portfolio intends to invest
in securities of approximately 350 issuers, which securities are rated by the
Series' Subadviser to have above average expected returns.
The Series' seeks to achieve its investment objective through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
o Fundamental research: The Series' Subadviser's approximately 25 domestic
equity analysts, each an industry specialist with an average of
approximately 12 years experience, follow over 900 predominantly large and
medium sized U.S. companies--approximately 550 of which form the universe
for the Series' investments. A substantial majority of these companies are
issuers of securities which are included in the S&P 500. The analysts'
research goal is to forecast normalized, longer term earnings and dividends
for the companies that they cover.
o Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by a dividend discount model, which calculates those
expected returns by solving for the rate of return that equates the
company's current stock price to the present value of its estimated
long-term earnings power. Within each sector, companies are ranked by their
expected return and grouped into quintiles; those with the highest expected
returns (Quintile 1) are deemed the most undervalued relative to their
long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
o Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Sector weightings will generally
approximate those of the S&P 500. The Series will normally be principally
comprised, based on the dividend discount model, of stocks in the first
four quintiles. Finally, the Series holds a large number of stocks to
enhance its diversification.
Under normal market circumstances, the Series' Adviser will invest at least
80% of its net assets in equity securities consisting of common stocks and other
securities with equity characteristics such as trust interests, limited
partnership interests, preferred stocks, warrants, rights and securities
convertible into common stock. The Series' primary equity investments will be
the common stock of large and medium sized U.S. companies with market
capitalizations above $1 billion. Such securities will be listed on a national
securities exchange or traded in the over-the-counter market. The Series may
invest in similar securities of foreign corporations, provided that the
securities of such corporations are included in the S&P 500.
The Series intends to manage its portfolio actively in pursuit of its
investment objective. Since the Series has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its objective.
FINANCIAL FUTURES AND RELATED OPTIONS
Allocation Series. The Allocation Series may enter into financial futures
contracts for the purchase or sale of debt obligations which are traded on
exchanges that are licensed and regulated by Commodity Futures Trading
Commission.
A futures contract on a debt obligation is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of obligations having a standard face value
and rate of return. By entering into a futures contract for the purchase of a
debt obligation, the Series will legally obligate itself to accept delivery of
the underlying security and pay the agreed price. Futures contracts are valued
at the most recent settlement price, unless such price does not reflect the fair
value of the contract, in which case such positions will be valued by or under
the direction of the Board of Trustees of the Fund.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or loss. While futures positions taken by the Series usually would be
liquidated in this manner, it may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to do
so.
The purpose of hedging in debt obligations is to establish more certainty
than otherwise would be possible in the effective rate of return on portfolio
securities. The Series might, for example, take a "short" position in the
futures markets by entering into contracts for the future delivery of securities
held by it in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of such securities. When hedging of this type
is successful, any depreciation in the value of securities will be substantially
offset by appreciation in the value of the futures position. On the other hand,
the Series might take a "long" position by entering into contracts for the
future purchase of securities. This could be done when the Series anticipated
the future purchase of particular debt securities but expects the rate of return
then available in the securities market to be less favorable than rates that are
currently available in the futures markets.
The Allocation Series will incur brokerage fees in connection with its
financial futures transactions, and will be required to deposit and maintain
funds with its custodian in its own name as margin to guarantee performance of
its future obligations.
While financial futures would be traded to reduce certain risks, futures
trading itself entails certain other risks. One risk arises because of the
imperfect correlation between movements in the price of the futures contracts
and movements in the price of the debt securities which are the subject of such
contracts. In addition, the market price
4
<PAGE>
of futures contracts may be affected by certain factors, such as the closing out
of futures contracts by investors through offsetting transactions, margin,
deposit and maintenance requirements, and the participation of speculators in
the futures market. Another risk is that there may not be a liquid secondary
market on an exchange or board of trade for a given futures contract or at a
given time, and in such event it may not be possible for the Series to close a
futures position. Finally, successful use of futures contracts by the Series is
subject to the Investment Adviser's ability to predict correctly movements in
the direction of interest rates and other factors affecting the market for debt
securities. Thus, while the Series may benefit from the use of such contracts,
the operation of these risk factors may result in a poorer overall performance
for the Series than if it had not entered into any futures contract.
The Allocation Series is required to maintain at all times an asset coverage
of at least 300% for all of its borrowings, which include obligations under any
financial futures contract on a debt obligation or reverse repurchase agreement.
In addition, immediately after entering into a futures contract for the receipt
or delivery of a security, the value of the securities called for by all of the
Series' futures contracts (both for receipts and delivery) will not exceed 10%
of its total assets. A futures contract for the receipt of a debt obligation
will be offset by any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily held in a segregated account with the custodian bank for the Series in an
amount sufficient to cover the cost of purchasing the obligation.
International, Enhanced Index and Asia Series. The International, Enhanced
Index and Asia Series may enter into financial futures contracts and related
options as a hedge against anticipated changes in the market value of its
portfolio securities or securities which it intends to purchase or in the
exchange rate of foreign currencies. Hedging is the initiation of an offsetting
position in the futures market which is intended to minimize the risk associated
with a position's underlying securities in the cash market.
Financial futures contracts consist of interest rate futures contracts,
foreign currency futures contracts and securities index futures contracts. An
interest rate futures contract obligates the seller of the contract to deliver,
and the purchaser to take delivery of, the interest rate securities called for
in the contract at a specified future time and at a specified price. A foreign
currency futures contract obligates the seller of the contract to deliver, and
the purchaser to take delivery of, the foreign currency called for in the
contract at a specified future time and at a specified price. A securities index
assigns relative values to the securities included in the index, and the index
fluctuates with changes in the market values of the securities so included. A
securities index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. An option on a financial futures contract gives the purchaser
the right to assume a position in the contract (a long position if the option is
a call and a short position if the option is a put) at a specified exercise
price at any time during the period of the option.
The Series may purchase and sell financial futures contracts which are
traded on a recognized exchange or board of trade and may purchase or exchange
board-traded put and call options on financial futures contracts.
The Series will engage in transactions in financial futures contracts and
related options only for hedging purposes and not for speculation. In addition,
it will not purchase or sell any financial futures contract or related option
if, immediately thereafter, the sum of the cash or U.S. Treasury bills committed
with respect to its existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of its
total assets. At the time of the purchase of a futures contract or a call option
on a futures contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the futures contract, minus the initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged. The extent to which the Series may enter into
financial futures contracts and related options also may be limited by
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There also is the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
while the purchase or sale of the contract would not have resulted in a loss.
Theme Series. The Theme Series may use financial futures contracts and
related options to hedge against changes in the market value of its portfolio
securities which it intends to purchase. Hedging is accomplished when an
investor takes a position in the futures market opposite to his cash market
position. There are two types of hedges--long (or buying) and short (or selling)
hedges. Historically, prices in the futures market have tended to move in
concert with cash market prices, and prices in the futures market have
maintained a fairly predictable relationship to prices in the cash market. Thus,
a decline in the market value of securities in a Series' portfolio may be
protected against to a considerable extent by gains realized on futures
contracts sales. Similarly, it is possible to protect against an increase in the
market price of securities which a Series may wish to purchase in the future by
purchasing futures contracts.
The Theme Series may purchase or sell any financial futures contracts which
are traded on a recognized exchange or board of trade. Financial futures
contracts consist of interest rate futures contracts and securities index
futures contracts. A public market presently exists in interest rate futures
contracts covering long-term U.S. Treasury bonds, U.S. Treasury notes,
three-month U.S. Treasury bills and GNMA certificates. Securities index futures
contracts are
5
<PAGE>
currently traded with respect to the S&P 500. A clearing corporation
associated with the exchange or board of trade on which a financial futures
contract trades assumes responsibility for the completion of transactions and
also guarantees that open futures contracts will be performed.
In contrast to the situation when such Series purchases or sells a security,
no security is delivered or received by the Series upon the purchase or sale of
a financial futures contract. Initially, this Series will be required to deposit
in a segregated account with its custodian bank an amount of cash, U.S. Treasury
bills or liquid high grade debt obligations. This amount is known as initial
margin and is in the nature of a performance bond or good faith deposit on the
contract. The current initial deposit required per contract is approximately 5%
of the contract amount. Brokers may establish deposit requirements higher than
this minimum. Subsequent payments, called variation margin, will be made to and
from the account on a daily basis as the price of the futures contract
fluctuates. This process is known as marking to market.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract. For more information regarding options, see below.
Although financial futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Theme Series will pay commissions on financial futures contracts and
related options transactions. These commissions may be higher than those which
would apply to purchases and sales of securities directly.
OPTIONS
MONEY MARKET, GROWTH, BALANCED, INTERNATIONAL, MULTI-SECTOR, ALLOCATION,
THEME, ENHANCED INDEX AND ASIA SERIES:
Writing Covered Call Options. The Money Market, Growth, Balanced,
Allocation, Theme, Enhanced Index and Asia Series may write (sell) covered call
options on securities owned by them, including securities into which convertible
securities are convertible, provided that such call options are listed on a
national securities exchange.
A call option gives the holder the right to buy a security at a specified
price (the exercise price) for a stated period of time. Prior to the expiration
of the option, the seller of the option has an obligation to sell the underlying
security to the holder of the option at the original price specified regardless
of the market price of the security at the time the option is exercised. The
seller of the call option receives a cash payment (premium) at the time of sale,
which premium is retained by the seller whether or not the option is exercised.
The premium represents consideration to the seller for undertaking the
obligations under the option contract and thereby foregoing the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price (except insofar as the premium represents such a profit).
A call option may be purchased to terminate a call option previously
written. The premium paid in connection with the purchase of a call option may
be more than, equal to or less than the premium received upon writing the call
option which is being terminated.
When a Series writes a covered call option, an amount equal to the premium
received by it is included in assets of the Series offset by an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. Market value is the last
sale price of the options on the exchange on which it is traded, or in absence
of a sale, the mean between last bid and offer prices. If an option which the
Series has written either expires or enters into a closing purchase transaction,
the Series realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is extinguished.
In order to maintain its qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, the Fund intends to limit gains
from the sale of securities held or deemed held for less than three months to
less than 30% of annual gross income. Accordingly, the Fund may be restricted in
the selling of securities which have been held less than three months, in the
writing of options on securities into which convertible securities are
convertible, in the writing of options on securities which have been held for
six months or less, in the writing of options which expire in less than three
months and in purchasing options to terminate options which it wrote within the
preceding three months. In this regard, the Fund can minimize the possibility of
a suspended holding period for purposes of the 30 percent rule to the extent the
Fund limits its covered call writing to options with more than 30 days to
expiration that are not "deep in the money" and that satisfy certain other
requirements such that they will constitute "qualified covered call options" as
defined in Section 1092(c)(4)(B) of the Code, as recently enacted.
An option is generally considered to be "in the money" if the striking price
under the option is less than the currently prevailing price of the stock
covered by the option so that there is a built-in discount or intrinsic value to
the option. Section 1092(c)(4) of the Internal Revenue Code sets forth complex
rules defining options which are "deep in the money." These rules vary in their
application depending upon the prevailing stock price and the stock price under
option contracts available in the market, but are designed to provide
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objective rules to classify as "deep in the money" options those options whose
primary value is attributable to their built-in discount or intrinsic value.
Premium income earned with respect to a qualified covered call option
contract which lapses or experiences gain or loss from such an option contract
which is closed out (other than by exercise) generally will be short-term
capital gain or loss. Further, gain or loss with respect to the exercise of such
an option contract generally will be short-term or long-term depending upon the
actual or deemed holding period of the underlying security. However, any loss
realized from writing a "qualified covered call option" which has a strike price
that is less than the applicable security price as defined in Section
1092(c)(4)(G) of the Code will be treated as a long-term capital loss, if gain
from the sale of the underlying security at the time the loss is realized would
be long-term capital gain. Also, with respect to such options, the holding
period of the underlying security will not include any period during which the
Fund has a written option outstanding.
Buying Call and Put Options. The Allocation, Balanced, Enhanced Index and
Theme Series may buy national exchange-traded call and put options on equity and
debt securities and on various stock market indexes. The Money Market, Growth
and Multi-Sector Series may purchase a call option only to terminate a call
option previously written. (See "Writing Covered Call Options" above for a
description of call options.)
A put option on equity or debt securities gives the holder the right to sell
such a security at a specified price (the exercise price) for a stated period of
time. Prior to the expiration of the option, the seller of the option has an
obligation to buy the underlying security from the holder of the option at the
original price specified regardless of the market price of the security at the
time the option is exercised.
Call and put options on stock market indexes operate the same way as call
and put options on equity or debt securities except that they are settled in
cash. In effect, the holder of a call option on a stock market index has the
right to buy the value represented by the index at a specified price for a
stated period of time. Conversely, the holder of a put option on a stock market
index has the right to sell the value represented by the index for a specified
price for a stated period of time. To be settled in cash means that if the
option is exercised, the difference in the current value of the stock market
index and the exercise value must be paid in cash. For example, if a call option
was bought on the XYZ stock market index with an exercise price of $100
(assuming the current value of the index is 110 points, with each point equal to
$1.00), the holder of the call option could exercise the option and receive $10
(110 points minus 100 points) from the seller of the option. If the index equals
90 points, the holder of the option receives nothing.
The seller of an option receives a cash payment (premium) at the time of
sale, which premium is retained by the seller whether or not the option is
exercised. The premium represents consideration to the seller for undertaking
the obligation under the option contract. In the case of call options, the
premium compensates the seller for the loss of the opportunity to profit from
any increase in the value of the security or the index. The premium to a seller
of a put option compensates the seller for the risk assumed in connection with a
decline in the value of the security or index.
A Series may close an open call or put option position by selling a call
option, in the case of an open call position, or a put option, in the case of an
open put option, which is the same as the option being closed. The Series will
receive a premium for selling such an option. The premium received may be more
than, equal to or less than the premium paid by the Series when it bought the
option which is being closed.
Immediately after entering into an opening option position the total value
of all open option positions based on exercise price will not exceed ten percent
(10%) of the Allocation or Balanced Series' total assets. The premium paid by
the Series for the purchase of a call or a put option and the expiration or
closing sale transaction with respect to such options are treated in a manner
analogous to that described above, except there is no liability created to the
Series. The premium paid for any such option is included in assets and marked to
the market value on a current basis. If the options expire the Series will
realize a short-term loss on the amount of the cost of the option. If a
purchased put or call option is closed out by the Series entering into a closing
sale transaction, the Series will realize a short-term gain or loss, depending
upon whether the sale proceeds from the closing sale transaction are greater or
less than cost of the put or call option.
INTERNATIONAL, THEME, ENHANCED INDEX AND ASIA SERIES:
In furtherance of its objectives, the International, Theme, Enhanced
Index and Asia Series may write covered call options and purchase call and put
options on securities. In addition, the Series may write secured put options and
enter into option transactions on foreign currency.
Writing (Selling) Call and Put Options. A call option on a security or a
foreign currency gives the purchaser of the option, in return for the premium
paid to the writer (seller), the right to buy the underlying security or foreign
currency at the exercise price at any time during the option period. Upon
exercise by the purchaser, the writer of a call option has the obligation to
sell the underlying security or foreign security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index and all settlements are made in cash. A call option may be terminated by
the writer (seller) by entering into a closing purchase transaction in which it
purchases an option of the same series as the option previously written.
A put option on a security or foreign currency gives the purchaser of the
option, in return for the premium paid to the writer (seller), the right to sell
the underlying security or foreign currency at the exercise price at any time
during the option period. Upon exercise by the purchaser, the writer of a put
option has the obligation to purchase the underlying security or foreign
currency at the exercise price. A put option on a securities index is similar to
a put option on an individual security, except that the value of the options
depends on the weighted value of the group of securities comprising the index
and all settlements are made in cash.
The Series may write exchange-traded call options on its securities. Call
options may be written on portfolio securities and on securities indices, and on
foreign currencies. The Series may, with respect to securities and foreign
currencies, write call and put options on an exchange or over the counter. Call
options on portfolio securities will be covered since the Series will own the
underlying securities or other securities that are acceptable for escrow at all
times
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during the option period. Call options on securities indices will be written
only to hedge in an economically appropriate way portfolio securities which are
not otherwise hedged with options or financial futures contracts and will be
"covered" by identifying the specific portfolio securities being hedged. Call
options on foreign currencies and put options on securities and foreign
currencies will be covered by securities acceptable for escrow. The Series may
not write options on more than 50% of its total assets. Management presently
intends to cease writing options if and as long as 25% of such total assets are
subject to outstanding options contract.
The Series will write call and put options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of portfolio
securities or foreign currencies will be offset to the extent of the premiums
received (net of transaction costs). If an option is exercised, the premium
received on the option will effectively increase the exercise price or reduce
the difference between the exercise price and market value.
During the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of loss should the price
of the underlying security or foreign currency decline. Writing call options
also involves risks relating to the Series' ability to close out options it has
written.
During the option period, the writer of a put option has assumed the risk
that the price of the underlying security or foreign currency will decline below
the exercise price. However, the writer of the put option has retained the
opportunity for any appreciation above the exercise price should the market
price of the underlying security or foreign currency increase. Writing put
options also involves risks relating to a Portfolio's ability to close out
options it has written.
Purchasing Call and Put Options, Warrants and Stock Rights. The
International, Theme, Enhanced Index and Asia Series may invest up to an
aggregate of 5% of its total assets in exchange-traded or over-the-counter call
and put options on securities and securities indices and foreign currencies.
Purchases of such options may be made for the purpose of hedging against changes
in the market value of the underlying securities or foreign currencies. The
Series will invest in call and put options whenever, in the opinion of the
Adviser or Subadviser, a hedging transaction is consistent with its investment
objectives. The Series may sell a call option or a put option which it has
previously purchased prior to the purchase (in the case of a call) or the sale
(in the case of a put) of the underlying security or foreign currency. Any such
sale would result in a net gain or loss depending on whether the amount received
on the sale is more or less than the premium and other transaction costs paid on
the call or put which is sold. Purchasing a call or put option involves the risk
that the Series may lose the premium it paid plus transaction costs.
Warrants and stock rights are almost identical to call options in their
nature, use and effect except that they are issued by the issuer of the
underlying security, rather than an option writer, and they generally have
longer expiration dates than call options. The International, Theme and Asia
Series intend to invest up to 5% of its net assets in warrants and stock rights,
but no more than 2% of its net assets in warrants and stock rights not listed on
the New York Stock Exchange or the American Stock Exchange.
Over-the-Counter ("OTC") Options. OTC options differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. However, the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and foreign currencies, and in a
wider range of expiration dates and exercise prices than exchange-traded
options. Since there is no exchange, pricing is normally done by reference to
information from a market maker, which information is carefully monitored or
caused to be monitored by the Adviser or Subadviser and verified in appropriate
cases.
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the International Series
may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Series writes an OTC option, it generally can
close out that option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which it originally wrote the option. If
a covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it otherwise might be
advantageous to do so. Likewise, the writer of a secured OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option also might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund understands the position of the staff of the Securities and
Exchange Commission (the "SEC") to be that purchased OTC options and the assets
used as "cover" for written OTC options are illiquid securities. Although the
Subadviser has found that dealers with which they will engage in OTC options
transactions are generally agreeable to and capable of entering into closing
transactions, the Fund has adopted procedures for engaging in OTC options
transactions for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the International Series.
The Fund will engage in OTC options transactions only with dealers that meet
certain credit and other criteria established by the Board of Trustees of the
Fund. The Fund and the Adviser believe that the approved dealers present minimal
credit risks to the Fund and, therefore, should be able to enter into closing
transactions if necessary. The Fund currently will not engage in OTC options
transactions if the amount invested by the Fund in OTC options, plus a
"liquidity charge" related to OTC options written by the Fund in illiquid
securities plus any other portfolio securities considered to be illiquid, would
exceed 10% of the Fund's total assets. The "liquidity charge" referred to above
is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge"
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referred to above for a specific OTC option transaction will be the Repurchase
Price related to the OTC option less the intrinsic value of the OTC option. The
intrinsic value of an OTC call option for such purposes will be the amount by
which the current market value of the underlying security exceeds the exercise
price. In the case of an OTC put option, intrinsic value will be the amount by
which the exercise price exceeds the current market value of the underlying
security. If there is no such agreement requiring a dealer to allow the Fund to
repurchase a specific OTC option written by the Fund, the "liquidity charge"
will be the current market value of the assets serving as "cover" for such OTC
option.
FOREIGN CURRENCY TRANSACTIONS
For each Series investing in foreign securities, the value of the assets
of such Series as measured in United States dollars may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and a Series may incur costs in connection with conversions
between various currencies. A Series will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. At the time of the purchase of a forward foreign currency
exchange contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the contract, minus the Series' initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged.
When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. The
International and Asia Series also may hedge its foreign currency exchange rate
risk by engaging in currency financial futures and options transactions.
When the Adviser believes that the currency of a particular foreign country
may suffer a substantial decline against the United States dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of a Series' portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a contract. Accordingly, it may be necessary for
a Series to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Series is obligated to deliver when a decision is
made to sell the security and make delivery of the foreign currency in
settlement of a forward contract. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Series
is obligated to deliver.
If the Series retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If the Series engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline during the
period between the Series' entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Series would realize gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Series
would suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell. Although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which might result
should the value of such currency increase. The Series will have to convert
holdings of foreign currencies into United States dollars from time to time.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
ZERO AND DEFERRED COUPON DEBT SECURITIES
The Multi-Sector Series may invest in debt obligations that do not make any
interest payments for a specified period of time prior to maturity ("deferred
coupon" obligations) or until maturity ("zero coupon" obligations). Because
deferred and zero coupon bonds do not make interest payments for a certain
period of time, they are purchased by the Series at a deep discount and their
value fluctuates more in response to interest rate changes than does the value
of debt obligations that make current interest payments. The degree of
fluctuation with interest rate changes is greater when the deferred period is
longer. Therefore, there is a risk that the value of the Series' shares may
decline more as a result of an increase in interest rates than would be the case
if the Series did not invest in deferred or zero coupon bonds.
REAL ESTATE INVESTMENT TRUSTS
As described in the Prospectus, the Real Estate Series intends under normal
conditions to invest in real estate investment trusts ("REITs"). REITs pool
investors' funds for investment primarily in income-producing commercial real
estate or real estate related loans. A REIT is not taxed on income distributed
to shareholders if it complies with several requirements relating to its
organization, ownership, assets, and income and a requirement that it distribute
to its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year.
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REITs generally can be classified as follows:
--Equity REITs, which invest the majority of their assets directly in real
property and derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in
value.
--Mortgage REITs, which invest the majority of their assets in real estate
mortgages and derive their income primarily from interest payments.
--Hybrid REITs, which combine the characteristics of both equity REITs and
mortgage REITs.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments. A shareholder in the Real Estate Series should realize that by
investing in REITs indirectly through the Series, he will bear not only his
proportionate share of the expenses of the Series, but also, indirectly similar
expenses of underlying REITs.
DEBT SECURITIES
Up to 25% of the Real Estate Series total assets may be invested in debt
securities (which include for purposes of this investment policy convertible
debt securities which PRS believes have attractive equity characteristics).
The Real Estate Series may invest in debt securities rated BBB or better by
Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investor
Service, Inc. ("Moody's") or, if not rated, are judged to be of comparable
quality as determined by PRS. In choosing debt securities for purchase by the
Portfolio, PRS will employ the same analytical and valuation techniques utilized
in managing the equity portion of the Real Estate Series holdings (see
"Investment Advisory and Other Services") and will invest in debt securities
only of companies that satisfy PRS' investment criteria.
The value of the Real Estate Series investments in debt securities will
change as interest rates fluctuate. When interest rates decline, the values of
such securities generally can be expected to increase and when interest rates
rise, the values of such securities generally can be expected to decrease. The
lower-rated and comparable unrated debt securities described above are subject
to greater risks of loss of income and principal than are higher-rated fixed
income securities. The market value of lower-rated securities generally tends to
reflect the market's perception of the creditworthiness of the issuer and
short-term market developments to a greater extent than is the case with more
highly rated securities, which reflect primarily functions in general levels of
interest rates.
JUNK BONDS
The International and Allocation Series may invest up to 10% and 5%,
respectively, of total net assets in non-investment grade debt securities. The
market prices of such lower rated securities generally fluctuate in response to
changes in interest rates and economic conditions more than those of higher
rated securities. Additionally, there is a greater possibility that an adverse
change in the financial condition of an issuer, particularly a higher leveraged
issuer, may affect its ability to make payments of income and principal and
increase the expenses of the Series seeking recovery from the issuer. Lower
rated securities may be thinly traded and less liquid than higher rated
securities and therefore harder to value and more susceptible to adverse
publicity concerning the issuer.
REAL ESTATE SECURITIES
The Real Estate Series will not invest in real estate directly, but only in
securities issued by real estate companies. However, the Portfolio may be
subject to risks similar to those associated with the direct ownership of real
estate because of its policy of concentrating in the securities of companies in
the real estate industry. These include declines in the value of real estate,
risks related to general and local economic conditions, dependence on management
skill, cash flow dependence, possible lack of availability of long-term mortgage
funds, over-building, extended vacancies of properties, decreased occupancy
rates and increased competition, increases in property taxes and operating
expenses, changes in neighborhood values and the appeal of the properties to
tenants and changes in interest rates.
Selecting REITs requires an evaluation of the merits of each type of asset a
particular REIT owns, as well as regional and local economics. Due to the
proliferation of REITs in recent years and the relative lack of sophistication
of certain REIT managers, the quality of REIT assets has varied significantly.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying properties owned by the trusts, while mortgage REITs may
be affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent upon management skills and generally are not diversified.
Equity and mortgage REITs also are subject to potential defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free status
of income under the Code and failing to maintain exemption from the Investment
Company Act of 1940. In the event of a default by a borrower or lessee, the REIT
may experience delays in enforcing its rights as a mortgagee or lessor and may
incur substantial costs associated with protecting its investments. In addition,
investment in REITs could cause the Series to possibly fail to qualify as a
regulated investment company.
EMERGING MARKET SECURITIES
The Asia Series may invest in countries or regions with relatively low gross
national product per capita compared to the world's major economies, and in
countries or regions with the potential for rapid economic growth (emerging
markets). Emerging markets in Asia will include countries: (i) having an
"emerging stock market" as defined by the International Finance Corporation;
(ii) with low-to-middle-income economies according to the International Bank for
Reconstruction and Development (the "World Bank"); (iii) listed in World Bank
publications as developing; or (iv) determined by the Adviser to be an emerging
market as defined above. The Series also may invest in securities of: (i)
companies the principal securities trading market for which is an emerging
market country; (ii) companies organized under the laws of, and with a principal
office in, an emerging market country; or (iii) companies whose principal
activities are located in emerging market countries.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities of many issuers in emerging
markets may be less liquid and more volatile than securities of comparable
domestic issuers. Emerging markets also have different clearance and settlement
procedures, and in certain
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markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when a
portion of the assets of the Series is uninvested and no return is earned
thereon. The inability of the Series to make intended security purchases due to
settlement problems could cause the Series to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Series due to subsequent declines
in value of the portfolio securities or, if the Series has entered into a
contract to sell the security, in possible liability to the purchaser.
Securities prices in emerging markets can be significantly more volatile than in
the more developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of nationalization of businesses, restrictions on foreign ownership or
prohibitions of repatriation of assets, and may have less protection of property
rights than more developed countries. The economies of countries with emerging
markets may be predominantly based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer from
extreme and volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Series could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Series any restrictions on investments. Investments in certain foreign
emerging market debt obligations may be restricted or controlled to varying
degrees. These restrictions or controls may at times preclude investment in
certain foreign emerging market debt obligations and increase the expenses of
the Series.
ADDITIONAL RISK FACTORS. As a result of its investments in foreign
securities, the Series may receive interest or dividend payments, or the
proceeds of the sale or redemption of such securities, in the foreign currencies
in which such securities are denominated. In that event, the Series may convert
such currencies into dollars at the then current exchange rate. Under certain
circumstances, however, such as where the Adviser believes that the applicable
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
Series may hold such currencies for an indefinite period of time.
In addition, the Series may be required to receive delivery of the foreign
currency underlying forward foreign currency contracts it has entered into. This
could occur, for example, if an option written by the Fund is exercised or the
Fund is unable to close out a forward contract. The Series may hold foreign
currency in anticipation of purchasing foreign securities. The Series also may
elect to take delivery of the currencies underlying options or forward contracts
if, in the judgment of the Adviser, it is in the best interest of the Series to
do so. In such instances as well, the Series may convert the foreign currencies
to dollars at the then current exchange rate, or may hold such currencies for an
indefinite period of time.
While the holding of currencies will permit the Series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Series
to risk of loss if such rates move in a direction adverse to the Series'
position. Such losses could reduce any profits or increase any losses sustained
by the Series from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. ln addition, the holding
of currencies could adversely affect the Series' profit or loss on currency
options or forward contracts, as well as its hedging strategies.
WHEN-ISSUED SECURITIES
New issues of certain securities are offered on a when-issued basis, that
is, delivery and payment for the securities normally takes place 15 to 45 days
or more after the date of the commitment to purchase. The payment obligation and
the interest rate, if any, that will be received on the securities are each
fixed at the time the buyer enters into the commitment. The Enhanced Index
Series will generally make a commitment to purchase such securities with the
intention of actually acquiring the securities. However, the Series may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. When the Series purchases securities on a
when-issued basis, cash or liquid high quality debt securities equal in value to
commitments for the when-issued securities will be deposited in a segregated
account with the Series' custodian bank. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
Securities purchased on a when-issued basis and the securities held in the
Enhanced Index Series are subject to changes in market value. Therefore, to the
extent the Series remains substantially fully invested at the same time that
they have purchased securities on a when-issued basis, there will be greater
fluctuations in the net asset values than if the Series merely set aside cash to
pay for when-issued securities. In addition, there will be a greater potential
for the realization of capital gains. When the time comes to pay for when-
issued securities, the Series will meet its obligations from then available cash
flow, the sales of securities or, although it would not normally expect to do
so, from the sale of the when-issued securities themselves (which may have a
value greater or less than the payment obligation). 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.
11
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's fundamental policies as they affect any Series cannot be changed
without the approval of a vote of a majority of the outstanding shares of such
Series, which is the lesser of (i) 67% or more of the voting securities of such
Series present at a meeting if the holders of more than 50% of the outstanding
voting securities of such Series are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. A proposed
change in fundamental policy or investment objective will be deemed to have been
effectively acted upon by any Series if a majority of the outstanding voting
securities of that Series votes for the approval of the proposal as provided
above, notwithstanding (1) that such matter has not been approved by a majority
of the outstanding securities of any other Series affected by such matter and
(2) that such matter has not been approved by a majority of the outstanding
voting securities of the Fund.
The following investment restrictions are fundamental policies of the Fund
with respect to all Series and may not be changed except as described above. The
Fund may not:
(1) Purchase real estate or any interest therein, except through
the purchase of corporate or certain government securities
(including securities secured by a mortgage or a leasehold
interest or other interest in real estate). A security issued by
a real estate or mortgage investment trust is not treated as
an interest in real estate. The Real Estate Series may,
however, invest in mortgage backed securities.
(2) Make loans other than loans of securities secured by cash
or cash equivalents for the full value of the securities; any
interest earned from securities lending will inure to the
benefit of the Series which holds such securities. However,
the purchase of debt securities which are ordinarily
purchased by financial institutions are not considered the
loaning of money.
(3) Invest in commodities or in commodity contracts or in
options, provided, however, that it may write covered call
option contracts; and provided further, that the Allocation
and Balanced Series may enter into financial futures
contracts to purchase and sell debt obligations and may buy
call and put options on securities and stock market indexes;
and provided further, that the International and Asia Series
may purchase call and put options on securities, engage in
financial futures contracts and related options transactions,
write secured put options, and enter into foreign currency
and foreign currency options transactions.
(4) Engage in the underwriting of securities of other issuers,
except to the extent any Series may be deemed an
underwriter in selling as part of an offering registered under
the Securities Act of 1933 securities which it has acquired.
The International and Asia Series will buy and sell securities
outside the United States that are not registered with the
SEC or marketable in the United States.
(5) Borrow money, except as a temporary measure where such
borrowing would not exceed 25% of the market value of
total assets at the time each such borrowing is made.
However, the Fund may borrow money for any general
purpose from a bank provided such borrowing does not
exceed 10% of the net asset value of the Fund, not
considering any such borrowings as liabilities. The
Allocation, International and Asia Series may borrow money
to the extent of financial futures transactions and reverse
repurchase agreements, provided that such borrowings are
limited to 33 1/3% of the value of the total assets of the
Series.
(6) Invest in illiquid securities in an amount greater than 15% of the net
asset value of any Series' portfolio at the time any such investment
is made.
(7) Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of purchases or sales of securities, or to
effect a short sale of any security. (The deposit of "maintenance
margin" in connection with financial futures contracts is not
considered the purchase of a security on margin.)
(8) Invest for the purpose of exercising control over or
management of any company.
(9) Unless received as a dividend or as a result of an offer of
exchange approved by the Securities and Exchange
Commission or of a plan of reorganization, purchase or
otherwise acquire any security issued by an investment
company if the Series would immediately thereafter own (a)
more than 3% of the outstanding voting stock of the
investment company, (b) securities of the investment
company having an aggregate value in excess of 5% of the
Series' total assets, (c) securities of investment companies
having an aggregate value in excess of 10% of the Series'
total assets or (d) together with investment companies
having the same investment adviser as the Fund (and
companies controlled by such investment companies), more
than 10% of the outstanding voting stock of any registered
closed-end investment company.
(10) (a) Invest more than 5% of its total assets (taken at market
value at the time of each investment) in the securities (other
than United States government or government agency
securities or in the case of the International and Asia Series,
other than foreign government securities), or, with respect
to the Allocation and Balanced Series, call or put options
contracts and financial futures contracts of any one issuer
(including repurchase agreements with any one bank); and
(b) purchase more than either (i) 10% in principal amount
of the outstanding debt securities of an issuer (the foregoing
restriction being inapplicable to the Real Estate Series) or (ii)
10% of the outstanding voting securities of an issuer, except
that such restrictions shall not apply to securities issued or
guaranteed by the United States government or its agencies,
bank money instruments or bank repurchase agreements.
The International Series will, with respect to 75% of its
assets, limit its investment in the securities of any one
foreign government, its agencies or instrumentalities, to 5%
of the Series' total assets.
12
<PAGE>
(11) Concentrate the portfolio investments in any one industry
(the foregoing restriction being inapplicable to the Real
Estate Series). No security may be purchased for a Series if
such purchase would cause the value of the aggregate
investment in any one industry to exceed 25% of the Fund's
total assets. However, the Money Market Series and
Allocation Series may invest more than 25% of their assets
in the banking industry. The Real Estate Series may invest
not less than 75% of its assets in the real estate industry.
(12) Issue senior securities.
(13) Enter into repurchase agreements which would cause more than 10% of
any Series' net assets (taken at market value) to be subject to
repurchase agreements maturing in more than seven days.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The portfolio turnover rate of each Series is calculated by dividing the
lesser of purchases or sales of portfolio securities during the fiscal year by
the monthly average of the value of the Series' securities (excluding all
securities, including options, with maturities at the time of acquisition of one
year or less). All long-term securities, including long-term U.S. Government
securities, are included. A high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the Series. Turnover rates may vary greatly from year to year as
well as within a particular year and also may be affected by cash requirements
for redemptions of each Series' shares by requirements which enable the Fund to
receive certain favorable tax treatments. The portfolio turnover rates for each
Series (other than the Money Market and Enhanced Index Series) are set forth
under "Financial Highlights" in the Prospectus.
BALANCED SERIES
In the fiscal years ended December 31, 1995 and December 31, 1996, the
turnover rates for the equity portion of the Balanced Series were 256% and 288%,
respectively. The turnover rates for the fixed income securities were 175% and
117%, respectively for the same periods.
ALLOCATION SERIES
In the fiscal years ended December 31, 1995 and December 31, 1996, the
turnover rates for the equity portion of the Allocation Series were 195% and
280%, respectively. The turnover rates for the fixed income securities were 112%
and 253%, respectively for the same periods.
MANAGEMENT OF THE FUND
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. Unless otherwise noted,
the address of each executive officer and Trustee is One American Row, Hartford,
Connecticut 06102. The Trustees and executive officers are listed below.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
C. Duane Blinn (69) Trustee Partner in the law firm of Day, Berry & Howard. Director/Trustee, Phoenix
Day, Berry & Howard Funds (1980-present). Trustee, Phoenix-Aberdeen Series Fund and Phoenix
City Place Duff & Phelps Institutional Mutual Funds (1996-present). Director/Trustee,
Hartford, CT 06103 the National Affiliated Investment Companies (until 1993).
Robert Chesek (62) Trustee Trustee/Director (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>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
E. Virgil Conway (67) Trustee Chairman, 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 (67) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee, Phoenix-
330 East 39th Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
Apartment 29G (1996-present). Director, Duff & Phelps Utilities Tax-Free Income Inc. and
New York, NY 10016 Duff & Phelps Utility and Corporate Bond Trust Inc. (1995-present).
Director, Farragut Mortgage Co., Inc. (1991-1994). Director/Trustee, the
National Affiliated Investment Companies (1983-1993). Formerly a Major
General of the British Army.
*Francis E. Jeffries (66) Trustee Director/Trustee,Phoenix Funds (1995-present). Trustee, Phoenix-Aberdeen
6585 Nicholas Blvd. Series Inc. and Phoenix Duff & Phelps Institutional Mutual Funds
Apt. 1601 (1996-present). Director, Duff & Phelps Utilities Income Fund (1987-present),
Naples, FL 33963 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 and
Chairman of the Board, Phoenix Duff & Phelps Corporation (1995-1997).
Director (1989-1995), Chairman of the Board (1993-1995), President
(1989-1993), and Chief Executive Officer (1989-1995), Duff & Phelps
Corporation.
Leroy Keith, Jr. (58) 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 Liquid
Savannah, GA 30750 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). Director, Blue Cross/Blue Shield (1989-1993) and First Union
Bank of Georgia (1989-1993).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
*Philip R. McLoughlin (50) Trustee and President Chairman (1997-present), Director (1995-present), Vice Chairman
56 Prospect Street (1995-1997) and Chief Executive Officer (1995-present), Phoenix Duff &
Hartford, CT 06115 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 (68) Trustee Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present). Trustee, Duff & Phelps
Colts Neck, NJ 07722 Mutual Funds (1994-present). Trustee, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Director,
Duff & Phelps Utilities Tax-Free Income Inc. (1991-present) 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
The Wydown Group Corporation (1995-present). Director/Trustee, Phoenix Fund
IBEX Capital Markets LLC (1987-present). Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff &
60 State Street Phelps Institutional Mutual Funds (1996-present). Director, Govett
Suite 950 Worldwide Opportunity Funds, Inc. (1991-present), Blue Cross and Blue
Boston, MA 02109 Shield of New Hampshire (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>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
*Calvin J. Pedersen (55) Trustee Director and President, Phoenix Duff & Phelps Corporation (1995-present).
Phoenix Duff & Phelps Director/Trustee, Phoenix Funds (1995-present). Trustee, Phoenix-
Corporation Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
55 East Monroe Street (1996-present). President and Chief Executive Officer, Duff & Phelps
Suite 3600 Utilities Tax-Free Income Inc. (1995-present), Duff & Phelps Utilities Income
Chicago, IL 60603 Inc. (1994-present) and Duff & Phelps Utility and Corporate Bond Trust
Inc. (1995-present). Director (1986-1995), President (1993-1995) and
Executive Vice President (1992-1993), Duff & Phelps Corporation.
Philip R. Reynolds (70) Trustee Director/Trustee, Phoenix Funds (1984-present). Trustee, Phoenix-
43 Montclair Drive Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
West Hartford, CT 06107 (1996-present). Director, Vestaur Securities, Inc. (1972-present). Trustee
and Treasurer, J. Walton Bissell Foundation, Inc. (1988-present).
Director/Trustee, the National Affiliated Investment Companies (until 1993).
Herbert Roth, Jr. (68) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee, Phoenix-
134 Lake Street Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
P. O. Box 909 (1996-present). Director, Boston Edison Company (1978-present), Phoenix
Sherborn, MA 01770 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 (51) Trustee Managing Director, Mullin Associates (1993-present). Director/Trustee,
102 Valley Road Phoenix Funds, (1993-present). Trustee, Phoenix-Aberdeen Series Fund
New Canaan, CT 06840 and 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, Phoenix-
731 Lake Avenue Aberdeen Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
Greenwich, CT 06830 (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 Investment Company Act of 1940, as
amended) because of their affiliation with the Phoenix Investment Counsel,
Inc., Phoenix Realty Securities, Inc.or Phoenix Equity Planning
Corporation.
<TABLE>
<S> <C> <C>
Michael E. Haylon (39) Executive Director and Executive Vice President, Investments, Phoenix Duff & Phelps
Vice President Corporation (1995-present). Senior Vice President, Securities Investments,
Phoenix Home Life Mutual Insurance Company (1993-1995). Executive
Vice President, the Phoenix Funds (1995-present), Phoenix-Aberdeen
Series Fund (1996-present). Executive Vice President (1997-present). Vice
President (1996-1997), Phoenix Duff & Phelps Institutional Mutual Funds.
Director (1994-present), President (1995-present), and Executive Vice
President (1994-1995), Phoenix Investment Counsel, Inc. Director
(1994-present), President (1996-present) and Executive Vice President
(1994-1996), National Securities & Research Corporation. Director, Phoenix
Equity Planning Corporation (1995-present). Various other positions with
Phoenix Home Life Mutual Insurance Company (1990-1993).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
David R. Pepin (54) Executive Executive Vice President, Phoenix Funds, Phoenix-Aberdeen Series Fund and
Vice President Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Director,
Phoenix Investment Counsel, Inc. and National Securities & Research
Corporation. Director and Executive Vice President, Mutual Fund Sales
and Operations, Phoenix Equity Planning Corporation (1996-present).
Managing Director, Phoenix-Aberdeen International Advisors, LLC
(1996-present). Executive Vice President (1996-present) and Director
(1997-present), Phoenix Duff & Phelps Corporation. Vice President,
Phoenix Home Life Mutual Insurance Company (1994-1995). Vice President
and General Managerof Digital Equipment Corporation (1980-1994).
William J. Newman (58) Senior Vice President Executive Vice President (1995-present) and Chief Investment Strategist
(1996-present), Phoenix Investment Counsel, Inc. Senior Vice President
(1995-1996), Executive Vice President and Chief Investment Strategist
(1996-present), National Securities & Research Corporation. Senior Vice
President, Phoenix Equity Planning Corporation (1995-1996). Vice
President, Common Stock and Chief Investment Strategist, Phoenix Home
Life Insurance Company (April 1995-November 1995). Senior Vice
President, Phoenix Strategic Equity Series Fund, Inc. (1996-present),
The Phoenix Edge Series Fund (1996-present), Phoenix Multi-Portfolio
Fund (1995-present), Phoenix Income and Growth Fund (1996-present),
Phoenix Series Fund (1995-present), Phoenix Strategic Allocation Fund,
Inc. (1996-present), Phoenix Worldwide Opportunities Fund
(1996-present), Phoenix Duff & Phelps Institutional Funds
(1996-present), and Phoenix-Aberdeen Series Fund (1996-present). Chief
Investment Strategist, Kidder, Peabody Co., Inc. (1993-1994) and Managing
Director, Equities, Bankers Trust Company (1991-1993).
James D. Wehr (39) 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), 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
Abtrust Fund Managers LTD Vice President Series Fund (1996-present). Director, Phoenix-Aberdeen International
88A Circular Road Advisors, LLC. Far East Investment Director, Abtrust Fund Managers
Singapore 049439 (Singapore) Limited (1988-present). Managing Director, Abtrust Fund Managers
(Singapore) Limited (1992-present). Director, Abtrust Asian Smaller Companies
Investment Trust plc (1995-present), Abtrust New Dawn Investment Trust
plc (1989-present), Abtrust Emerging Asia Investment Trust Limited
(1990-present), JF Philippine Fund Inc. and Apollo Tiger.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
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 (1996-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).
Jeanne H. Dorey (35) Vice President Managing Director, Equities (1996-present), Vice President (1993-1996),
Phoenix Investment Counsel, Inc. Managing Director, Equities,
(1996-present), Vice President (1993-1996), National Securities &
Research Corporation. Vice President, The Phoenix Edge Series Fund,
Phoenix Multi-Portfolio Fund and Phoenix Worldwide Opportunities Fund
(1993-present). Portfolio Manager, International, Phoenix Home Life Mutual
Insurance Company (until 1995). Investment Analyst and Portfolio
Manager, Pioneer Group, Inc. (1990-1992).
Jean Claude Gruet(37) Vice President Portfolio Manager and Vice President, The Phoenix Edge Series Fund
(1996-present). Vice President and Portfolio Manager, Atalanta Sosnoff
Capital Corporation (1994-1996). Vice President and Senior Analyst, UBS
Securities (1989-1994).
William E. Keen III (33) Vice President Assistant Vice President (1996-present), Director of Mutual Fund
100 Bright Meadow Blvd. Compliance (1995-1996), Phoenix Equity Planning Corporation. Vice
P.O. Box 2200 President, Phoenix Funds, Phoenix-Aberdeen Series Fund and Phoenix Duff
Enfield, CT 06083-2200 & Phelps Institutional Mutual Funds (1996-present). Assistant Vice
President, US Affinity Investments L.P. (1994-1995). Treasurer and
Secretary, US Affinity Funds (1994-1995). Manager, Fund Administration,
SEI Corporation (1991-1994).
David Lui (37) 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). Associate, Global Markets, Bankers Trust (1990-1993).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
William R. Moyer (52) Vice President Senior Vice President and Chief Financial Officer, Phoenix Duff & Phelps
100 Bright Meadow Blvd. Corporation (1995-present). Senior Vice President (1990-present), Chief
P.O. Box 2200 Financial Officer (1996-present), Finance (until 1996) and Treasurer
Enfield, CT 06083-2200 (1994-1996), Phoenix Equity Planning Corporation. Senior Vice President
(1990-present), Chief Financial Officer (1996-present), Finance (until 1996)
and Treasurer (1994-present), Phoenix Investment Counsel, Inc. Senior
Vice President (1994-present), Chief Financial Officer (1996-present),
Finance (until 1996), and Treasurer (1994-present), National Securities &
Research Corporation. Vice President, Phoenix Funds (1990-present),
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present) and
Phoenix-Aberdeen Series Fund (1996-present). Senior Vice President and
Chief Financial Officer, Phoenix Duff & Phelps Investment Management Co.
(1996-present). Vice President, Investment Products Finance, Phoenix
Home Life Mutual Insurance Company (1990-1995). Vice President, the
National Affiliated Companies (until 1993). Senior Vice President, Finance,
Phoenix Securities Group, Inc. (1993-1995). Senior Vice President and
Chief Financial Officer (1993-1995) and Treasurer (1994-1995), W.S.
Griffith & Co., Inc. and Townsend Financial Advisers, Inc.
Scott C. Noble (50) Vice President Senior Vice President, Real Estate, Phoenix Home Life Mutual Insurance
Company (1991-present). Director and Executive Vice President, Phoenix
Real Estate Securities, Inc. (1993-present). Vice President, 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
(1994-present), Phoenix Realty Investors, Inc. Various other positions with
Phoenix Home Life Insurance Company (1991-1993).
C. Edwin Riley, Jr. (43) Vice President Managing Director, Equities (1996-present), Vice President (1995-1996),
Phoenix Investment Counsel, Inc. Managing Director, Equities, National
Securities & Research Corporation (1996-present). Vice President, The
Phoenix Edge Series Fund (1995-present), Phoenix Strategic Allocation
Fund, Inc. (1995-present), Phoenix Series Fund (1996-present). Portfolio
Manager, Phoenix Home Life Mutual Insurance Company (1995). Senior
Vice President and Director of Equity Management for Nationsbank
Investment Management (1988-1995).
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
(1991-present), 238 Columbus Blvd., Inc. Director (1988-present) and Vice
President (1993-present), Phoenix Founders, Inc. Vice President
(1993-present), Phoenix Real Estate Securities, Inc. Director and President
(1987-1991), Executive Vice President (1991-1994), Phoenix Realty
Advisors, Inc. Executive Vice President, Phoenix Realty Group, Inc.
(1994-present). President (1995-present), Executive Vice President
(1994-1995), Phoenix Realty Securities, Inc.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Leonard J. Saltiel (43) Vice President Managing Director, Operationsand Service (1996-present), Senior Vice
100 Bright Meadow Blvd. President (1994-1996), Phoenix Equity Planning Corporation. Vice
P.O. Box 2200 President, Phoenix Funds (1994-present), Phoenix Duff & Phelps
Enfield, CT 06083-2200 Institutional Mutual Funds (1996-present) and National Securities &
Research Corporation (1994-present). Vice President, Investment
Operations, Phoenix Home Life Mutual Insurance Company (1994-1995).
Various positions with Home Life Insurance Company and Phoenix Home
Life Mutual Insurance Company (1987-1994).
Julie L. Sapia 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 (44) 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).
Nancy G. Curtiss (44) Treasurer Treasurer(1996-present), Vice President, Fund Accounting
(1994-1996), Phoenix Equity Planning Corporation. Treasurer, Phoenix
Funds (1994-present), Phoenix-Aberdeen Series Fund (1996-present) and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Second
Vice President and Treasurer, Fund Accounting, Phoenix Home Life Mutual
Insurance Company (1994-1995). Various positions with Phoenix Home
Life Mutual Insurance Company (1987-1994).
G. Jeffrey Bohne (49) Secretary Vice President, Mutual Fund Customer Service, (1996-present), Vice
101 Munson Street President, Transfer Agent Operations (1993-1996), Phoenix Equity Planning
Greenfield, MA 01301 Corporation. Clerk, Phoenix Investment Counsel, Inc. (1995-present).
Secretary, the Phoenix Funds (1993-present) and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Clerk and Secretary, Phoenix-
Aberdeen Series Fund (1996-present). Vice President and General Manager,
Phoenix Home Life Mutual Insurance Company (1993-present). Assistant
Vice President, Phoenix Home Life Mutual Insurance Company
(1992-1993).
</TABLE>
No person listed in the foregoing table has any immediate family relationship
with any other person listed in the table.
At December 31, 1996, the Trustees and officers as a group owned none of the
then outstanding shares of the Fund.
For services rendered to the Fund during the fiscal year ended December 31,
1996, the Trustees received an aggregate of $143,625 from the Fund as Trustees'
fees. For service on the Boards of the Phoenix Funds, each Trustee who is not a
full-time employee of the Advisers or any of its affiliates currently receives a
retainer at the annual rate of $40,000 and $2,500 per joint meeting of the
Boards. Each Trustee who serves on the Audit Committee receives a retainer at
the annual rate of $2,000 and $2,000 per joint Audit Committee meeting attended.
The current members of the Audit Committee are Messrs. Blinn, Conway, Roth,
Segerson and Weicker. Each Trustee who serves on the Executive Committee and who
is not an interested person of the Fund receives a retainer at the annual rate
of $1,000 and $1,000 per joint Executive Committee meeting attended. The current
members of the Executive Committee are Messrs. Conway, Dalzell-Payne,
McLoughlin, Morris, Oates and Roth. The function of the Executive Committee is
to serve as a contract review, compliance review and performance review delegate
of the full Board of Trustees. The
20
<PAGE>
foregoing fees do not include the reimbursement of expenses incurred in
connection with meeting attendance. Trustee costs are allocated equally to each
of the Series of the Funds within the Fund complex. Officers and employees of
the Adviser who are interested persons are compensated by the Adviser and
receive no compensation from the Fund. Any other interested persons who are not
compensated by the Adviser receive fees from the Fund.
For the Fund's last fiscal year, the Trustees received the following
compensation:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION OR FROM FUND AND
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FUND COMPLEX
COMPENSATION ACCRUED AS PART OF BENEFITS UPON (11 FUNDS)
NAME FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
---- --------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
C. Duane Blinn $13,875* $60,500
Robert Chesek $12,125 $53,500
E. Virgil Conway $14,125 $61,750
Harry Dalzell-Payne $12,125 None for None for $53,750
Francis E. Jeffries $0 any Trustee any Trustee $0
Leroy Keith, Jr. $12,125 $53,500
Philip R. McLoughlin $0 $0
Everett L. Morris $11,375* $50,750
James M. Oates $13,250 $58,000
Calvin J. Pedersen $0 $0
Philip R. Reynolds $12,125 $53,500
Herbert Roth, Jr. $14,875 $64,750
Richard E. Segerson $13,750 $60,250
Lowell P. Weicker, Jr. $13,875 $60,500
</TABLE>
* 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.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. ABKB/LaSalle
Securities Limited Partnership (ABKB), a subsidiary of LaSalle Partners, serves
as subadviser to the Real Estate Series. ABKB's principal place of business is
located at 100 East Pratt Street, Baltimore, Maryland 21202. ABKB has been a
registered investment advisor since 1979.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc, is a direct subsidiary of Phoenix and Aberdeen
Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset Management plc.
Aberdeen Fund Managers, Inc. has its principal offices located at 1 Financial
Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. While many
of the officers and directors of the PAIA have extensive experience as
investment professionals, due to its recent formation,
21
<PAGE>
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 and Enhanced
Index Series pay total operating expenses other than the management fee up to
.40%, .25%, .25%, .25% and .10%, respectively, of its total average net assets.
Expenses above these limits are paid by the Advisers, Phoenix, PHL Variable or
PLAC.
To the extent that any expenses are paid by the Fund, they will be paid by
the Series incurring them or, in the case of general expenses, may be charged
among the Series in relation to the benefits received by the shareholders, as
determined by the financial agent under the supervision of the Board of
Trustees. Such expenses shall include, but shall not be limited to, all expenses
(other than those specifically referred to as being borne by the Advisers,
Phoenix, PHL Variable or PLAC) incurred in the operation of the Fund and any
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Trustees, expenses of Trustees' and shareholders'
meetings including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of repurchase and
redemption of shares, certain expenses of issue and sale of shares, association
membership dues, charges of custodians, transfer agents, dividend disbursing
agents and financial agents, bookkeeping, auditing and legal expenses. The Fund,
Phoenix, PHL Variable or PLAC also will pay the fees and bear the expense of
registering and maintaining the registration of the Fund and its shares with the
Securities and Exchange Commission and the expense of preparing and mailing
prospectuses and reports to shareholders.
The Investment Advisory Agreements provide that the Advisers shall not be
liable to the Fund or to any shareholder of the Fund for any error of judgement
or mistake of law or for any loss suffered by the Fund or by any shareholder of
the Fund in connection with the matters to which the Investment Advisory
Agreements relate, except a loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard on the part of the Advisers in the
performance of its duties thereunder.
The Investment Advisory Agreements also provide that, as full compensation
for the services and facilities furnished to the Fund, the Advisers shall be
compensated as follows: within five days after the end of each month, the Fund
shall pay the Advisers the following fees:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market.... .40% .35% .30%
Multi-Sector.... .50% .45% .40%
Balanced........ .55% .50% .45%
Allocation...... .60% .55% .50%
Growth.......... .70% .65% .60%
International... .75% .70% .65%
Theme........... .75% .70% .65%
Enhanced Index.. .45% .45% .45%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia............ 1.00%
The amounts payable to the Advisers shall be based upon the average of the
values of the net assets of the Fund as of the close of business each day. There
can be no assurance that the Fund will reach a net asset level high enough to
realize a reduction in the rate of the advisory fee.
The Investment Advisory Agreements continue in force from year to year for
all Series, provided that, with respect to each Series, the applicable agreement
must be approved at least annually by the Trustees or by vote of a majority of
the outstanding voting securities of that Series. In addition, and in either
event, the terms of the agreements and any renewal thereof must be approved by
the vote of a majority of Trustees who are not parties to the agreement or
interested persons (as that term is defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreements will terminate automatically if assigned
and may be terminated at any time, without payment of any penalty, either by the
Fund or by the Advisers, on sixty (60) days written notice.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
In effecting portfolio transactions for the Fund, the Advisers and
Subadvisers, adhere to the Fund's policy of seeking best execution and price,
determined as described below, except to the extent it is permitted to pay
higher brokerage commissions for "brokerage and research services" as defined
herein. The Advisers may cause the Fund to pay a broker an amount of commission
for effecting a securities transaction in excess of the amount of commission
which another broker or dealer would have charged for effecting the transaction,
if the Advisers determine in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker. As provided in Section 28(e) of the Securities Exchange
Act of 1934, "brokerage and research services" include giving advice as to the
value of securities, the
22
<PAGE>
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.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to lower
commission costs on a per-share and per-dollar basis. According to the bunching
procedures, the Adviser shall aggregate transactions unless it believes in its
sole discretion that such aggregation is consistent with its duty to seek best
execution (which shall include the duty to seek best price) for the Fund. No
advisory account of the Adviser is to be favored over any other account and each
account that participates in an aggregated order is expected to participate at
the average share price for all transactions of the Adviser in that security on
a given business day, with all transaction costs shared pro rata based on the
Fund's participation in the transaction. If the aggregated order is filled in
its entirety, it shall be allocated among the Adviser's accounts in accordance
with the allocation order, and if the order is partially filled, it shall be
allocated pro rata based on the allocation order. Notwithstanding the foregoing,
the order may be allocated on a basis different from that specified in the
allocation order if all accounts of the Adviser whose orders are allocated
receive fair and equitable treatment and the reason for such different
allocation is explained in writing and is approved in writing by the Adviser's
compliance officer as soon as practicable after the opening of the markets on
the trading day following the day on which the order is executed. If an
aggregated order is partially filled and allocated on a basis different from
that specified in the allocation order, no account that is benefited by such
different allocation may intentionally and knowingly effect any purchase or sale
for a reasonable period following the execution of the aggregated order that
would result in it receiving or selling more shares than the amount of shares it
would have received or sold had the aggregated order been completely filled. The
Trustees will annually review these procedures or as frequently as shall appear
appropriate.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The Exchange will be closed on the following
observed national holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Since the Fund does not price securities on weekends or United States national
holidays, the net asset value of a Series' foreign assets may be significantly
affected on days when the investor has no access to the Fund. The net asset
value per share of a Series is determined by adding the values of all securities
and other assets of the Series, subtracting liabilities and dividing by the
total number of outstanding shares of the Series. Assets and liabilities are
determined in accordance with generally accepted accounting principles and
applicable rules and regulations of the Securities and Exchange Commission.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary
23
<PAGE>
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 only be suspended or the payment date postponed
for more than seven days for any period during which trading on the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
or when trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, for any period when an emergency (as
defined by rules of the Commission) exists, or during any period when the
Commission has, by order, permitted such suspension. In case of a suspension of
the right of redemption, the shareholders may withdraw requests for redemption
of shares prior to the next determination of net asset value after the
suspension has been terminated or they will receive payment of the net asset
value so determined.
The shareholder Accounts may receive more or less than was paid
for the shares, depending on the net asset value of the shares at the
time they are repurchased or redeemed.
TAXES
- --------------------------------------------------------------------------------
As stated in the Prospectus, it will be the policy of the Fund and of each
Series to comply with those provisions of the Internal Revenue Code of 1986, as
amended, ("Code") which relieve investment companies that distribute
substantially all of their net income from Federal income tax on the amounts
distributed. The Fund also intends to comply with pertinent Code provisions in
order to avoid imposition of any Federal excise tax. Dividends derived from
interest and distributions of any realized capital gains are taxable, under
Subchapter M, to the Fund's Shareholders, which in this case are the Accounts.
Federal income taxation of separate accounts, life insurance companies, and
unit investment trusts are discussed in the accompanying prospectus for the
Account.
CUSTODIAN
- --------------------------------------------------------------------------------
The securities and cash of all Series except the International, Asia,
Enhanced Index and Real Estate Series are held by The Chase Manhattan Bank, N.A.
under the terms of a custodian agreement. The securities and cash of the
International and Asia Series are held by Brown Brothers Harriman & Co. under
the terms of a custodian agreement. With respect to the International Series,
the address for the Custodian is Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts 02109, Attention: Manager, Securities Department. The
securities and cash of the Real Estate and Enhanced Index Series are held by
State Street Bank and Trust Company, located at 1 Heritage Drive, P2N, North
Quincy, Massachusetts 02171. With respect to Series other than the
International, Real Estate, Enhanced Index and Asia Series, the address for the
Custodian is The Chase Manhattan Bank, N.A., 1 Chase Manhattan Plaza, Floor 13B,
New York, NY 10081. The Fund permits the Custodian to deposit some or all of its
securities in central depository systems as allowed by Federal law. The use of
foreign custodians and foreign central depositories has been authorized by the
Board of Trustees of the Fund if certain conditions are met.
FOREIGN CUSTODIAN
The Fund may use a foreign custodian in connection with its purchases of
foreign securities and may maintain cash and cash equivalents in the care of a
foreign custodian. The amount of cash or cash equivalents maintained in the care
of eligible foreign custodians will be limited to an amount reasonably necessary
to effect the Fund's foreign securities transactions. The use of a foreign
custodian involves considerations which are not ordinarily associated with
domestic
24
<PAGE>
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
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.
25
<PAGE>
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>
ANNUAL REPORT
DECEMBER 31, 1996
THE PHOENIX EDGE SERIES FUND
2-1
<PAGE>
MONEY MARKET SERIES
Over the last twelve months, Phoenix Edge Money Market Series continued to
produce strong results for its shareholders. As of December 31, 1996, the
current yield on the Fund was 4.97%, versus the 4.82% seven-day average yield
of taxable money market funds reported by IBC Donoghue's Money Market Report.
The current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven-day period preceding the
date of calculation by the average daily net asset value per share for the
same period, with the resulting figure multiplied by 365.
Shifting market opinion over the direction of the U.S. economy was
responsible for much of the volatility in short-term interest rates during
this latest twelve-month reporting period. In January, the Central Bank cut
the Fed Funds Rate from 5.50% to 5.25% in an effort to stimulate what was
believed to be a sluggish economy. Although it was widely anticipated that
the Federal Reserve would have to lower rates again, a surprisingly strong
February employment report provided conflicting evidence about the economy's
health. As more data became available, it became evident that the economy had
grown robustly during the first half of 1996. During this period, short-term
interest rates moved higher as the financial markets had to consider the
threat of future inflation.
By late summer, the consensus view on Wall Street shifted once again as
signs of more moderate economic growth became increasingly apparent and
concerns over inflation declined. With the exception of the last few weeks in
December, short-term interest rates trended lower for the remainder of this
reporting period. In the end, despite all these market gyrations during 1996,
the 90-day Treasury bill finished the year yielding 5.19%--only 12 basis
points higher than where it stood one year ago.
Looking ahead, the Fund continues to focus on high-quality assets as
represented by the portfolio's average credit quality of A1/P1 as of December
31, 1996. In terms of our asset allocation strategy, we are currently
emphasizing top-tier commercial paper, variable-rate instruments and U.S.
Government obligations. As always, we remain committed to carefully
monitoring the short-term markets for attractive investment opportunities.
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART]
MONTHLY YIELD COMPARISON
IBC Donoghue Money
Money Fund Report* Market Series
1/31/96 5.03 5.01
2/29/96 4.8 4.82
3/31/96 4.69 4.77
4/30/96 4.68 4.77
5/31/96 4.67 4.78
6/30/96 4.7 4.86
7/31/96 4.73 4.86
8/31/96 4.74 4.75
9/30/96 4.75 4.91
10/31/96 4.75 4.82
11/30/96 4.75 4.84
12/31/96 4.78 4.97
- --------------------------------------------------------------------------------
The above graph covers the period from January 1, 1996 to December 31, 1996.
The results are not indicative of the rate of return which may be realized
from an investment made in the Money Market Series today. The Money Market
Series is neither issued nor guaranteed by the U.S. Government, and there can
be no assurance the Series will be able to maintain a stable net asset value
at $10.00 per share.
*Average monthly yield of taxable Money Market Funds as reported by IBC
Donoghue's Money Fund Report.
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
FACE
VALUE INTEREST MATURITY
(000) DESCRIPTION RATE DATE VALUE
- --------- --------------------------------------------------------------- -------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--3.8%
U.S. Treasury Bills--1.5%
$2,000 U.S. Treasury Bills 4.80% 02/06/97 $ 1,990,400
-------------
U.S. Treasury Notes--2.3%
3,000 U.S. Treasury Notes 6.88 02/28/97 3,008,112
-------------
TOTAL U.S. GOVERNMENT SECURITIES 4,998,512
-------------
FEDERAL AGENCY SECURITIES--8.6%
2,175 Federal National Mortgage Assoc. 5.34 02/24/97 2,157,578
1,500 Federal Home Loan Banks 5.27 02/28/97 1,500,000
4,190 Federal National Mortgage Assoc. 5.36 03/27/97 4,136,973
2,000 Federal Farm Credit Banks 5.40 04/01/97 1,999,441
1,500 Federal Home Loan Banks 5.69 11/20/97 1,500,000
-------------
TOTAL FEDERAL AGENCY SECURITIES 11,293,992
-------------
</TABLE>
See Notes to Financial Statements
2-2
<PAGE>
MONEY MARKET SERIES
<TABLE>
<CAPTION>
FACE
VALUE INTEREST RESET
(000) DESCRIPTION RATE DATE VALUE
- --------- ---------------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
FEDERAL AGENCY SECURITIES--VARIABLE--12.0% (b)
$1,500 Federal Farm Credit Banks (final maturity 02/24/97) 5.51% 01/02/97 $ 1,499,957
4,500 Federal Farm Credit Banks (final maturity 07/24/00) 5.54 01/02/97 4,501,807
1,500 Federal Home Loan Banks (final maturity 01/14/97) 5.70 01/02/97 1,500,000
2,500 Student Loan Marketing Assoc. (final maturity 11/24/97) 5.39 01/07/97 2,500,000
1,500 Student Loan Marketing Assoc. (final maturity 11/10/98) 5.41 01/07/97 1,498,532
1,000 Student Loan Marketing Assoc. (final maturity 02/22/99) 5.42 01/07/97 1,000,000
1,600 Student Loan Marketing Assoc. (final maturity 10/30/97) 5.57 01/07/97 1,600,731
1,650 Federal National Mortgage Assoc. (final maturity 12/14/98) 5.18 03/14/97 1,648,237
-----------
TOTAL FEDERAL AGENCY SECURITIES--VARIABLE 15,749,264
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING INTEREST MATURITY
(000) DESCRIPTION (Unaudited) RATE DATE VALUE
- -------- ------------------------------------------------- ------------ --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER--74.0%
1,500 Campbell Soup Co. A-1+ 6.75 01/02/97 1,499,719
4,280 Cargill, Inc. A-1+ 6.95 01/02/97 4,279,174
1,500 AlliedSignal, Inc. A-1 6.10 01/03/97 1,499,492
725 Abbott Laboratories A-1+ 5.75 01/07/97 724,305
1,940 DuPont (E.I.) de Nemours & Co. A-1+ 5.29 01/09/97 1,937,719
2,775 Merrill Lynch & Co., Inc. A-1+ 5.48 01/09/97 2,771,621
3,000 Heinz (H.J.) Co. A-1 5.40 01/10/97 2,995,950
1,160 Heinz (H.J.) Co. A-1 5.40 01/10/97 1,158,434
4,500 Exxon Imperial U.S., Inc. A-1+ 5.41 01/13/97 4,491,885
3,500 Greenwich Funding Corp. A-1+ 5.60 01/15/97 3,492,378
2,500 Receivables Capital Corp. A-1 5.73 01/15/97 2,494,429
1,500 Preferred Receivables Funding Corp. A-1 5.35 01/16/97 1,496,656
1,500 General Electric Capital Corp. A-1+ 5.32 01/17/97 1,500,000
2,140 Cargill, Inc. A-1+ 5.41 01/22/97 2,133,247
3,500 General Electric Capital Corp. A-1+ 5.31 01/22/97 3,500,000
2,500 AlliedSignal, Inc. A-1 5.47 01/23/97 2,491,643
2,335 AlliedSignal, Inc. A-1 5.65 01/23/97 2,326,938
2,000 Preferred Receivables Funding Corp. A-1 5.45 01/23/97 1,993,339
2,165 Goldman Sachs & Co. A-1+ 5.45 01/24/97 2,157,462
915 Merrill Lynch & Co., Inc. A-1+ 5.33 01/24/97 911,884
2,000 Albertson's, Inc. A-1 5.38 01/27/97 1,992,229
555 First Deposit Funding Trust A-1 5.34 01/30/97 552,613
500 United Parcel Service of America, Inc. A-1+ 5.35 01/30/97 497,845
1,300 Heinz (H.J.) Co. A-1 5.40 02/03/97 1,293,565
450 DuPont (E.I.) de Nemours & Co. A-1+ 5.55 02/07/97 447,433
709 Kellogg Co. A-1+ 5.37 02/07/97 705,087
2,500 Vermont American Corp. A-1+ 5.47 02/07/97 2,485,945
2,500 Private Export Funding Corp. A-1+ 5.28 02/10/97 2,485,333
3,000 CXC, Inc. A-1+ 5.35 02/11/97 2,981,721
2,230 Corporate Receivables Corp. A-1 5.37 02/12/97 2,216,029
1,175 First Deposit Funding Trust A-1 5.32 02/12/97 1,167,707
2,500 Kimberly-Clark Corp. A-1+ 5.42 02/12/97 2,484,192
2,500 Preferred Receivables Funding Corp. A-1 5.35 02/13/97 2,484,024
3,140 Goldman Sachs & Co. A-1+ 5.35 02/14/97 3,119,468
1,500 Kimberly-Clark Corp. A-1+ 5.42 02/14/97 1,490,063
4,500 Southwestern Bell Telephone Co. A-1+ 5.37 02/18/97 4,467,780
1,355 Corporate Receivables Corp. A-1 5.35 02/20/97 1,344,932
1,500 Southwestern Bell Telephone Co. A-1+ 5.43 02/25/97 1,487,556
2,000 Greenwich Funding Corp. A-1+ 5.47 02/28/97 1,982,374
619 Greenwich Funding Corp. A-1+ 5.35 03/03/97 613,389
4,500 Bellsouth Telecommunications, Inc. A-1+ 5.34 03/04/97 4,458,615
2,100 CXC, Inc. A-1+ 5.32 03/17/97 2,076,725
3,000 Asset Securitization Cooperative Corp. A-1+ 5.37 03/27/97 2,961,963
3,700 Receivables Capital Corp. A-1 5.39 05/01/97 3,633,523
1,000 CXC, Inc. A-1+ 5.35 05/15/97 980,086
1,000 Beta Finance, Inc. A-1+ 5.80 08/14/97 1,000,000
------------
TOTAL COMMERCIAL PAPER 97,266,472
------------
TOTAL INVESTMENTS--98.4%
(Identified cost $129,308,240) 129,308,240(a)
Cash and receivables, less liabilities--1.6% 2,053,166
------------
NET ASSETS--100.0% $131,361,406
============
</TABLE>
(a) Federal Income Tax Information: At December 31, 1996, the aggregate cost
of securities was the same for book and tax purposes.
(b) Variable rate demand note. 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
2-3
<PAGE>
MONEY MARKET SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Investment securities at value (Identified cost $129,308,240) $129,308,240
Cash 526,466
Receivable for fund shares sold 1,267,063
Interest receivable 354,789
------------
Total assets 131,456,558
------------
Liabilities
Investment advisory fee 43,068
Trustees' fee 8,091
Financial agent fee 6,397
Accrued expenses 37,596
------------
Total liabilities 95,152
------------
Net Assets $131,361,406
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $131,361,403
Undistributed net investment income 3
------------
Net Assets $131,361,406
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 13,136,138
============
Net asset value and offering price per share $10.00
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $ 5,865,100
------------
Total investment income 5,865,100
------------
Expenses
Investment advisory fee 431,032
Financial agent fee 64,655
Printing 33,528
Professional 24,087
Trustees 18,073
Custodian 16,377
Miscellaneous 2,783
------------
Total expenses 590,535
------------
Net investment income 5,274,565
------------
Net increase in net assets resulting from operations $ 5,274,565
============
</TABLE>
See Notes to Financial Statements
2-4
<PAGE>
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
---------------- ----------------
<S> <C> <C>
From Operations
Net investment income $ 5,274,565 $ 5,070,409
-------------- ---------------
Net increase in net assets resulting from operations 5,274,565 5,070,409
-------------- ---------------
From Distributions to Shareholders
Net investment income (5,303,654) (5,055,199)
-------------- ---------------
Decrease in net assets from distributions to shareholders (5,303,654) (5,055,199)
-------------- ---------------
From Share Transactions
Proceeds from sales of shares (31,500,976 and 19,415,954 shares,
respectively) 315,009,761 194,159,531
Net asset value of shares issued from reinvestment of distributions
(530,365 and 505,520 shares, respectively) 5,303,654 5,055,199
Cost of shares repurchased (29,186,637 and 19,087,235 shares,
respectively) (291,866,357) (190,872,354)
-------------- ---------------
Increase in net assets from share transactions 28,447,058 8,342,376
-------------- ---------------
Net increase in net assets 28,417,969 8,357,586
Net Assets
Beginning of period 102,943,437 94,585,851
-------------- ---------------
End of period (including undistributed net investment income of $3 and
$29,092, respectively) $ 131,361,406 $ 102,943,437
============== ===============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<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.
See Notes to Financial Statements
2-5
<PAGE>
GROWTH SERIES
With the stock market continuing its remarkable rally dating back to
December 1994, Phoenix Edge Growth Series posted double-digit gains during
this reporting cycle. For the twelve-month period ended December 31, 1996,
the Fund posted a total return of 12.58%, while the Standard & Poor's 500
Stock Index, a commonly used measure of U.S. stock market performance,
returned 23.25%. All of these figures assume reinvestment of any
distributions, but exclude the effect of sales charges.
We have viewed the stock market as in the late stages of a cyclical upswing.
Since October 1990, stocks have moved higher virtually without major
interruption. The excellent returns have bred an environment of complacency
and high expectations that have pushed investors further out on the risk
spectrum. During the second quarter of 1996, we witnessed a tremendous influx
of money into aggressive growth and smaller company funds that showcased this
speculative impulse. The correction of July 1996 cleansed the excesses in
this area of the market. Since July, the focus has shifted to larger company
outperformance. Investors have poured money into very large companies
believed to provide steady growth characteristics and ample liquidity. This
more recent tactic has pushed market indices (such as S&P 500 and the Dow
Jones Industrials) higher, while broader measures of stock performance have
lagged.
In retrospect, the Fund's performance was held back by a more guarded stance
toward the stock market. Our approach of lowering the portfolio's risk
profile by holding cash reserves met with good results through August 1996,
and especially in the difficult market environment during July. But the
dramatic rebound in equity prices during the remainder of the year served as
the primary reason for lagging the S&P 500 Stock Index. Positive contributors
to performance during the reporting period included our excellent stock
selection in both the energy and financial sectors as well as our decision to
avoid the poorly performing utility group. Specific areas which hindered our
relative equity performance included weakness in some of our technology and
capital goods holdings.
While valuation levels have clearly risen over the last two years, we do not
believe that the stock market is presently overvalued. As we move into 1997,
the Fund is currently focusing on stable growth stocks as well as companies
with improving earnings prospects. In terms of sector allocation, the
portfolio is currently overweighted in the health care and financial sectors,
and underweighted in basic materials and consumer cyclical stocks. Although
we believe the technology group still offers excellent long-term growth
opportunities, we are maintaining a market weighting in this volatile sector,
while waiting for a more favorable time to selectively increase our exposure
in this area.
In conclusion, after back-to-back years of powerful performance, the equity
risk is rising. We believe that the key to 1997 outperformance lies in taking
advantage of market inefficiencies within a volatile trading range combined
with individual stock selection.
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
Growth Series S&P 500 Stock Index
12/31/86 $10,000 $10,000
12/31/87 10,705 10,517
12/31/88 11,115 12,253
12/31/89 15,123 16,104
12/31/90 15,725 15,590
12/31/91 22,617 20,352
12/31/92 24,945 21,917
12/31/93 29,856 24,109
12/31/94 30,298 24,427
12/31/95 39,645 33,590
12/31/96 44,632 41,398
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------
Growth Series 12.58% 14.56% 16.13%
- ---------------------------------------------------------------------
S&P 500 Stock Index* 23.25% 15.26% 15.27%
- ---------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 12/31/86.
Returns shown include the reinvestment of all distributions at net asset
value, and the change in share price for the stated period. Returns indicate
past performance, which is not predictive of future performance. Investment
return and net asset value will fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Foreign investing involves
special risks such as currency fluctuation and less public disclosure, as
well as economic and political risks.
*The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
2-6
<PAGE>
GROWTH SERIES
SCHEDULE OF INVESTMENTS
December 31, 1996
SHARES VALUE
--------- ----------------
COMMON STOCKS--96.5%
Aerospace & Defense--2.0%
Boeing Co. 121,200 $ 12,892,650
United Technologies Corp. 174,400 11,510,400
-------------
24,403,050
-------------
Banks--7.5%
Ahmanson (H.F.) & Co. 388,500 12,626,250
BankAmerica Corp. 124,500 12,418,875
Chase Manhattan Corp. 207,100 18,483,675
Citicorp 180,500 18,591,500
Nationsbank Corp. 63,800 6,236,450
Republic New York Corp. 149,800 12,227,425
Wells Fargo & Co. 45,300 12,219,675
-------------
92,803,850
-------------
Beverages--3.8%
Coca-Cola Co. 488,900 25,728,363
PepsiCo, Inc. 292,900 8,567,325
Seagram Ltd. 317,200 12,291,500
-------------
46,587,188
-------------
Chemical--2.0%
Du Pont (E.I.) de Nemours & Co. 130,300 12,297,063
IMC Global, Inc. 328,600 12,856,475
-------------
25,153,538
-------------
Computer Software & Services--5.1%
Adaptec, Inc. (b) 281,600 11,264,000
Computer Associates International, Inc. 300,100 14,929,975
First Data Corp. 320,200 11,687,300
Microsoft Corp. (b) 295,200 24,390,900
Sterling Commerce, Inc. (b) 1 35
-------------
62,272,210
-------------
Conglomerates--2.0%
AlliedSignal, Inc. 184,600 12,368,200
Tyco International Ltd. 236,400 12,499,650
-------------
24,867,850
-------------
Containers--1.1%
Crown Cork & Seal, Inc. 238,600 12,973,875
-------------
Cosmetics & Soaps--3.2%
Colgate Palmolive Co. 136,700 12,610,575
Gillette Co. 179,300 13,940,575
Procter & Gamble Co. 115,500 12,416,250
-------------
38,967,400
-------------
Diversified Financial Services--6.2%
American Express Co. 229,400 12,961,100
Conseco, Inc. 197,700 12,603,375
Federal National Mortgage Assoc. 305,900 11,394,775
First USA, Inc. 379,700 13,147,113
MBNA Corp. 322,300 13,375,450
Travelers Group, Inc. 282,300 12,809,362
-------------
76,291,175
-------------
Diversified Miscellaneous--1.2%
Eastman Kodak Co. 77,800 6,243,450
Equifax, Inc. 294,700 9,025,188
-------------
15,268,638
-------------
Electrical Equipment--3.8%
Checkpoint Systems, Inc. (b) 176,800 4,375,800
General Electric Co. 243,900 24,115,612
Raychem Corp. 232,700 18,645,087
-------------
47,136,499
-------------
Electronics--6.8%
Atmel Corp. (b) 181,600 $ 6,015,500
Intel Corp. 290,200 37,998,062
Perkin Elmer Corp. 215,100 12,664,012
S3, Inc. (b) 342,100 5,559,125
3Com Corp. (b) 295,800 21,704,325
-------------
83,941,024
-------------
Healthcare--Diversified--2.5%
American Home Products Corp. 210,600 12,346,425
Mallinckrodt, Inc. 280,800 12,390,300
Warner-Lambert Co. 80,400 6,030,000
-------------
30,766,725
-------------
Healthcare--Drugs--7.5%
Amgen, Inc. (b) 217,000 11,799,375
Centocor, Inc. (b) 176,500 6,309,875
Merck & Co., Inc. 462,600 36,661,050
Pfizer, Inc. 297,000 24,613,875
Pharmacia & Upjohn, Inc. 325,400 12,893,975
-------------
92,278,150
-------------
Hospital Management & Services--1.0%
Columbia/HCA Healthcare Corp. 307,500 12,530,625
-------------
Insurance--1.5%
Allstate Corp. 212,400 12,292,650
SunAmerica, Inc. 150,100 6,660,688
-------------
18,953,338
-------------
Medical Products & Supplies--3.0%
Boston Scientific Corp. (b) 210,100 12,606,000
Johnson & Johnson 248,100 12,342,975
Medtronic, Inc. 187,000 12,716,000
-------------
37,664,975
-------------
Natural Gas--1.5%
Anadarko Petroleum Corp. 185,600 12,017,600
Burlington Resources, Inc. 118,500 5,969,437
-------------
17,987,037
-------------
Office & Business Equipment--3.9%
Compaq Computer Corp. (b) 244,200 18,131,850
Hewlett Packard Co. 120,500 6,055,125
International Business Machines Corp. 158,500 23,933,500
-------------
48,120,475
-------------
Oil--1.0%
Louisiana Land & Exploration Co. 225,800 12,108,525
-------------
Oil Service & Equipment--8.9%
BJ Services Co. (b) 376,800 19,216,800
Diamond Offshore Drilling (b) 322,700 18,393,900
Dresser Industries, Inc. 229,100 7,102,100
ENSCO International, Inc. (b) 297,000 14,404,500
Halliburton Co. 307,500 18,526,875
Rowan Companies, Inc. (b) 262,400 5,936,800
Schlumberger Ltd. 119,800 11,965,025
Tidewater, Inc. 323,800 14,651,950
-------------
110,197,950
-------------
Professional Services--2.1%
ADT Ltd. (b) 547,700 12,528,637
Cognizant Corp. 387,000 12,771,000
-------------
25,299,637
-------------
Rails--1.5%
Burlington Northern, Inc. 219,500 18,959,313
-------------
See Notes to Financial Statements
2-7
<PAGE>
GROWTH SERIES
SHARES VALUE
--------- ----------------
Retail--7.2%
CVS Corp. 312,300 $ 12,921,412
Federated Department Stores, Inc. (b) 374,000 12,762,750
Footstar, Inc. (b) 1 12
Home Depot, Inc. 495,000 24,811,875
Price/Costco, Inc. (b) 755,500 18,981,938
TJX Companies, Inc. 417,600 19,783,800
--------------
89,261,787
--------------
Retail--Food--1.0%
American Stores Co. 307,500 12,569,062
--------------
Telecommunications Equipment--3.0%
Cisco Systems, Inc. (b) 583,900 37,150,638
--------------
Tobacco--3.0%
Philip Morris Companies, Inc. 330,400 37,211,300
--------------
Utility--Telephone--3.2%
Ameritech Corp. 221,300 13,416,313
GTE Corp. 293,900 13,372,450
SBC Communications, Inc. 251,800 13,030,650
--------------
39,819,413
--------------
TOTAL COMMON STOCKS
(Identified cost $1,117,867,582) 1,191,545,247
--------------
FOREIGN COMMON STOCKS--3.2%
Chemical--1.0%
Potash Corp. of Saskatchewan, Inc. (Canada) 152,600 12,971,000
--------------
Cosmetics & Soaps--1.1%
Unilever NV (Netherlands) 74,200 13,003,550
--------------
Oil Service & Equipment--1.1%
Elf Aquitane Sponsored ADR (France) 307,600 13,918,900
--------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $32,799,274) 39,893,450
--------------
TOTAL LONG-TERM INVESTMENTS--99.7%
(Identified cost $1,150,666,856) 1,231,438,697
--------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- -----------------
SHORT-TERM OBLIGATIONS--5.4%
Commercial Paper--3.5%
Private Export Funding Corp. 5.30%,
1-28-97 A-1+ $ 2,145 $ 2,135,863
Albertson's, Inc. 5.48%, 1-29-97 A-1 4,675 4,655,074
Cargill, Inc. 5.33%, 1-31-97 A-1+ 3,000 2,986,675
Southwestern Bell Telephone Co.
5.30%, 1-31-97 A-1+ 3,300 3,283,917
Corporate Receivables Corp. 5.37%,
2-12-97 A-1 3,410 3,387,885
General Re Corp. 5.30%, 2-14-97 A-1+ 5,000 4,964,959
Goldman Sachs & Co. 5.35%, 2-14-97 A-1+ 6,380 6,335,287
Receivables Capital Corp. 5.40%,
2-14-97 A-1 3,565 3,539,989
Beta Finance, Inc. 5.38%, 2-25-97 A-1+ 3,000 2,973,864
Southwestern Bell Telephone Co.
5.43%, 2-25-97 A-1+ 5,000 4,956,210
Cargill, Inc., 5.30%, 3-6-97 A-1+ 4,000 3,958,680
--------------
43,178,403
--------------
Federal Agency Securities--1.9%
Federal Home Loan Mortgage Corp. 5.31%, 2-21-97 2,065 2,048,541
Federal National Mortgage Assoc. 5.24%, 2-27-97 5,000 4,955,787
Federal Farm Credit Banks 5.20%, 5-6-97 2,000 1,963,240
Federal Home Loan Banks 5.29%,
8-8-97 (c) 5,000 5,000,000
Federal National Mortgage Assoc. 5.37%,
12-9-97 (c) 10,000 9,995,500
--------------
23,963,068
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $67,163,196) 67,141,471
--------------
TOTAL INVESTMENTS--105.1%
(Identified cost $1,217,830,052) 1,298,580,168(a)
Cash and receivables, less liabilities---(5.1%) (63,185,635)
--------------
NET ASSETS--100.0% $1,235,394,533
==============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $102,899,035 and gross
depreciation of $22,857,753 for income tax purposes. At December 31,
1996, the aggregate cost of securities for federal income tax purposes
was $1,218,538,886.
(b) Non-income producing.
(c) Variable rate security. The interest rates shown reflect the rate
currently in effect.
See Notes to Financial Statements
2-8
<PAGE>
GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $1,217,830,052) $1,298,580,168
Receivable for investment securities sold 61,614,267
Interest and dividends receivable 1,359,744
Tax reclaim receivable 150,324
-------------
Total assets 1,361,704,503
-------------
Liabilities
Custodian 6,928,727
Payable for investment securities purchased 118,208,858
Payable for fund shares repurchased 312,495
Investment advisory fee 663,971
Financial agent fee 63,221
Trustees' fee 8,862
Accrued expenses 123,836
-------------
Total liabilities 126,309,970
-------------
Net Assets $1,235,394,533
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $1,077,175,658
Undistributed net investment income 739,354
Accumulated net realized gain 76,729,405
Net unrealized appreciation 80,750,116
-------------
Net Assets $1,235,394,533
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 65,390,920
=============
Net asset value and offering price per share $18.89
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Dividends $ 11,473,651
Interest 8,182,579
------------
Total investment income 19,656,230
------------
Expenses
Investment advisory fee 7,114,489
Financial agent fee 673,949
Printing 139,045
Custodian 107,732
Professional 35,542
Trustees 18,816
Miscellaneous 23,040
------------
Total expenses 8,112,613
------------
Net investment income 11,543,617
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 151,656,728
Net realized loss on foreign currency transactions (25,548)
Net change in unrealized appreciation (depreciation) on investments (28,811,458)
------------
Net gain on investments 122,819,722
------------
Net increase in net assets resulting from operations $134,363,339
============
</TABLE>
See Notes to Financial Statements
2-9
<PAGE>
GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
--------------- ----------------
<S> <C> <C>
From Operations
Net investment income $ 11,543,617 $ 8,919,570
Net realized gain 151,631,180 111,984,233
Net change in unrealized appreciation (depreciation) (28,811,458) 89,700,570
------------- --------------
Net increase in net assets resulting from operations 134,363,339 210,604,373
------------- --------------
From Distributions to Shareholders
Net investment income (10,973,300) (7,451,972)
Net realized gains (82,322,855) (105,927,796)
------------- --------------
Decrease in net assets from distributions to shareholders (93,296,155) (113,379,768)
------------- --------------
From Share Transactions
Proceeds from sales of shares (16,369,935 and 16,787,870 shares,
respectively) 309,035,692 302,038,455
Net asset value of shares issued from reinvestment of distributions
(4,853,881 and 6,290,645 shares, respectively) 93,296,155 113,379,768
Cost of shares repurchased (10,173,971 and 8,019,458 shares, respectively) (193,393,445) (143,474,953)
------------- --------------
Increase in net assets from share transactions 208,938,402 271,943,270
------------- --------------
Net increase in net assets 250,005,586 369,167,875
Net Assets
Beginning of period 985,388,947 616,221,072
------------- --------------
End of period (including undistributed net investment income of $739,354 and
$194,585, respectively) $1,235,394,533 $ 985,388,947
============= ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<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.
See Notes to Financial Statements
2-10
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
After posting stellar gains in 1995, last year's bond market results were
clearly less than impressive. Most of the disappointing performance occurred
in the first half of 1996, when nervous investors pushed interest rates
higher (and bond prices lower) in response to the unexpectedly strong U.S.
economy. The consensus opinion on Wall Street was that too much economic
growth could lead to higher inflation. For the first six months of the year,
the fixed-income market, as measured by the Lehman Brothers Aggregate Bond
Index, returned a discouraging -1.22%.
By late summer, market sentiment had turned positive again and interest
rates finally broke out of their trading range and headed downward. This more
optimistic mood among fixed-income investors was based on numerous reports
suggesting that the U.S. economy was now growing at a more moderate pace and
that core inflation was still in check. In this declining interest rate
environment, the bond market recouped all of its losses from the first half
of the year and moved into positive territory. Based on the Lehman Brothers
Aggregate Bond Index, bond market performance improved considerably during
the second-half of 1996, returning a respectable 4.90% over this latest
six-month period.
Generally speaking, bond investors were well rewarded for moving down the
credit-risk spectrum in 1996. The emerging markets sector finally received
front-page recognition as this group significantly outperformed all other
bond categories as well as most of the world's equity markets. Domestic
high-yield bonds also posted double-digit returns last year, aided by a
favorable economic climate and strong demand from mutual fund investors.
Conversely, the more conservative fixed-income sectors (treasuries, agencies
and top-tier investment-grade corporates) generally lagged the overall market
in 1996, as the bond market clearly favored higher yield over higher credit
quality.
Phoenix Edge Multi-Sector Fixed Income Series posted very strong results in
1996. For the twelve-month period ended December 31, 1996, the Fund provided
a total return of 12.42%. These results significantly outpaced its benchmark,
the Lehman Brothers Aggregate Bond Index, which returned 3.63% over the same
period. All of these figures assume reinvestment of any distributions, but
exclude the effect of sales charges.
Our emphasis on the less traditional sectors of the fixed-income market paid
off handsomely and contributed to much of the Fund's outperformance during
the year. Over the last twelve months, performance in the emerging markets
and domestic high-yield sectors continued to surpass all other fixed-income
categories and the portfolio benefited from its exposure in these areas.
Additionally, our decision to focus on commercial and non-agency residential
mortgage-backed securities, rather than more conventional agency
mortgage-backed securities, proved to be rewarding as these less efficient
sectors continued to produce strong results.
As we head into the new year, the U.S. economy currently appears to be in
good shape. The core inflation rate (CPI excluding food and energy costs)
rose just 2.6% in 1996 and the economy now appears to be growing at a more
moderate and sustainable pace. While news of this nature can go a long way in
restoring confidence in a shaky bond market, we are not convinced that the
threat of inflation is completely behind us. Although it may currently be
well contained, it is always a risk to the bond market.
With a few minor adjustments, we believe that the investment strategy we
successfully implemented last year can also perform well in 1997. In the
mortgage-backed arena, we are of the opinion that commercial and non-agency
residential securities continue to offer better relative value than their
agency counterparts. We also like the underfollowed taxable municipal sector,
which currently provides a significant yield advantage over comparably rated
corporate bonds. Lastly, despite its extended rally, we remain bullish on
emerging markets debt. While last year's gains were exceptionally strong
relative to other fixed-income groups, returns of this nature are not
unprecedented for this sector.
Overall, we are pleased with the Fund's performance during 1996 and believe
that the portfolio is well positioned for the new year. As always, we will
continue to overweight undervalued sectors of the bond market as our primary
means of adding value relative to our benchmark, the Lehman Brothers
Aggregate Bond Index.
2-11
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
Multi-Sector Lehman Brothers
Fixed Income Aggregate
Series Bond Index*
12/31/86 $10,000 $10,000
12/31/87 10,112 10,276
12/31/88 11,160 11,087
12/31/89 12,086 12,698
12/31/90 12,707 13,836
12/31/91 15,174 16,050
12/31/92 16,695 17,238
12/31/93 19,350 18,919
12/31/94 18,292 18,367
12/31/95 22,597 21,761
12/31/96 25,404 22,551
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------
Multi-Sector Fixed Income Series 12.42% 10.86% 9.77%
- ------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index* 3.63% 7.04% 8.47%
- ------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 12/31/86.
Returns shown include the reinvestment of all distributions at net asset
value, and the change in share price for the stated period. Returns indicate
past performance, which is not predictive of future performance. Investment
return and net asset value will fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. High yield fixed income
securities generally are subject to greater market fluctuations and risk of
loss of income and principal than are investments in lower-yielding fixed
income securities. Foreign investing involves special risks such as currency
fluctuation and less public disclosure, as well as economic and political
risks.
*The Lehman Brothers Aggregate Bond Index is an unmanaged but commonly used
measure of bond performance. It is a combination of several Lehman Brothers
Fixed Income Indexes.
SCHEDULE OF INVESTMENTS
December 31, 1996
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- ---------------
U.S. GOVERNMENT AND AGENCY SECURITIES--22.1%
U.S. Treasury Bonds--7.1%
U.S. Treasury Bonds 6%, '26 (h) Aaa $11,300 $ 10,279,462
------------
U.S. Treasury Notes--12.2%
U.S. Treasury Notes 5.75%, '98 Aaa 750 748,043
U.S. Treasury Notes 5.875%, '99 Aaa 3,150 3,137,202
U.S. Treasury Notes 6.125%, '01 Aaa 1,500 1,493,640
U.S. Treasury Notes 6.50%, '06 Aaa 12,250 12,318,906
------------
17,697,791
------------
Agency Mortgage-Backed Securities--2.8%
FHLMC 7.50%, '18 Aaa 296 296,861
GNMA 8%, '06 Aaa 189 195,128
GNMA 6.50%, '23 Aaa 2,221 2,131,617
GNMA 6.50%, '25 Aaa 942 898,296
GNMA 6.50%, '26 Aaa 584 557,261
------------
4,079,163
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $32,090,576) 32,056,416
------------
NON-CONVERTIBLE BONDS--40.6%
Asset-Backed Securities--4.2%
Airplanes Pass Through Trust 1D
10.875%, '19 Ba $ 1,500 $ 1,654,605
Green Tree Financial Corp. 94-1, B2
7.85%, '19 Baa 3,000 3,032,344
Team Fleet Financing Corp., 96-1, B
144A 7.10%, '02 (b) BBB(c) 1,425 1,414,313
------------
6,101,262
------------
Chemical--1.1%
General Chemical, Inc., 9.25%, '03 B 1,500 1,541,250
------------
Conglomerates--0.7%
Allied Waste North America 144A
10.25%, '06 (b) B 1,000 1,055,000
------------
Containers--1.5%
Owens-Illinois, Inc. 11%, '03 Ba 2,000 2,235,000
------------
Entertainment, Leisure & Gaming--0.7%
Comcast Corp. 9.375%, '05 B 1,000 1,040,000
------------
See Notes to Financial Statements
2-12
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- ---------------
Hospital Management & Services--1.7%
Tenet Healthcare Corp. Sr. Note
9.625%, '02 Ba $ 500 $ 548,750
Tenet Healthcare Corp. Sr. Sub. Note
10.125%, '05 Ba 1,750 1,935,938
------------
2,484,688
------------
Non-Agency Mortgage-Backed Securities--27.1%
Equitable Life 174, D1 144A 7.77%,
'06 (b) Baa 2,000 2,045,000
FDIC Remic Trust 96-C1, 1D 7.25%,
'26 Baa 1,500 1,464,609
General Electric Co. 96-8, 2A5
7.50%, '26 AAA(c) 995 1,002,399
Kidder Peabody Acceptance Corp.
94-C2, D 7.18%, '05 BBB(c) 500 501,875
Lehman Structured Securities Corp.
96-1, E1 7.955%, '26 BBB(c) 2,457 2,497,318
Morgan Stanley Capital Corp. 144A I
96-WFI, C 6.59%, '06 (b) A 1,250 1,200,781
Mortgage Capital Funding, Inc. 96-M
C2, D 7.257%, '06 Baa(c) 2,000 1,976,563
Oakwood Mortgage Investors 96-C, A2
6.45%, '27 AAA(c) 1,750 1,747,813
Residential Asset Securitization
Trust 96-A4, A13 7.50%, '26 AAA(c) 1,000 991,250
Residential Asset Securitization
Trust 96-A8, A1 8%, '26 AAA(c) 1,916 1,944,258
Resolution Trust Corp. 92-C8, D
8.835%, '23 Baa 1,927 1,987,008
Resolution Trust Corp. 93-C3, A4
6.55%, '24 Aaa 351 349,793
Resolution Trust Corp. 94-C2, D 8%,
'25 BBB(c) 1,705 1,738,268
Resolution Trust Corp. 95-C1, B
6.90%, '27 Aa 2,250 2,229,609
Resolution Trust Corp. 95-C2, C 7%,
'27 A 1,880 1,860,825
Resolution Trust Corp. 95-C2, E 7%,
'27 Ba 1,482 1,351,569
Resolution Trust Corp. 95-1, M2
7.50%, '28 Aa 2,131 2,153,922
Resolution Trust Corp. 95-2, C1
7.45%, '29 Baa 1,630 1,626,983
Resolution Trust Corp. 95-2, M1
7.15%, '29 Aa 1,663 1,665,962
Ryland Mortgage Securities Corp. III
92-A, 1A 8.33%, '30 A-(c) 923 926,346
Securitized Asset Sales, Inc. 95-6,
B3 144A 7%, '10 (b) NR 1,397 1,210,167
Securitized Asset Sales, Inc. 95-A,
M 7.53%, '24 Aa 1,818 1,800,216
Structured Asset Securities Corp.
95-C1, D 7.375%, '24 BBB(c) 2,000 1,984,375
Structured Asset Securities Corp.
96-CFL, E 7.75%, '28 BB(c) 1,975 1,944,141
Structured Asset Securities Corp.
96-C3, C 144A 7.375%, '30 (b) A(c) 1,150 1,147,125
------------
39,348,175
------------
Oil Service & Equipment--0.6%
Noble Drilling Corp. 9.125%, '06 Ba 750 806,250
------------
Paper & Forest Products--0.7%
Buckeye Cellulose Corp. 8.50%, '05 Ba 950 952,375
------------
Publishing, Broadcasting, Printing & Cable--1.1%
Poland Communications, Inc. 144A
9.875%, '03 (b) B 1,650 1,640,314
------------
Retail--Food Service--0.0%
ARA Services, Inc. 10.625%, '00 Ba 54 60,008
------------
Telecommunications--1.2%
Call-Net Enterprises 0%, '04 (d) B $ 2,000 $ 1,652,500
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $57,918,684) 58,916,822
------------
FOREIGN NON-CONVERTIBLE BONDS--9.4%
Argentina--1.2%
Bridas Corp. Sr. Note 12.50%, '99 B 1,600 1,712,000
------------
Brazil--2.1%
Globo Comunicacoes 144A 10.50%,
'06 (b) B(c) 2,000 2,010,000
Tevecap SA 144A 12.625%, '04 (b) B 1,000 1,026,250
------------
3,036,250
------------
Canada--1.0%
Videotron Ltd. Sr. Sub. Note 10.25%,
'02 Ba 1,400 1,498,000
------------
Chile--1.4%
CSAV 144A 7.375%, '03 (b) BBB(c) 2,000 1,970,000
------------
Mexico--1.9%
Coca-Cola Femsa 8.95%, '06 Ba 2,000 2,002,500
Grupo Televisa SA 0%, '08 (d) Ba 1,200 792,000
------------
2,794,500
------------
Philippines--0.9%
Subic Power Corp. 144A 9.50%,
'08 (b) NR 1,245 1,311,883
------------
Qatar--0.9%
Ras Laffan Gas 144A 7.628%, '06 (b) A 1,300 1,304,875
------------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $12,890,485) 13,627,508
------------
FOREIGN GOVERNMENT SECURITIES--12.1%
Colombia--0.3%
Republic of Colombia Euro 9%, '97 Baa 500 503,960
------------
Croatia--2.6%
Croatia Series A 6.688%, '10 (d) NR 2,238 2,166,663
Croatia Series A 144A 6.688%, '10
(b)(d) NR 1,500 1,452,188
Croatia Series B 6.688%, '06 (d) NR 146 142,259
------------
3,761,110
------------
Dominican Republic--0.3%
Dominican Republic BR-PDI 6.563%,
'09 (d) NR 500 396,250
------------
Mexico--0.9%
United Mexican States Discount A
6.453%, '19 (d)(e) Ba 1,525 1,315,313
------------
Morocco--1.1%
Morocco R&C Agreement Series A
6.375%, '09 (d) NR 2,000 1,650,000
------------
Panama--1.9%
Panama PDI 144A, PIK interest
capitalization, 6.75%, '16 (b)(d) NR 3,500 2,773,688
------------
Philippines--0.9%
Republic of Philippines 144A 8.75%,
'16 (b) B 1,301 1,353,853
------------
Russia--1.3%
Russian Interest Notes 6.41% WI
(d)(g) NR 1,000 695,000
Russian Principal Loans 6.41% WI
(d)(g) NR 2,000 1,176,250
------------
1,871,250
------------
See Notes to Financial Statements
2-13
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- -------------
Slovenia--0.2%
Republic of Slovenia Series 1 144A
6.375%, '06 (b)(d) A(c) $ 145 $ 145,181
Republic of Slovenia Series 2 144A
6%, '06 (b)(d) A(c) 76 74,789
------------
219,970
------------
Venezuela--2.6%
Republic of Venezuela DCB Euro
6.50%, '07 (d) Ba 2,000 1,765,000
Republic of Venezuela FLIRB A Euro
6.625%, '07 (d) Ba 1,000 892,500
Republic of Venezuela Series A NMB
6.625%, '05 (d) Ba 1,250 1,106,250
------------
3,763,750
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $15,306,745) 17,609,144
------------
MUNICIPAL BONDS--10.7%
California--1.8%
Orange County Pension A Taxable
7.67%, '09 Aaa 2,500 2,606,825
------------
Florida--2.6%
Dade County Florida Ed. Facs.
Authority 5.75%, '20 Aaa 475 480,833
Palm Beach Waste Revenue Project B
Taxable 10.50%, '11 NR 1,500 1,492,935
University Miami Exchange Revenue A
Taxable 7.65%, '20 Aaa 1,795 1,811,747
------------
3,785,515
------------
Michigan--0.8%
Hartland Consolidated School
District 5.125%, '22 Aaa 1,280 1,191,654
------------
Pennsylvania--3.0%
Pennsylvania Economic Development
9.50%, '12 NR 2,500 2,348,000
Pennsylvania Economic Development
6.75%, '07 NR 1,950 1,996,332
------------
4,344,332
------------
Texas--0.9%
Texas State Turnpike Authority
Dallas 5.25%, '23 Aaa 1,280 1,222,489
------------
Virginia--1.6%
Newport News Taxable Series B 7.05%,
'25 Aa 750 707,145
Pittsylvania County Series B
7.65%, '10 NR 1,500 1,603,695
------------
2,310,840
------------
TOTAL MUNICIPAL BONDS
(Identified cost $15,306,344) 15,461,655
------------
CONVERTIBLE BONDS--0.7%
Entertainment, Leisure & Gaming--0.7%
Comcast Corp. Cv. 1.125%, '07 (d) B $ 2,000 $ 1,015,000
------------
TOTAL CONVERTIBLE BONDS
(Identified cost $1,103,735) 1,015,000
------------
FOREIGN CONVERTIBLE BONDS--0.8%
Mexico--0.8%
Empresas ICA Sociedad Euro 5%, '04 B(c) 1,700 1,200,625
------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $1,107,962) 1,200,625
------------
SHARES
--------
WARRANTS--0.1%
Paper & Forest Products--0.1%
SD Warren Warrants 144A (b)(f) 30,000 150,000
------------
TOTAL WARRANTS
(Identified cost $142,500) 150,000
------------
PREFERRED STOCKS--1.2%
Paper & Forest Products--0.6%
SD Warren Co. Pfd. PIK 144A
Series B (b) 30,000 857,393
------------
Telecommunications Equipment--0.6%
Cablevision Systems Pfd. M B3 PIK 11.125% 10,000 880,000
------------
TOTAL PREFERRED STOCKS
(Identified cost $1,492,500) 1,737,393
------------
TOTAL LONG-TERM INVESTMENTS--97.7%
(Identified cost $137,359,531) 141,774,563
------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------ ---------
SHORT-TERM OBLIGATIONS--1.2%
Commercial Paper--1.2%
Abbott Laboratories 5.42%, 1-7-97 A-1+ $ 1,690 1,688,473
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,688,473) 1,688,473
------------
TOTAL INVESTMENTS--98.9%
(Identified cost $139,048,004) 143,463,036(a)
Cash and receivables, less liabilities--1.1% 1,581,374
------------
NET ASSETS--100.0% $145,044,410
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $5,489,857 and gross
depreciation of $1,096,529 for income tax purposes. At December 31, 1996,
the aggregate cost of securities for federal income tax purposes was
$139,069,708.
(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 December 31,
1996, these securities amounted to a value of $24,142,800 or 16.6% of net
assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(d) Variable or step coupon obligation; interest rate shown reflects the rate
currently in effect.
(e) Rights incorporated as a unit.
(f) Non-income producing.
(g) When issued.
(h) Segregated as collateral.
See Notes to Financial Statements
2-14
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Investment securities at value (Identified cost $139,048,004) $143,463,036
Cash 23,003
Receivable for investment securities sold 4,075,807
Receivable for fund shares sold 61,173
Interest receivable 2,840,294
------------
Total assets 150,463,313
------------
Liabilities
Payable for investment securities purchased 5,298,125
Investment advisory fee 53,876
Trustees' fee 8,255
Financial agent fee 7,176
Accrued expenses 51,471
------------
Total liabilities 5,418,903
------------
Net Assets $145,044,410
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $138,951,243
Undistributed net investment income 426,754
Accumulated net realized gain 1,251,381
Net unrealized appreciation 4,415,032
------------
Net Assets $145,044,410
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 14,026,293
============
Net asset value and offering price per share $10.34
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $ 9,625,540
Dividends 623,497
------------
Total investment income 10,249,037
------------
Expenses
Investment advisory fee 606,445
Financial agent fee 72,793
Custodian 48,902
Printing 37,165
Professional 20,660
Trustees 18,393
Miscellaneous 5,301
Expenses borne by investment adviser (21,281)
------------
Total expenses 788,378
------------
Net investment income 9,460,659
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 7,367,063
Net change in unrealized appreciation (depreciation) on investments (2,309,914)
------------
Net gain on investments 5,057,149
------------
Net increase in net assets resulting from operations $14,517,808
============
</TABLE>
See Notes to Financial Statements
2-15
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
--------------- ---------------
<S> <C> <C>
From Operations
Net investment income $ 9,460,659 $ 7,829,504
Net realized gain 7,367,063 1,405,058
Net change in unrealized appreciation (depreciation) (2,309,914) 10,007,140
------------ ------------
Net increase in net assets resulting from operations 14,517,808 19,241,702
------------ ------------
From Distributions to Shareholders
Net investment income (9,238,947) (7,763,175)
Net realized gains (4,270,844) --
------------ ------------
Decrease in net assets from distributions to shareholders (13,509,791) (7,763,175)
------------ ------------
From Share Transactions
Proceeds from sales of shares (6,711,402 and 4,715,281 shares,
respectively) 69,891,527 45,595,165
Net asset value of shares issued from reinvestment of distributions
(1,316,308 and 796,247 shares, respectively) 13,509,791 7,763,175
Cost of shares repurchased (4,670,077 and 3,158,605 shares,
respectively) (48,410,465) (30,477,355)
------------ ------------
Increase in net assets from share transactions 34,990,853 22,880,985
------------ ------------
Net increase in net assets 35,998,870 34,359,512
Net Assets
Beginning of period 109,045,540 74,686,028
------------ ------------
End of period (including undistributed net investment income of $426,754
and $135,344, respectively) $145,044,410 $109,045,540
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<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
$0.002, $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.
See Notes to Financial Statements
2-16
<PAGE>
TOTAL RETURN SERIES
Despite increasing interest rates and waning corporate earnings momentum,
U.S. stock prices forged higher over this reporting period, fueled by
unprecedented cash inflows into equity mutual funds and continued corporate
share buybacks. Although this remarkable rally dates back to December 1994,
the past year has been one of tremendous rotation among various sectors of
the stock market--a manifestation of increasing investor uncertainty over the
direction of interest rates and the economy. As measured by the Standard &
Poor's 500 Stock Index, the U.S. equity market returned an impressive 23.25%
during 1996.
While it may have been another record year for U.S. equities, the overall
bond market produced less than stellar results. For the twelve months ended
December 31, 1996, the Lehman Brothers Aggregate Bond Index, an unmanaged
gauge of bond market performance, returned a mere 3.63%. Shifting market
opinion over the direction of the U.S. economy contributed to much of the
volatility in interest rates during this reporting period. As measured by the
30-year Treasury bond, interest rates started the year at 5.95%, climbed as
high as 7.19% in July, and finished 1996 yielding 6.64%. Generally speaking,
investors were well rewarded for moving down the credit-risk spectrum last
year, as lower-quality bonds generally outperformed higher-quality issues.
For the twelve months ended December 31, 1996, Phoenix Edge Total Return
Series posted a respectable 9.05%. Over the same period, it's peer group
average--the 185 retail funds tracked by Lipper Analytical Services--earned
13.59%. As with the broad market returns noted above, all of these figures
assume reinvestment of any distributions, but exclude the effect of sales
charges.
During this latest reporting period, Fund performance was held back
primarily because of weakness in some of our consumer cyclical, technology
and health care stocks. Positive contributors to equity performance included
our strong stock selection in the energy, finance and capital goods sectors.
The fixed-income segment of the Fund also boosted results as it continued to
significantly outperform its benchmark, the Lehman Brothers Aggregate Bond
Index. Our decision to emphasize such non-traditional sectors of the bond
market such as taxable municipals, commercial and non-agency residential
mortgage-backed securities and emerging market debt, paid off handsomely
during the year.
After two back-to-back years of powerful performance, the equity risk level
is clearly rising. In a stock market caught between long-term concerns and
intermediate opportunities, we are focusing our equity exposure on growth
companies that have some sensitivity to the domestic economy and/or foreign
sales growth. The Fund is currently emphasizing such timely investment themes
as Capital Goods--The Long Wave (capital goods), Software Solutions
(technology) and Energy Technology (energy). Looking ahead, we believe that
the key to outperformance lies in taking advantage of market inefficiencies
within a volatile trading range combined with individual stock selection.
With a few minor adjustments, we believe that the fixed-income investment
strategy we successfully implemented last year can also perform well in 1997.
In the mortgage-backed arena, we are of the opinion that commercial and
non-agency residential securities continue to offer better relative value
than their agency counterparts. We also like the underfollowed taxable
municipal sector, which currently provides a significant yield advantage over
comparably rated corporate bonds. Lastly, despite its extended rally, we
remain bullish on emerging market debt. While last year's gains were
exceptionally strong relative to other fixed-income groups, returns of this
nature are not unprecedented for this sector.
Overall, we believe the Fund is well positioned for the new year. As of
December 31, 1996, the Fund's asset allocation mix was 73% equities, 16%
fixed income and 11% cash equivalents. As always, we remain committed to the
Fund's primary goal of generating a high level of capital appreciation, but
with less risk than a typical equity fund.
2-17
<PAGE>
TOTAL RETURN SERIES
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
Total Lipper Analytical
Return S&P 500 Services Flexible
Series Stock Index* Fund**
12/31/86 $10,000 $10,000 $10,000
12/31/87 11,258 10,517 10,620
12/31/88 11,520 12,253 11,547
12/31/89 13,811 16,104 13,546
12/31/90 14,587 15,590 13,446
12/31/91 18,881 20,352 16,866
12/31/92 20,896 21,917 18,251
12/31/93 23,198 24,109 20,275
12/31/94 22,862 24,427 19,823
12/31/95 27,027 33,590 24,759
12/31/96 29,473 41,398 28,127
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Total Return Series 9.05% 9.32% 11.40%
- --------------------------------------------------------------------------------
Lipper Analytical Services Flexible Fund** 13.59% 10.75% 10.89%
- --------------------------------------------------------------------------------
S&P 500 Stock Index* 23.25% 15.26% 15.27%
- --------------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 12/31/86.
Returns shown include the reinvestment of all distributions at net asset
value, and the change in share price for the stated period. Returns indicate
past performance, which is not predictive of future performance. Investment
return and net asset value will fluctuate, so that your shares, when
redeemed, may be worth more or less than the original cost.
* The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
** The Lipper Analytical Services Flexible Fund category is an average
composed of 185 funds; the 5 and 10 year returns are derived from
compounding the yearly returns. Performance is based on the
reinvestment of all distributions and does not reflect the effects of
sales charges.
SCHEDULE OF INVESTMENTS
December 31, 1996
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- ---------------
U.S GOVERNMENT SECURITIES--4.3%
U.S. Treasury Bonds--0.7%
U.S. Treasury Bonds 6%, '26 AAA $ 2,850 $ 2,592,608
------------
U.S. Treasury Notes--3.6%
U.S. Treasury Notes 5.75%, '98 AAA 11,000 10,971,290
U.S. Treasury Notes 5.875%, '99 AAA 1,650 1,643,296
U.S. Treasury Notes 6.50%, '06 AAA 1,000 1,005,625
------------
13,620,211
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $16,120,992) 16,212,819
------------
SHARES
-------
COMMON STOCKS--70.5%
Advertising--0.7%
Omnicom Group, Inc. 56,500 2,584,875
------------
Aerospace & Defense--2.0%
Boeing Co. 70,600 7,510,075
------------
SHARES VALUE
--------- ------------
Banks--4.0%
Ahmanson (H.F.) & Co. 91,400 $ 2,970,500
Golden West Financial Corp. 50,000 3,156,250
Great Western Financial Corp. 159,100 4,613,900
Wells Fargo & Co. 15,100 4,073,225
----------
14,813,875
----------
Beverages--1.0%
Seagram Ltd. 94,700 3,669,625
----------
Chemical--2.3%
Du Pont (E.I.) de Nemours & Co. 47,000 4,435,625
Monsanto Co. 109,800 4,268,475
----------
8,704,100
----------
Computer Software & Services--8.1%
Computer Associates International, Inc. 93,400 4,646,650
Fiserv, Inc. (b) 117,900 4,332,825
HBO & Co. 27,900 1,656,563
Microsoft Corp. (b) 86,200 7,122,275
See Notes to Financial Statements
2-18
<PAGE>
TOTAL RETURN SERIES
SHARES VALUE
--------- --------------
Computer Software & Services--continued
Oracle Corp. (b) 96,500 $ 4,028,875
Parametric Technology Corp. (b) 96,800 4,973,100
Sungard Data Systems, Inc. (b) 91,700 3,622,150
-----------
30,382,438
-----------
Conglomerates--2.2%
AlliedSignal, Inc. 80,800 5,413,600
Tyco International Ltd. 55,500 2,934,563
-----------
8,348,163
-----------
Containers--1.1%
Crown Cork & Seal, Inc. 76,300 4,148,812
-----------
Cosmetics & Soaps--2.1%
Colgate Palmolive Co. 50,400 4,649,400
Procter & Gamble Co. 28,900 3,106,750
-----------
7,756,150
-----------
Diversified Financial Services--1.0%
Federal National Mortgage Assoc. 104,100 3,877,725
-----------
Diversified Miscellaneous--1.0%
CUC International, Inc. (b) 152,700 3,626,625
-----------
Electrical Equipment--1.9%
General Electric Co. 30,500 3,015,687
Honeywell, Inc. 64,000 4,208,000
-----------
7,223,687
-----------
Electronics--1.2%
Intel Corp. 35,400 4,635,188
-----------
Healthcare--Diversified--3.0%
American Home Products Corp. 121,200 7,105,350
Warner-Lambert Co. 54,000 4,050,000
-----------
11,155,350
-----------
Healthcare--Drugs--3.3%
Biochem Pharmaceutical, Inc. (b) 77,900 3,914,475
Lilly (Eli) & Co. 49,800 3,635,400
Pfizer, Inc. 60,400 5,005,650
-----------
12,555,525
-----------
Lodging & Restaurants--1.6%
Marriott International, Inc. 106,000 5,856,500
-----------
Machinery--1.7%
Caterpillar, Inc. 36,400 2,739,100
Deere & Co. 87,100 3,538,437
-----------
6,277,537
-----------
Medical Products & Supplies--3.2%
Boston Scientific Corp. (b) 101,400 6,084,000
Medtronic, Inc. 86,500 5,882,000
-----------
11,966,000
-----------
Metals & Mining--1.1%
Aluminum Company of America 64,700 4,124,625
-----------
Natural Gas--6.1%
Anadarko Petroleum Corp. 56,800 3,677,800
Apache Corp. 115,000 4,068,125
Coastal Corp. 18,400 899,300
Columbia Gas System, Inc. 13,100 833,488
KN Energy, Inc. 22,000 863,500
PanEnergy Corp. 53,300 2,398,500
Questar Corp. 22,000 808,500
Sonat, Inc. 82,000 4,223,000
Tejas Gas Corp. (b) 21,000 1,000,125
Williams Companies, Inc. 107,250 4,021,875
-----------
22,794,213
-----------
Office & Business Equipment--1.2%
Hewlett Packard Co. 87,300 $ 4,386,825
-----------
Oil--0.5%
Triton Energy Ltd. (b) 39,200 1,901,200
-----------
Oil Service & Equipment--6.8%
BJ Services Co. (b) 91,600 4,671,600
Baker Hughes, Inc. 150,500 5,192,250
Halliburton Co. 99,600 6,000,900
Noble Drilling Corp. (b) 241,500 4,799,813
Varco International, Inc. (b) 121,000 2,798,125
Weatherford Enterra, Inc. (b) 60,500 1,815,000
-----------
25,277,688
-----------
Retail--3.6%
Home Depot, Inc. 108,000 5,413,500
TJX Companies, Inc. 90,300 4,277,962
Tiffany & Co. 106,000 3,882,250
-----------
13,573,712
-----------
Telecommunications Equipment--6.5%
Andrew Corp. (b) 30,700 1,629,019
Ascend Communications, Inc. (b) 54,900 3,410,663
Cisco Systems, Inc. (b) 180,400 11,477,950
Lucent Technologies, Inc. 113,200 5,235,500
Tellabs, Inc. (b) 66,500 2,502,062
-----------
24,255,194
-----------
Textile & Apparel--3.3%
Liz Claiborne, Inc. 86,300 3,333,337
Nautica Enterprises, Inc. (b) 68,000 1,717,000
Nike, Inc. Class B 69,900 4,176,525
Tommy Hilfiger Corp. (b) 63,300 3,038,400
-----------
12,265,262
-----------
TOTAL COMMON STOCKS
(Identified cost $247,433,533) 263,670,969
-----------
FOREIGN COMMON STOCKS--2.0%
Chemical--1.1%
Potash Corp. of Saskatchewan, Inc.
(Canada) 50,000 4,250,000
-----------
Textile & Apparel--0.9%
Gucci Group NV-NY (Italy) 51,600 3,295,950
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $7,536,032) 7,545,950
-----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------ ---------
MUNICIPAL BONDS--2.6%
California--1.3%
Kern County Pension Obligation
Taxable 7.26%, '14 AAA $ 1,500 1,478,490
Long Beach Pension Obligation
Taxable 6.87%, '06 AAA 840 841,907
San Bernardino County Obligation
Revenue Taxable 6.87%, '08 AAA 410 407,007
San Bernardino County Obligation
Revenue Taxable 6.94%, '09 AAA 1,110 1,106,215
Ventura County Pension Taxable
6.54%, '05 AAA 975 960,267
------------
4,793,886
------------
See Notes to Financial Statements
2-19
<PAGE>
TOTAL RETURN SERIES
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- --------------
Florida--1.3%
Dade County Ed. Facs. Authority
5.75%, '20 AAA $ 285 $ 288,500
Miami Beach Special Obligation
Taxable 8.60%, '21 AAA 3,210 3,513,249
University Miami Exchange Revenue A
Taxable 7.65%, '20 AAA 1,080 1,090,076
----------
4,891,825
----------
TOTAL MUNICIPAL BONDS
(Identified cost $9,731,150) 9,685,711
----------
NON-CONVERTIBLE BONDS--5.7%
Asset-Backed Securities--0.7%
Airplanes Pass Through Trust 1D
10.875%, '19 BB 560 617,719
Fleetwood Credit Corp. 96-B, A
6.90%, '12 AAA 948 957,182
Green Tree Financial Corp. 96-2, M1
7.60%, '27 AA- 1,075 1,079,367
----------
2,654,268
----------
Non-Agency Mortgage-Backed Securities--4.9%
CS First Boston Mortgage 95-AE1, B
7.182%, '27 AA- 1,350 1,344,305
GE Capital Mortgage Service 96-8, M
7.25%, '26 AA 249 242,177
Lehman Commercial Conduit 95-C2, B
7.184%, '05 AA 1,650 1,657,734
Merrill Lynch Mortgage, Inc. 95-C2,
B 7.61%, '21 Aa(c) 893 904,589
Merrill Lynch Mortgage, Inc. 96-C1,
B 7.42%, '28 AA 660 667,116
Nationslink Funding Corp. 96-1, B
7.69%, '05 AA 450 466,875
Residential Asset Securitization
Trust 96-A8, A1 8%, '26 AAA 958 972,129
Residential Funding Mortgage 96-S1,
A11 7.10%, '26 AAA 1,500 1,459,453
Residential Funding Mortgage 96-S4,
M1 7.25%, '26 AA 993 964,401
Resolution Trust Corp. 93-C1, B
8.75%, '24 Aa(c) 1,600 1,636,500
Resolution Trust Corp. 95-C2, B
6.80%, '27 Aa(c) 887 877,338
Resolution Trust Corp. 95-C1, B
6.90%, '27 Aa(c) 1,900 1,882,781
Resolution Trust Corp. 95-2, M1
7.15%, '29 Aa(c) 1,413 1,416,052
Securitized Asset Sales, Inc. 93-J,
2B 6.808%, '23 A(c) 978 911,978
Structured Asset Securities Corp.
95-C1, C 7.375%, '24 A 930 929,855
Structured Asset Securities Corp.
95-C4, B 7%, '26 AA 1,650 1,627,313
Structured Asset Securities Corp.
96-CFL, C 6.525%, '28 A 520 508,300
----------
18,468,896
----------
Paper & Forest Products--0.1%
Buckeye Cellulose Corp. 9.25%, '08 BB- 350 364,875
----------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $21,435,236) 21,488,039
----------
FOREIGN GOVERNMENT SECURITIES--2.4%
Argentina--0.4%
Republic of Argentina Discount L-GL
Euro 6.375%, '23 (e) BB- $ 1,800 $ 1,389,375
----------
Brazil--0.3%
Republic of Brazil Discount ZL Euro
6.50%, '24 (e) B+ 800 617,500
Republic of Brazil Par Z-L Euro
4.25%, '24 (e) B(c) 1,000 630,000
----------
1,247,500
----------
Colombia--0.9%
Republic of Colombia Yankee 7.25%,
'04 BBB- 3,500 3,412,500
----------
Mexico--0.4%
United Mexican States 144A 7.563%,
'01 (d) (e) Baa(c) 350 350,822
United Mexican States Euro D 6.352%,
'19 (e) (f) BB 1,300 1,121,250
----------
1,472,072
----------
Panama--0.4%
Panama IRB 144A 3.50%,
'14 (d) (e) NR 700 486,938
Panama PDI 144A, PIK interest
capitalization, 6.75%, '16 (d) (e) NR 1,150 911,355
----------
1,398,293
----------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $7,885,326) 8,919,740
----------
FOREIGN NON-CONVERTIBLE BONDS--1.0%
Chile--0.1%
Petropower Funding 144A 7.36%,
'14 (d) BBB 500 477,150
----------
Colombia--0.9%
Financiera Energ. Nacional EMTN Euro
9%, '99 BBB- 3,200 3,356,000
----------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $3,776,800) 3,833,150
----------
TOTAL LONG-TERM INVESTMENTS--88.5%
(Identified cost $313,919,069) 331,356,378
----------
SHORT-TERM OBLIGATIONS--11.4%
Commercial Paper--10.0%
Abbott Laboratories 5.42%, 1-7-97 A-1+ 3,770 3,766,595
Cargill, Inc. 5.43%, 1-10-97 A-1+ 1,015 1,013,622
Bellsouth Capital Funding Corp.
5.40%, 1-14-97 A-1+ 2,375 2,370,369
Receivables Capital Corp. 5.45%,
1-17-97 A-1+ 724 722,246
Private Export Funding Corp. 5.30%,
1-28-97 A-1+ 2,855 2,842,839
General Electric Capital Corp.
5.50%, 1-30-97 A-1+ 3,500 3,500,000
Southwestern Bell Telephone Co.
5.30%, 1-31-97 A-1+ 4,000 3,980,505
Kellogg Co. 5.35%, 2-5-97 A-1+ 2,000 1,989,597
Preferred Receivables Funding Corp.
5.35%, 2-13-97 A-1 5,000 4,966,098
General Re Corp. 5.30%, 2-14-97 A-1+ 2,500 2,482,479
See Notes to Financial Statements
2-20
<PAGE>
TOTAL RETURN SERIES
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- --------------
Commercial Paper--continued
First Deposit Funding Trust 5.33%,
3-14-97 A-1 $ 3,617 $ 3,575,405
Asset Securitization Cooperative
Corp. 5.36%, 3-18-97 A-1+ 4,435 4,381,292
Receivables Capital Corp. 5.39%,
5-1-97 A-1+ 2,000 1,963,560
----------
37,554,607
----------
PAR
VALUE
(000) VALUE
--------- ---------------
Federal Agency Securities--1.4%
Federal National Mortgage Assoc. 5.24%,
2-27-97 $ 5,065 $ 5,020,212
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $42,590,757) 42,574,819
------------
TOTAL INVESTMENTS--99.9%
(Identified cost $356,509,826) 373,931,197(a)
Cash and receivables, less liabilities--0.1% 312,478
------------
NET ASSETS--100.0% $374,243,675
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $24,226,359 and gross
depreciation of $6,804,988 for income tax purposes. At December 31, 1996,
the aggregate cost of securities for federal income tax purposes was
$356,509,826.
(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 December 31,
1996, these securities amounted to a value of $2,226,265 or 0.6% of net
assets.
(e) Variable or step coupon bond; interest rate shown reflects the rate
currently in effect.
(f) Rights incorporated as a unit.
See Notes to Financial Statements
2-21
<PAGE>
TOTAL RETURN SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $356,509,826) $373,931,197
Receivable for investment securities sold 926
Receivable for fund shares sold 112,271
Interest and dividends receivable 1,117,628
------------
Total assets 375,162,022
------------
Liabilities
Custodian 623,987
Investment advisory fee 185,569
Financial agent fee 19,089
Trustees' fee 8,466
Accrued expenses 81,236
------------
Total liabilities 918,347
------------
Net Assets $374,243,675
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $351,775,454
Undistributed net investment income 414,865
Accumulated net realized gain 4,631,985
Net unrealized appreciation 17,421,371
------------
Net Assets $374,243,675
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 27,417,598
============
Net asset value and offering price per share $13.65
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $ 8,131,784
Dividends 2,771,915
------------
Total investment income 10,903,699
------------
Expenses
Investment advisory fee 2,146,571
Financial agent fee 220,535
Printing 89,724
Custodian 62,021
Professional 28,906
Trustees 18,612
Miscellaneous 22,054
------------
Total expenses 2,588,423
------------
Net investment income 8,315,276
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 25,862,109
Net realized loss on foreign currency transactions (10,202)
Net change in unrealized appreciation (depreciation) on investments (2,475,007)
------------
Net gain on investments 23,376,900
------------
Net increase in net assets resulting from operations $31,692,176
============
</TABLE>
See Notes to Financial Statements
2-22
<PAGE>
TOTAL RETURN SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
--------------- ---------------
<S> <C> <C>
From Operations
Net investment income $ 8,315,276 $ 10,538,823
Net realized gain 25,851,907 23,632,796
Net change in unrealized appreciation (depreciation) (2,475,007) 19,082,703
------------ ------------
Net increase in net assets resulting from operations 31,692,176 53,254,322
------------ ------------
From Distributions to Shareholders
Net investment income (7,996,685) (10,497,130)
Net realized gains (23,234,158) (21,419,046)
------------ ------------
Decrease in net assets from distributions to shareholders (31,230,843) (31,916,176)
------------ ------------
From Share Transactions
Proceeds from sales of shares (4,387,120 and 5,465,213 shares,
respectively) 61,269,234 75,182,133
Net asset value of shares issued from reinvestment of distributions
(2,254,196 and 2,341,879 shares, respectively) 31,230,843 31,916,176
Cost of shares repurchased (5,175,253 and 4,646,668 shares,
respectively) (72,555,884) (63,681,697)
------------ ------------
Increase in net assets from share transactions 19,944,193 43,416,612
------------ ------------
Net increase in net assets 20,405,526 64,754,758
Net Assets
Beginning of period 353,838,149 289,083,391
------------ ------------
End of period (including undistributed net investment income of $414,865
and $154,166, respectively) $374,243,675 $353,838,149
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<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.
See Notes to Financial Statements
2-23
<PAGE>
INTERNATIONAL SERIES
Most foreign equity markets have produced excellent returns over the last
twelve months, despite a rising U.S. dollar. In addition to the continued
strong performance in the U.S., Europe also stood out. Almost all European
markets benefited from corporate restructuring, falling interest rates and
the likelihood of more shareholder-friendly policies. Additionally, countries
such as Germany, Sweden, Finland and the United Kingdom have been further
bolstered by share buybacks as well as merger and acquisition activity.
Despite a strong start, Japan's performance over this reporting period has
been a major disappointment. Poor corporate earnings growth and a weak
domestic economy led to a serious deterioration in investor sentiment. In
contrast to Japan, other Far East countries such as Taiwan, Malaysia,
Indonesia and Hong Kong posted stellar gains during this twelve-month period.
Lastly, most Latin American markets moved higher over this reporting period,
earning double digit returns. An improved economic outlook, lower interest
rates and strong capital inflows served as catalysts for this solid
performance. As measured in U.S. dollars, Venezuela, Brazil and Argentina
were among the best performing countries in this region, while Chile and Peru
were among the laggards.
Phoenix Edge International Series posted very strong results over this
reporting cycle. For the twelve months ended December 31, 1996, the Fund
provided a total return of 18.65%. These results compared very favorably to
the Morgan Stanley International EAFE Index, which gained 6.36% over the same
period. All of these figures assume reinvestment of any distributions, but
exclude the effect of sales charges.
During the year, Fund performance benefited from the portfolio's modest
overweighting in Europe and its underweighted position in Japan. Strong stock
selection in Europe and our continued focus on such themes as Corporate
Restructuring and Growth in Services also boosted results. Other positive
contributors included our recent overweighting of certain Asian countries,
particularly Hong Kong and Taiwan, as well as the Fund's use of currency
hedges.
After a dismal first half in 1996, European economic growth is beginning to
improve. We expect 1997 GDP to grow at about 2.5%, but it is unlikely that
demand will be strong enough to exert much upward pressure on interest rates
until late in the year. Except for the United Kingdom and a few smaller
European countries, unemployment is showing no signs of declining. Moreover,
the pressure on governments to cut spending will continue to be a drag on
growth going forward. This, coupled with both public and private sector
restructuring, means it will be even more important to focus on those
companies that are making the difficult choices that will deliver value to
their shareholders.
In Japan, the outlook for 1997 is also modest. It appears that most globally
active companies in this country have already done as much restructuring as
possible without a radical philosophical change towards "U.S. style
restructuring." This would entail layoffs and unfriendly takeovers, supported
by government deregulation and tax-reform, and it is doubtful that this type
of change will occur in the near term. On the positive side, the potential
for improved economic growth in the rest of the world could tighten overall
capacity and allow even the weakest Japanese companies to improve their
profit margins. We will continue to monitor Japan's economy for signs of
improvement, but currently see better prospects elsewhere.
In Asia, we remain very positive on Hong Kong's near-term outlook. As a
country, we believe that Hong Kong will remain self-confident immediately
prior to and after the handover to China on June 30, 1997. We also expect
Taiwan and Malaysia to continue to do well. However, our outlook for
Singapore is rather negative due to slowing economic growth and a lack of
choice in this market. We are also concerned about the prospects for India
and Thailand, given their weak governments and the severe structural changes
needed to turn around both economies.
In Latin America, Mexico and Argentina are seeing economic re-acceleration
after the severe recession of 1995 and early 1996. While this is clearly good
news, flawed economic reform processes still remain and are now causing
problems in Brazil. The Fund intends to have exposure to this region, but
potential currency depreciation may limit prospective gains. Since other
emerging countries may provide better opportunities, we will look for new
markets which can provide above-average economic and earnings growth.
Overall, we expect foreign markets to continue to perform well in 1997 due
to low interest rates, improved economic growth and corporate restructuring
efforts. If world economic growth begins to accelerate dramatically, we will
increase the Fund's exposure to economically sensitive stocks. At present,
however, we continue to focus on themes that should provide secular growth
and hence, strong performance. Moving forward, we believe the Fund is well
positioned for the coming new year.
2-24
<PAGE>
INTERNATIONAL SERIES
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
International MSCI EAFE MSCI EAFE
Series Index* Excluding JAPAN
5/1/90 $10,000 $10000 $10,000
12/31/90 9,190 9,640 10,014
12/31/91 11,008 10,884 11,608
12/31/92 9,589 9,559 11,270
12/31/93 13,275 12,708 15,498
12/31/94 13,279 13,732 15,379
12/31/95 14,552 15,318 18,541
12/31/96 17,266 16,293 22,514
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
From
Inception
5/1/90 to
1 Year 5 Years 12/31/96
- ----------------------------------------------------------------------
International Series 18.65% 9.44% 8.53%
- ----------------------------------------------------------------------
MSCI EAFE Index* 6.36% 8.48% 7.59%
- ----------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 5/1/90
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost. Foreign investing involves special risks such as currency fluctuation
and less public disclosure, as well as economic and political risks.
*The Morgan Stanley Capital International EAFE Index is an unmanaged but
commonly used measure of foreign stock fund performance which includes net
dividends reinvested. The EAFE index is an aggregate of 19 individual
country indexes in Europe, Australia, New Zealand and the Far East.
SCHEDULE OF INVESTMENTS
December 31, 1996
SHARES VALUE
------------ --------------
COMMON STOCKS--88.5%
Belgium--1.4%
Credit Communal Holding/Dexia (Banks) (b) 26,000 $ 2,369,626
----------
Brazil--1.8%
Telebras Sponsored ADR (Utility--Telephone) 40,000 3,060,000
----------
France--8.0%
AXA SA (Insurance) 33,369 2,118,178
BIC SA (Miscellaneous) 13,000 1,945,486
Cardif SA (Insurance) 15,000 2,063,016
Carrefour Supermarche (Retail--Food) 3,520 2,285,864
Louis Dreyfus Citrus (Food) (b) 42,500 1,389,771
Rexel SA (Wholesale & Distribution) 4,350 1,317,878
Salomon SA (Entertainment, Leisure & Gaming) 20,000 1,711,966
Sommer-Allibert (Auto & Truck Parts) 33,600 1,001,789
----------
13,833,948
----------
Germany--5.0%
Adidas AG (Textile & Apparel) 27,300 $ 2,356,044
BASF AG (Chemical) 63,000 2,423,360
SGL Carbon AG (Chemical) 17,400 2,190,384
VEBA AG (Utility--Electric) 28,400 1,640,127
----------
8,609,915
----------
Hong Kong--13.8%
Cheung Kong Holdings Ltd. (Real Estate) 514,200 4,570,356
Dao Heng Bank Group Ltd. (Banks) 188,000 901,731
Great Eagle Holdings Ltd. (Real Estate) 228,000 940,310
Guoco Group Ltd. (Diversified Financial
Services) 281,000 1,573,039
Henderson China Holding Ltd. (Real Estate) 828 1,884
Henderson Land Development Co. Ltd. (Real
Estate) 586,000 5,909,320
Hutchison Whampoa Ltd. (Conglomerates) 564,000 4,429,663
Hysan Development Co. Ltd. (Real Estate) 454,000 1,807,806
New World Development Co. Ltd. (Real Estate) 192,000 1,296,979
Sun Hung Kai Properties Ltd. (Real Estate) 195,000 2,388,686
----------
23,819,774
----------
See Notes to Financial Statements
2-25
<PAGE>
INTERNATIONAL SERIES
SHARES VALUE
------------ --------------
Indonesia--1.6%
PT Semen Gresik (Building & Materials) 690,000 $ 2,219,682
Wicaksana Overseas International (Wholesale &
Distribution) 462,000 528,000
-----------
2,747,682
-----------
Italy--4.8%
Fila Holding SPA ADR (Textile & Apparel) 51,600 2,999,250
Gucci Group NV (Textile & Apparel) 20,600 1,381,511
Gucci Group NV-NY (Textile & Apparel) 32,500 2,075,938
Stet-Societa Finanziaria Telefonica SPA
(Utility--Telephone) 400,000 1,815,192
-----------
8,271,891
-----------
Japan--10.3%
Canon, Inc. (Office & Business Equipment) 87,000 1,918,842
Circle K Japan Co. Ltd. (Retail--Food) 37,000 1,593,866
Hitachi Maxell (Electronics) 42,000 926,338
Honda Motor Co. Ltd. (Autos & Trucks) 81,000 2,309,899
Keyence Corp. Ltd. (Electronics) 13,000 1,601,620
Nintendo Corp. Ltd. (Entertainment, Leisure &
Gaming) 27,000 1,928,405
Nippon Television Network ( Publishing,
Broadcasting, Printing & Cable) 5,000 1,507,711
TDK Corp. (Electronics) 27,000 1,756,268
Takeda Chemical Industries (Health Care--
Drugs) 91,000 1,905,143
Toyota Motor Corp. (Autos & Trucks) 63,000 1,807,444
Xebio Co. Ltd. (Retail) 21,000 624,192
-----------
17,879,728
-----------
Malaysia--3.1%
Commerce Asset Holding Berhad (Banks) 240,000 1,805,583
Renong Berhad (Engineering & Construction) 1,000,000 1,773,906
United Engineers Ltd. (Building & Materials) 201,000 1,814,611
-----------
5,394,100
-----------
Mexico--2.9%
Apasco SA de CV (Building & Materials) 230,000 1,577,744
Grupo Carso SA de CV Series A1 (Conglomerates) 350,000 1,845,147
Grupo Industrial Maseca SA de CV Class B
(Food) 1,310,000 1,660,798
-----------
5,083,689
-----------
Netherlands--5.1%
Ahrend Groep NV (Office & Business Equipment) 33,348 1,856,630
Akzo Nobel (Chemical) 12,000 1,637,278
IHC Caland (Oil Service & Equipment) 36,750 2,097,026
Samas Groep-CVA (Office & Business Equipment) 20,742 887,384
VNU-Verenigd Bezit (Publishing, Broadcasting,
Printing & Cable) 113,000 2,358,386
-----------
8,836,704
-----------
Norway--1.0%
Storebrand ASA (Insurance) (b) 287,000 1,663,039
-----------
Peru--0.8%
Telefonica Del Peru SA (Utility--Telephone) 708,945 1,326,713
-----------
Portugal--3.1%
Cimpor-Cimentos de Portugal SA (Building &
Materials) 81,000 1,741,565
Portugal Telecom SA (Utility--Telephone) 68,700 1,955,903
Telecel-Comunicacoes Pessoais (Utility--
Telephone) 26,700 1,702,609
-----------
5,400,077
-----------
Spain--1.8%
Empresa Nacional de Electricidad SA
(Utility--Electric) 21,000 $ 1,491,755
Telefonica de Espana (Utility--Telephone) 67,700 1,569,214
-----------
3,060,969
-----------
Sweden--2.3%
Frontec AB Series B (Computer Software &
Services) (b) 128,000 2,212,068
Nordbanken AB (Banks) 59,000 1,784,344
-----------
3,996,412
-----------
Switzerland--4.5%
Ares-Serono Group B (Health Care--Drugs) 1,730 1,645,349
CS Holding AG Registered Shares (Banks) 18,200 1,863,782
Novartis AG Registered Shares (Health
Care--Drugs) 2,310 2,637,395
Swiss Reinsurance--Registered (Insurance) 1,500 1,596,410
-----------
7,742,936
-----------
Taiwan--0.0%
China Bills Finance Corp. (Commercial Finance)
(b) 70,345 64,717
-----------
United Kingdom--16.3%
Astec (BSR) PLC (Electronics) 466,000 1,256,118
Barclays PLC (Diversified Financial Services) 103,000 1,763,674
British Aerospace PLC (Aerospace & Defense) 155,500 3,406,469
Carlton Communications PLC (Publishing,
Broadcasting, Printing & Cable) 208,000 1,831,525
Compass Group PLC (Lodging & Restaurants) 304,000 3,212,733
Granada Group PLC (Entertainment, Leisure &
Gaming) 143,000 2,108,412
Lloyds TSB Group PLC (Diversified Financial
Services) 255,000 1,878,787
Next PLC (Retail) 154,000 1,495,721
Rolls-Royce PLC (Aerospace & Defense) 410,000 1,806,863
Shell Transport & Trading Co. PLC (Oil) 153,000 2,648,631
Siebe PLC (Electrical Equipment) 156,000 2,888,790
WPP Group PLC (Advertising) 876,000 3,808,044
-----------
28,105,767
-----------
United States--0.9%
Latin American Discovery Fund, Inc.
(Multi-Industry) 121,000 1,512,500
-----------
TOTAL COMMON STOCKS
(Identified cost $129,202,891) 152,780,187
-----------
PREFERRED STOCKS--1.2%
Germany--0.7%
Porsche AG (Autos & Trucks) 1,300 1,147,231
-----------
United Kingdom--0.5%
Egypt Investment Co. (Multi-Industry) (b) 74,000 925,000
-----------
TOTAL PREFERRED STOCKS
(Identified cost $1,656,158) 2,072,231
-----------
TOTAL LONG-TERM INVESTMENTS--89.7%
(Identified cost $130,859,049) 154,852,418
-----------
See Notes to Financial Statements
2-26
<PAGE>
INTERNATIONAL SERIES
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- ---------------
SHORT-TERM OBLIGATIONS--8.4%
Commercial Paper--8.4%
Corporate Asset Funding Co. 6%, 1-6-97 A-1+ $ 1,900 $ 1,898,417
Kimberly-Clark Corp. 5.35%, 1-13-97 A-1+ 2,315 2,310,872
Greenwich Funding Corp. 5.49%, 1-14-97 A-1+ 1,695 1,691,640
General Electric Capital Corp. 5.40%,
1-16-97 A-1+ 1,000 997,750
Cargill, Inc. 5.45%, 1-17-97 A-1+ 930 927,747
Ciesco L.P. 5.65%, 1-22-97 A-1+ 4,160 4,146,289
GTE North, Inc. 5.48%, 1-22-97 (c) A-1+ 2,550 2,541,848
-------------
14,514,563
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $14,514,563) 14,514,563
-------------
TOTAL INVESTMENTS--98.1%
(Identified cost $145,373,612) 169,366,981(a)
Cash and receivables, less liabilities--1.9% 3,300,674
-------------
NET ASSETS--100.0% $172,667,655
=============
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of
Total Long-Term Investments
(Unaudited)
Advertising 2.5%
Aerospace & Defense 3.4
Auto & Truck Parts 0.6
Autos & Trucks 3.4
Banks 5.6
Building & Materials 4.7
Chemical 4.0
Commercial Finance 0.0
Computer Software & Services 1.4
Conglomerates 4.1
Diversified Financial Services 3.4
Electrical Equipment 1.9
Electronics 3.6
Engineering & Construction 1.1
Entertainment, Leisure & Gaming 3.7
Food 2.0
Health Care--Drugs 4.0
Insurance 4.8
Lodging & Restaurants 2.1
Miscellaneous 1.3
Multi-Industry 1.6
Office & Business Equipment 3.0
Oil 1.7
Oil Service & Equipment 1.4
Publishing, Broadcasting, Printing & Cable 3.7
Real Estate 10.9
Retail 1.3
Retail--Food 2.5
Textile & Apparel 5.7
Utility--Electric 2.0
Utility--Telephone 7.4
Wholesale & Distribution 1.2
-----
100.0%
=====
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $25,748,811 and gross
depreciation of $1,913,191 for income tax purposes. At December 31, 1996,
the aggregate cost of securities for federal income tax purposes was
$145,531,361.
(b) Non-income producing.
(c) Segregated as collateral for forward currency contracts. At December 31,
1996, these securities amounted to $2,541,848 or 1.5% of net assets.
See Notes to Financial Statements
2-27
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $145,373,612) $169,366,981
Foreign currency at value (Identified cost $2,182,271) 2,184,603
Cash 25,516
Interest and dividends receivable 218,008
Tax reclaim receivable 47,888
Net unrealized appreciation on forward currency contracts 1,072,470
------------
Total assets 172,915,466
------------
Liabilities
Payable for fund shares repurchased 4,025
Investment advisory fee 106,199
Trustees' fee 8,723
Financial agent fee 8,046
Accrued expenses 120,818
------------
Total liabilities 247,811
------------
Net Assets $172,667,655
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $141,596,053
Undistributed net investment income 1,390,579
Accumulated net realized gain 4,614,897
Net unrealized appreciation 25,066,126
------------
Net Assets $172,667,655
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 11,894,980
============
Net asset value and offering price per share $14.52
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Dividends $ 2,402,413
Interest 690,679
Foreign taxes withheld (237,840)
------------
Total investment income 2,855,252
------------
Expenses
Investment advisory fee 1,167,034
Financial agent fee 93,363
Custodian 201,283
Printing 78,728
Professional 30,861
Trustees 18,764
Miscellaneous 26,314
------------
Total expenses 1,616,347
------------
Net investment income 1,238,905
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 9,973,733
Net realized gain on foreign currency transactions 2,075,251
Net change in unrealized appreciation (depreciation) on investments 12,109,055
Net change in unrealized appreciation (depreciation) on foreign currency and foreign
currency transactions 962,538
------------
Net gain on investments 25,120,577
------------
Net increase in net assets resulting from operations $26,359,482
============
</TABLE>
See Notes to Financial Statements
2-28
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
--------------- ---------------
<S> <C> <C>
From Operations
Net investment income $ 1,238,905 $ 1,247,800
Net realized gain 12,048,984 1,951,578
Net change in unrealized appreciation (depreciation) 13,071,593 8,552,168
------------ ------------
Net increase in net assets resulting from operations 26,359,482 11,751,546
------------ ------------
From Distributions to Shareholders
Net investment income (2,156,537) (455,953)
In excess of net investment income (272,380) --
Net realized gains (3,811,548) (2,629,683)
------------ ------------
Decrease in net assets from distributions to shareholders (6,240,465) (3,085,636)
------------ ------------
From Share Transactions
Proceeds from sales of shares (3,516,722 and 3,785,668, respectively) 48,544,295 45,431,812
Net asset value of shares issued from reinvestment of distributions
(435,075 and 238,826 shares, respectively) 6,240,465 3,085,636
Cost of shares repurchased (2,645,302 and 4,795,590 shares,
respectively) (36,690,696) (57,355,995)
------------ ------------
Increase (decrease) in net assets from share transactions 18,094,064 (8,838,547)
------------ ------------
Net increase (decrease) in net assets 38,213,081 (172,637)
Net Assets
Beginning of period 134,454,574 134,627,211
------------ ------------
End of period (including undistributed net investment income of
$1,390,579 and $917,632, respectively) $172,667,655 $134,454,574
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding through the indicated period)
<TABLE>
<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)
In excess of net investment
income (0.02) -- -- -- --
Dividends from net realized
gains (0.33) (0.25) (0.34) -- --
-------- -------- -------- ------- -------
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.
See Notes to Financial Statements
2-29
<PAGE>
BALANCED SERIES
Despite increasing interest rates and waning corporate earnings momentum,
U.S. stock prices forged higher over this reporting period, fueled by
unprecedented cash inflows into equity mutual funds and continued corporate
share buybacks. Although this remarkable rally dates back to December 1994,
the past year has been one of tremendous rotation among various sectors of
the stock market--a manifestation of increasing investor uncertainty over the
direction of interest rates and the economy. As measured by the Standard &
Poor's 500 Stock Index, the U.S. equity market returned an impressive 23.25%
during 1996.
While it may have been another record year for U.S. equities, the overall
bond market produced less than stellar results. For the twelve months ended
December 31, 1996, the Lehman Brothers Aggregate Bond Index, an unmanaged
gauge of bond market performance, returned a mere 3.63%. Shifting market
opinion over the direction of the U.S. economy contributed to much of the
volatility in interest rates during this reporting period. As measured by the
benchmark 30-year Treasury bond, interest rates started the year at 5.95%,
climbed as high as 7.19% in July, and finished 1996 yielding 6.64%. Generally
speaking, investors were well rewarded for moving down the credit-risk
spectrum last year, as lower-quality bonds generally outperformed
higher-quality issues.
Aided by the long bull market in U.S. stocks, Phoenix Edge Balanced Series
posted double-digit gains during this latest fiscal year. For the twelve
months ended December 31, 1996, the Fund provided a total return of 10.56%.
Despite these respectable results, the Fund trailed its composite benchmark,
which returned 14.33% over the same period.* All of these figures assume
reinvestment of any distributions, but exclude the effect of sales charges.
Fund results over this latest reporting cycle were held back primarily
because of weakness in some of our technology, consumer cyclical and health
care holdings. Positive contributors to performance included excellent stock
selection within the energy, consumer staples and basic materials sectors as
well as a modest overweighting within the strongly performing capital goods
group. Additionally, the portfolio's fixed-income segment continued to
outperform its benchmark, the Lehman Brothers Aggregate Bond Index,
throughout this reporting period. Our exposure to such non-traditional
sectors of the bond market such as taxable municipals, commercial and
non-agency residential mortgage-backed securities, and emerging markets debt
paid off handsomely during the year.
As we head into 1997, our near-term outlook calls for continued moderate
economic growth, mild inflation and decelerating earnings growth. Given this
investment environment, our equity strategy currently emphasizes quality,
large-cap growth stocks and focuses on such compelling investment themes as
21st Century Medicine (health care), Hybrid Network (technology) and
Deregulating Financial Services (financial services). In terms of our
fixed-income allocation, we continue to follow our sector rotation approach,
with a strong emphasis on U.S. Treasuries and mortgage-backed securities. As
of December 31, 1996, the Fund's asset allocation mix was 57% equity, 38%
fixed income and 5% cash equivalents.
*The Balanced Benchmark is calculated by Frank Russell Company based on the
performance of the following indexes: 55% S&P 500, 35% Lehman Brothers
Aggregate Bond Index and 10% 90-day Treasury Bills.
2-30
<PAGE>
BALANCED SERIES
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
Balanced Balanced
Benchmark* Series
5/1/92 $10,000 $10,000
12/31/92 10,712 10,972
12/31/93 11,702 11,912
12/31/94 11,725 11,579
12/31/95 14,917 14,274
12/31/96 17,056 15,782
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
From
Inception
5/1/92 to
1 Year 12/31/96
- ----------------------------------------------------------
Balanced Series 10.56% 10.26%
- ----------------------------------------------------------
Balanced Benchmark* 14.33% 12.11%
- ----------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 5/1/92
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost.
*The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10%
90-day Treasury Bills and is produced by Frank Russell Company.
SCHEDULE OF INVESTMENTS
December 31, 1996
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- ---------------
U.S. GOVERNMENT AND AGENCY SECURITIES--24.3%
U.S. Treasury Bonds--2.0%
U.S. Treasury Bonds 6%, '26 AAA $ 4,595 $ 4,180,012
------------
U.S. Treasury Notes--19.5%
U.S. Treasury Notes 6.375%, '99 AAA 3,775 3,808,031
U.S. Treasury Notes 6.875%, '00 AAA 3,500 3,578,365
U.S. Treasury Notes 6.625%, '01 AAA 4,400 4,470,123
U.S. Treasury Notes 6.50%, '05 AAA 3,300 3,319,206
U.S. Treasury Notes 6.50%, '06 AAA 22,235 22,360,072
U.S. Treasury Notes 6.875%, '06 AAA 2,150 2,216,515
------------
39,752,312
------------
Agency Mortgage-Backed Securities--2.8%
GNMA 6.50%, '23-'26 AAA 5,962 5,718,193
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $50,088,128) 49,650,517
------------
NON-CONVERTIBLE BONDS--6.9%
Asset-Backed Securities--1.1%
Airplanes Pass Through Trust 1D
10.875%, '19 BB 150 165,460
Fleetwood Credit Corp. 96-B, A
6.90%, '12 AAA 758 765,746
Green Tree Financial Corp. 96-2, M1
7.60%, '27 AA- 675 677,742
Green Tree Financial Corp. 96-3, B1
7.70%, '27 BBB+ 625 629,883
------------
2,238,831
------------
Non-Agency Mortgage-Backed Securities--5.4%
CS First Boston Mortgage 95-AE1, B
7.182%, '27 AA- $ 425 $ 423,207
DLJ Mortgage Acceptance 96-CF1, A1B
144A 7.58%, '28 (c) AAA 400 413,500
GE Capital Mortgage Service 96-8, M
7.25%, '26 AA 249 242,177
Lehman Commercial Conduit 95-C2, B
7.184%, '05 AA 425 426,992
Merrill Lynch Mortgage, Inc. 95-C2,
B 7.61%, '21 AA(d) 223 226,147
Merrill Lynch Mortgage, Inc. 95-C3,
B 7.149%, '25 AA 400 399,000
Merrill Lynch Mortgage, Inc. 96-C1,
B 7.42%, '28 AA 650 657,008
Nationslink Funding Corp. 96-1, B
7.69%, '05 AA 450 466,875
Residential Asset Securitization
Trust 96-A8, A1 8%, '26 AAA 671 680,490
Residential Funding Mortgage 96-S1,
A11 7.10%, '26 AAA 1,000 972,969
Residential Funding Mortgage 96-S4,
M1 7.25%, '26 AA 993 964,402
Residential Funding Mortgage 96-S8,
A-4 6.75%, '11 AAA 680 665,435
Resolution Trust Corp. 93-C1, B
8.75%, '24 AA(d) 425 434,695
Resolution Trust Corp. 95-2, M1
7.15%, '29 AA(d) 624 624,729
See Notes to Financial Statements
2-31
<PAGE>
BALANCED SERIES
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ -------- ---------------
Non-Agency Mortgage-Backed Securities--continued
Resolution Trust Corp. 95-C1, B
6.90%, '27 AA(d) $ 525 $ 520,242
Resolution Trust Corp. 95-C2, B
6.80%, '27 AA(d) 1,135 1,122,992
Structured Asset Securities Corp.
95-C1, C 7.375%, '24 A 930 929,855
Structured Asset Securities Corp.
96-CFL, C 6.525%, '28 A 480 469,200
TLFC 96-1A, 5.98%, '02 AAA 289 288,738
-----------
10,928,653
-----------
Paper & Forest Products--0.3%
Buckeye Cellulose Corp. 8.50%, '05 BB- 700 701,750
-----------
Truckers & Marine--0.1%
Teekay Shipping Corp. 8.32%, '08 BB 230 230,575
-----------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $14,089,854) 14,099,809
-----------
FOREIGN NON-CONVERTIBLE BONDS--1.0%
Chile--0.2%
Petropower Funding 144A 7.36%,
'14 (c) BBB 350 334,005
-----------
Colombia--0.2%
Financiera Energ. Nacional EMTN Euro
9%, '99 BBB- 440 461,450
-----------
Indonesia--0.2%
Asia Pulp & Paper Co. Yankee 11.75%,
'05 BB 400 431,000
-----------
Philippines--0.2%
Central Bank of Philippines NMB Euro
6.563%, '05 (e) BB 500 491,875
-----------
Sweden--0.2%
Astra Overseas Financial 144A 8.75%,
'03 (c) NR 350 354,375
-----------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $2,002,428) 2,072,705
-----------
FOREIGN GOVERNMENT SECURITIES--3.7%
Argentina--0.6%
Republic of Argentina Bearer FRB
6.625%, '05 (e) BB- 1,078 939,881
Republic of Argentina Par L-GP
5.25%, '23 (e) BB- 500 318,750
-----------
1,258,631
-----------
Brazil--0.4%
Republic of Brazil C Bond, PIK
interest capitalization, 8%, '14
(e) B+ 732 544,197
Republic of Brazil DCB-L Euro
6.563%, '12 (e) B+ 500 379,063
-----------
923,260
-----------
Colombia--0.8%
Republic of Colombia 7.25%, '03 BBB- 500 483,880
Republic of Colombia Euro 9%, '97 BBB- 700 705,544
Republic of Colombia Yankee 7.25%,
'04 BBB- 475 463,125
-----------
1,652,549
-----------
Croatia--0.3%
Croatia Series B 6.688%, '06 (e) NR 600 584,625
-----------
Mexico--0.7%
United Mexican States 144A 7.563%,
'01 (c)(e) Baa(d) $ 400 $ 400,940
United Mexican States Discount A
6.453%, '19 (e)(f) BB 325 280,313
United Mexican States Euro D 6.352%,
'19 (e)(f) BB 250 215,625
United Mexican States Series A Euro
6.25%, '19 (f) BB 300 220,125
United Mexican States Series B Euro
6.25%, '19 (f) BB 350 256,813
-----------
1,373,816
-----------
Panama--0.6%
Republic of Panama PDI 144A,
PIK interest capitalization,
6.75%, '16 (c)(e) NR 1,470 1,164,949
-----------
Poland--0.3%
Poland Discount Euro 6.50%, '24 (e) BBB- 600 583,500
-----------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $6,892,374) 7,541,330
-----------
MUNICIPAL BONDS--2.2%
California--1.0%
Kern County Pension Obligation
Taxable 7.26%, '14 AAA 420 413,977
Long Beach Pension Obligation
Taxable 6.87%, '06 AAA 230 230,522
Orange County Pension Series A
Taxable 7.62%, '08 AAA 650 676,345
San Bernardino County Obligation
Revenue Taxable 6.87%, '08 AAA 110 109,197
San Bernardino County Obligation
Revenue Taxable 6.94%, '09 AAA 300 298,977
Ventura County Pension Taxable
6.54%, '05 AAA 260 256,071
-----------
1,985,089
-----------
Florida--0.8%
Dade County Ed. Facs. Authority
5.75%, '20 AAA 145 146,781
Miami Beach Special Obligation
Taxable 8.60%, '21 AAA 875 957,661
University Miami Exchange Revenue A
Taxable 7.65%, '20 AAA 535 539,992
-----------
1,644,434
-----------
Virginia--0.4%
Newport News Taxable Series B 7.05%,
'25 AA- 1,000 942,860
-----------
TOTAL MUNICIPAL BONDS
(Identified cost $4,609,830) 4,572,383
-----------
SHARES
--------
COMMON STOCKS--55.9%
Aerospace & Defense--1.8%
Boeing Co. 15,100 1,606,262
United Technologies Corp. 31,200 2,059,200
-----------
3,665,462
-----------
Autos & Trucks--0.2%
Chrysler Corp. 11,800 389,400
-----------
See Notes to Financial Statements
2-32
<PAGE>
BALANCED SERIES
SHARES VALUE
-------- ---------------
Banks--2.2%
BankAmerica Corp. 12,400 $ 1,236,900
Chase Manhattan Corp. 11,400 1,017,450
Citicorp 10,000 1,030,000
Mellon Bank Corp. 11,300 802,300
Nationsbank Corp. 4,300 420,325
-------------
4,506,975
-------------
Beverages--1.7%
Coca-Cola Co. 20,900 1,099,862
PepsiCo, Inc. 76,300 2,231,775
Seagram Ltd. 5,100 197,625
-------------
3,529,262
-------------
Chemical--1.7%
Du Pont (E.I.) de Nemours & Co. 15,200 1,434,500
Monsanto Co. 43,000 1,671,625
Philip Environmental, Inc. (b) 30,000 435,000
-------------
3,541,125
-------------
Computer Software & Services--2.7%
Computer Associates International, Inc. 29,400 1,462,650
First Data Corp. 36,000 1,314,000
Microsoft Corp. (b) 13,500 1,115,438
Oracle Corp. (b) 40,000 1,670,000
-------------
5,562,088
-------------
Conglomerates--2.0%
AlliedSignal, Inc. 14,900 998,300
Thermo Electron Corp. (b) 11,000 453,750
Tyco International Ltd. 50,100 2,649,038
-------------
4,101,088
-------------
Cosmetics & Soaps--2.1%
Colgate Palmolive Co. 6,800 627,300
Gillette Co. 18,500 1,438,375
Procter & Gamble Co. 19,900 2,139,250
-------------
4,204,925
-------------
Diversified Financial Services--3.3%
Conseco, Inc. 24,900 1,587,375
First USA, Inc. 48,900 1,693,163
MBNA Corp. 16,000 664,000
T. Rowe Price Associates 28,350 1,233,225
Travelers Group, Inc. 33,433 1,517,022
-------------
6,694,785
-------------
Diversified Miscellaneous--0.5%
Minnesota Mining & Manufacturing Co. 11,200 928,200
-------------
Electrical Equipment--1.6%
Emerson Electric Co. 2,400 232,200
General Electric Co. 21,100 2,086,262
Westinghouse Electric Corp. 45,000 894,375
-------------
3,212,837
-------------
Electronics--3.0%
Intel Corp. 23,800 3,116,313
Micron Technology, Inc. 14,600 425,225
Perkin Elmer Corp. 17,200 1,012,650
Texas Instruments, Inc. 9,200 586,500
3Com Corp. (b) 13,300 975,888
-------------
6,116,576
-------------
Entertainment, Leisure & Gaming--0.5%
Walt Disney Co. 13,500 939,937
-------------
Food--1.1%
Campbell Soup Co. 12,000 $ 963,000
Hudson Foods, Inc. Class A 65,700 1,248,300
-------------
2,211,300
-------------
Healthcare--Diversified--1.6%
American Home Products Corp. 21,500 1,260,438
Bristol-Myers Squibb Co. 15,300 1,663,875
Warner-Lambert Co. 5,400 405,000
-------------
3,329,313
-------------
Healthcare--Drugs--2.2%
Amgen, Inc. (b) 13,500 734,062
Lilly (Eli) & Co. 5,400 394,200
Merck & Co., Inc. 25,600 2,028,800
Pfizer, Inc. 17,000 1,408,875
-------------
4,565,937
-------------
Hospital Management & Services--1.1%
Columbia/HCA Healthcare Corp. 55,000 2,241,250
-------------
Household Furnishings & Appliances--0.9%
Sunbeam Corp., Inc. 75,300 1,938,975
-------------
Insurance--2.5%
Allstate Corp. 36,400 2,106,650
American International Group, Inc. 12,000 1,299,000
Chubb Corp. 7,600 408,500
ITT Hartford Group, Inc. (b) 4,000 270,000
TIG Holdings, Inc. 31,600 1,070,450
-------------
5,154,600
-------------
Lodging & Restaurants--0.9%
Hilton Hotels Corp. 74,000 1,933,250
-------------
Machinery--0.5%
Deere & Co. 23,900 970,937
-------------
Medical Products & Supplies--1.2%
Abbott Laboratories 7,500 380,625
Boston Scientific Corp. (b) 18,000 1,080,000
Johnson & Johnson 20,000 995,000
-------------
2,455,625
-------------
Natural Gas--2.1%
Apache Corp. 23,100 817,162
Columbia Gas System, Inc. 9,600 610,800
Consolidated Natural Gas Co. 14,600 806,650
Enron Corp. 47,800 2,061,375
-------------
4,295,987
-------------
Office & Business Equipment--2.5%
International Business Machines Corp. 16,500 2,491,500
Sun Microsystems, Inc. (b) 67,200 1,726,200
Xerox Corp. 16,200 852,525
-------------
5,070,225
-------------
Oil--2.5%
Chevron Corp. 25,300 1,644,500
Exxon Corp. 13,000 1,274,000
Mobil Corp. 1,800 220,050
Noble Affiliates, Inc. 39,800 1,905,425
-------------
5,043,975
--------------
See Notes to Financial Statements
2-33
<PAGE>
BALANCED SERIES
SHARES VALUE
-------- ---------------
Oil Service & Equipment--4.1%
Noble Drilling Corp. (b) 95,700 $ 1,902,037
Schlumberger Ltd. 10,100 1,008,738
Seacor Holdings, Inc. (b) 32,900 2,072,700
Transocean Offshore, Inc. 20,000 1,252,500
Western Atlas, Inc. (b) 30,500 2,161,688
------------
8,397,663
------------
Pollution Control--0.7%
Republic Industries, Inc. (b) 13,500 421,031
U.S.A. Waste Services, Inc. (b) 32,300 1,029,562
------------
1,450,593
------------
Professional Services--2.0%
Cognizant Corp. 36,000 1,188,000
Corrections Corporation of America (b) 20,000 612,500
HFS, Inc. (b) 22,400 1,338,400
Marsh & McLennan Cos., Inc. 9,000 936,000
------------
4,074,900
------------
Publishing, Broadcasting, Printing & Cable--0.2%
New York Times Co. 13,000 494,000
------------
Real Estate Investment Trusts--0.2%
Redwood Trust, Inc. 11,200 417,200
------------
Retail--2.1%
Office Depot, Inc. (b) 20,000 355,000
Sears Roebuck & Co. 30,000 1,383,750
Staples, Inc. (b) 54,000 975,375
TJX Companies, Inc. 31,600 1,497,050
------------
4,211,175
------------
Retail--Food--1.0%
Safeway, Inc. (b) 50,000 2,137,500
------------
Telecommunications Equipment--2.0%
Cisco Systems, Inc. (b) 60,000 3,817,500
Lucent Technologies, Inc. 4,200 194,250
------------
4,011,750
------------
Textile & Apparel--0.8%
Nike, Inc. Class B 26,000 1,553,500
------------
Utility--Telephone--0.4%
Ameritech Corp. 7,300 442,562
Bell Atlantic Corp. 6,700 433,825
------------
876,387
------------
TOTAL COMMON STOCKS
(Identified cost $103,215,557) $114,228,702
------------
FOREIGN COMMON STOCKS--1.0%
Oil--1.0%
British Petroleum PLC ADR (United Kingdom) 6,100 862,387
Royal Dutch Petroleum Co. ADR NY Registered
Shares (Netherlands) 6,200 1,058,650
------------
1,921,037
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,803,661) 1,921,037
------------
TOTAL LONG-TERM INVESTMENTS--95.0%
(Identified cost $182,701,832) 194,086,483
------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------- ---------------
SHORT-TERM OBLIGATIONS--4.4%
Commercial Paper--3.3%
Cargill, Inc. 6.95%, 1-2-97 A-1+ $ 165 $ 164,968
Abbott Laboratories 5.42%, 1-7-97 A-1+ 1,530 1,528,618
Bellsouth Capital Funding Corp.
5.40%, 1-14-97 A-1+ 2,500 2,495,125
Southwestern Bell Telephone Co.
5.34%, 2-18-97 A-1+ 2,525 2,505,752
------------
6,694,463
------------
Federal Agency Securities--1.1%
Federal Home Loan Mortgage Corp. 5.29%, 1-14-97 2,195 2,190,807
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $8,886,540) 8,885,270
------------
TOTAL INVESTMENTS--99.4%
(Identified cost $191,588,372) 202,971,753(a)
Cash and receivables, less liabilities--0.6% 1,313,479
------------
NET ASSETS--100.0% $204,285,232
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $13,992,659 and gross
depreciation of $2,784,718 for income tax purposes. At December 31, 1996,
the aggregate cost of securities for federal income tax purposes was
$191,763,812.
(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 December 31,
1996, these securities amounted to a value of $2,667,769 or 1.3% 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.
See Notes to Financial Statements
2-34
<PAGE>
BALANCED SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $191,588,372) $202,971,753
Cash 97,977
Interest and dividends receivable 1,404,630
Receivable for investment securities sold 1,107
------------
Total assets 204,475,467
------------
Liabilities
Payable for fund shares repurchased 12,117
Payable for investment securities purchased 10,890
Investment advisory fee 95,346
Financial agent fee 10,401
Trustees' fee 7,941
Accrued expenses 53,540
------------
Total liabilities 190,235
------------
Net Assets $204,285,232
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest $186,762,034
Undistributed net investment income 351,214
Accumulated net realized gain 5,788,603
Net unrealized appreciation 11,383,381
------------
Net Assets $204,285,232
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 16,941,850
============
Net asset value and offering price per share $12.06
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $ 5,995,642
Dividends 1,161,737
------------
Total investment income 7,157,379
------------
Expenses
Investment advisory fee 1,089,976
Financial agent fee 118,907
Custodian 34,584
Printing 55,128
Professional 25,334
Trustees 17,873
Miscellaneous 8,802
------------
Total expenses 1,350,604
------------
Net investment income 5,806,775
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 16,867,817
Net change in unrealized appreciation (depreciation) on investments (2,671,304)
------------
Net gain on investments 14,196,513
------------
Net increase in net assets resulting from operations $20,003,288
============
</TABLE>
See Notes to Financial Statements
2-35
<PAGE>
BALANCED SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
12/31/96 12/31/95
--------------- ---------------
<S> <C> <C>
From Operations
Net investment income $ 5,806,775 $ 5,964,289
Net realized gain 16,867,817 17,178,873
Net change in unrealized appreciation (depreciation) (2,671,304) 13,277,376
------------ ------------
Net increase in net assets resulting from operations 20,003,288 36,420,538
------------ ------------
From Distributions to Shareholders
Net investment income (5,536,811) (6,004,047)
Net realized gains (18,064,626) (3,833,294)
------------ ------------
Decrease in net assets from distributions to shareholders (23,601,437) (9,837,341)
------------ ------------
From Share Transactions
Proceeds from sales of shares (2,805,856 and 2,915,001 shares,
respectively) 34,642,833 33,778,188
Net asset value of shares issued from reinvestment of distributions
(1,949,091 and 828,862 shares, respectively) 23,601,437 9,837,341
Cost of shares repurchased (3,529,372 and 3,333,135 shares,
respectively) (43,662,808) (38,002,038)
------------ ------------
Increase in net assets from share transactions 14,581,462 5,613,491
------------ ------------
Net increase in net assets 10,983,313 32,196,688
Net Assets
Beginning of period 193,301,919 161,105,231
------------ ------------
End of period (including undistributed net investment income of $351,214
and $74,806, respectively) $204,285,232 $193,301,919
============ ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
5/1/92
Year Ended December 31, 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
2-36
<PAGE>
REAL ESTATE SERIES
The real estate markets continued to stabilize over the last twelve months.
Leasing activity, rents, and market values all moved ahead as the economy
continued to improve and construction activity on a national basis supplied
less space than required by increased demand. Transaction prices in the
private real estate markets shot up, with capitalization rates falling by at
least one-half of a percentage point. In some regions, market prices on
existing properties are beginning to approach replacement cost, leading to
investor concerns of overbuilding in some sectors.
Performance by property type has varied considerably over this reporting
period. The apartment sector, which enjoyed the recovery in advance of most
other property types, has experienced more modest rental rate growth as
market vacancy rates have reached equilibrium. In the office sector, we
continued to see declines in vacancy rates--at least a 2% drop in 1996--and
strong gains in rental rates. Concerns about oversupply in the retail sector
have reduced investor demand for that product. However, construction in this
sector has finally slowed and there has been increased interest in certain
categories, namely regional malls and anchored community centers.
Full-service hotels have seen limited new construction, continued strong
demand, and very high occupancy levels. By comparison, economy hotels are
experiencing significant overbuilding and accompanying deterioration in
occupancy levels and room rates.
REITs posted very strong results over the past year. The best performing
property sectors during this period were office and hotel REITs. However, all
sectors other than the outlet center REITs generated very attractive returns.
Stock prices were propelled upward by strong growth in funds from operations
resulting from positive trends in occupancy levels and rental rates and by
expanding market capitalizations generated from both significant capital
inflow and aggressive acquisition programs.
The real estate securities market has continued to expand at a dramatic
pace, notwithstanding the modest volume of IPOs during the year. Growth has
been driven both by strong performance of the held assets and by an active
secondary market. During the year, there were 83 equity offerings raising a
total of $8.4 billion. In addition, unsecured debt offerings raised another
$4.2 billion.
Phoenix Edge Real Estate Series posted a strong 33.09% return for the twelve
months ended December 31, 1996. During the same period, the NAREIT Equity
Index posted a total return of 35.25%. All of these figures assume
reinvestment of any distributions, but exclude the effect of sales charges.
The Fund's investment strategy is to focus on market sectors which have
strong underlying fundamentals and prospects for growth in excess of market
averages over the intermediate and long-term. We also look for sectors that
are significantly undervalued on a risk-adjusted basis. Three of the targeted
sectors are apartment, hotel, and office/industrial REITs.
The Fund has been consistently overweighted in the apartment sector, which
we believe will offer stable earnings growth and reduced risk. The apartment
REITs as a group have had strong earnings growth over the last two years, yet
their stock prices have failed to keep pace with the broader REIT averages
due to investor fears of overbuilding.
We have also been significantly overweighted in the hotel sector, which has
posted very strong returns over the reporting period. Our outlook for hotels
remains positive, given the limited amount of new construction in the full
service sector which comprises the bulk of the product held by the REITs
represented in the Fund.
Finally, the Fund has had an increasing allocation to the office/industrial
sector, which participated in the overall real estate recovery later than
other property types and has strong upside potential. Office/industrial REITs
were among the top performers in 1996.
The Fund has maintained a neutral posture with respect to regional mall
REITs, which significantly outperformed last year. At the same time, we
remained underweighted in strip retail REITs because of concerns with respect
to underlying market fundamentals. Strip retail REITs generated market-based
returns during the last twelve months.
Looking ahead, we anticipate continued strong performance in the REIT market
for a number of reasons. First, the underlying markets are continuing to
strengthen and, with construction levels lower than projected demand in
nearly all property types, the outlook remains very positive. Second, there
is increasing interest by both individual and institutional investors in REIT
stocks. We attribute this to increased liquidity, attractive current yields
and the enhanced diversification benefits provided by these secu-
2-37
<PAGE>
REAL ESTATE SERIES
rities. Lastly, the increases in REIT prices experienced during 1996 have
been more or less in line with the increases in funds from operation, and
accordingly, multiples have not been driven up in line with the broader
markets.
Over the long-term, we expect to see continued growth in total market
capitalization, although limited if any growth in the numbers of companies as
focus on efficiencies of scale leads to more mergers and larger companies.
Nineteen companies today have market capitalizations in excess of $1 billion.
We expect that number will grow to as many as forty companies by the year
2000. The Fund will attempt to take advantage of this trend by focusing on
market dominant companies that have the potential to significantly increase
in size because they are positioned to acquire smaller private and public
companies. We will also continue to look for smaller undervalued companies
that are attractive takeover candidates for some of the larger REITs.
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
Real Estate
Series NAREIT*
5/1/95 $10,000 $10,000
12/31/95 11,779 11,548
12/31/96 15,677 15,618
- --------------------------------------------------------------------------------
Average Annual Total Returns for Periods Ending 12/31/96
From
Inception
5/1/95 to
1 Year 12/31/96
- ----------------------------------------------------------
Real Estate Series 33.09% 30.87%
- ----------------------------------------------------------
NAREIT Equity Index* 35.25% 30.58%
- ----------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 5/1/95
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate, so
that your shares, when redeemed, may be worth more or less than the original
cost.
*The National Association of Real Estate Investment Trusts (NAREIT) Equity
Index is a commonly used, unmanaged indicator of REIT performance.
SCHEDULE OF INVESTMENTS
December 31, 1996
SHARES VALUE
--------------- ----------------
COMMON STOCKS--95.0%
REAL ESTATE INVESTMENT TRUSTS--91.1%
COMMERCIAL--23.6%
Office/Industrial--17.0%
Arden Realty Group, Inc. 3,800 $ 105,450
Beacon Properties Corp. 8,900 325,962
Cali Realty Corp. 4,900 151,287
CarrAmerica Realty Corp. 7,800 228,150
Duke Realty Investments, Inc. 18,400 708,400
Highwoods Properties, Inc. 28,600 965,250
Spieker Properties, Inc. 22,900 824,400
Weeks Corp. 16,300 541,975
-----------
3,850,874
-----------
Storage--6.6%
Public Storage, Inc. 22,300 691,300
Shurgard Storage Centers, Inc. 9,300 275,512
Storage USA, Inc. 14,300 538,038
-----------
1,504,850
-----------
Total Commercial 5,355,724
-----------
HEALTH CARE--5.6%
Health Care Properties Inv., Inc. 15,500 542,500
Nationwide Health Properties, Inc. 30,400 737,200
-----------
1,279,700
-----------
RESIDENTIAL--29.8%
Apartments--26.0%
Avalon Properties, Inc. 15,100 434,125
Bay Apartments Communities, Inc. 18,300 658,800
Camden Property Trust 11,700 334,913
Columbus Realty Trust 7,600 172,900
Equity Residential Properties Trust 16,100 664,125
Evans Withycombe Residential, Inc. 25,400 533,400
Irvine Apartment Communities, Inc. 21,600 540,000
Merry Land & Investment Co. 34,500 741,750
Oasis Residential, Inc. 19,000 432,250
Post Properties, Inc. 17,800 716,450
United Dominion Realty Trust 43,100 668,050
-----------
5,896,763
-----------
Manufactured Homes--3.8%
Manufactured Home Communities 15,800 367,350
Sun Communities, Inc. 14,400 496,800
-----------
864,150
-----------
Total Residential 6,760,913
-----------
RETAIL--32.1%
Community/Neighborhood--9.1%
Developers Diversified Realty Corp. 14,600 542,025
Federal Realty Investment Trust 14,300 387,887
Kimco Realty Corp. 12,500 435,938
Regency Realty Corp. 5,900 154,875
Vornado Realty Trust 10,400 546,000
-----------
2,066,725
-----------
Factory Outlet--2.0%
Chelsea G.C.A. Realty, Inc. 13,200 457,050
-----------
Hotels--13.4%
Capstar Hotel Company (b) 25,800 506,325
FelCor Suite Hotels, Inc. 23,500 831,312
Patriot American Hospitality, Inc. 22,300 961,688
Starwood Lodging Trust 13,400 738,675
-----------
3,038,000
-----------
See Notes to Financial Statements
2-38
<PAGE>
REAL ESTATE SERIES
SHARES VALUE
-------- -------------
Regional Mall--7.6%
Rouse Co. 8,000 $ 254,000
Simon DeBartolo Group, Inc. 23,096 715,976
Taubman Centers, Inc. 51,400 661,775
The Macerich Co. 3,900 101,888
----------
1,733,639
----------
Total Retail 7,295,414
----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $16,370,698) 20,691,751
----------
REAL ESTATE OPERATING COMPANIES--3.9%
Hotels--3.9%
Host Marriott Corp. (b) 44,800 716,800
Interstate Hotels Company (b) 4,000 113,000
Red Roof Inns, Inc. (b) 3,400 52,700
----------
882,500
----------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $788,346) 882,500
----------
TOTAL COMMON STOCKS
(Identified cost $17,159,044) 21,574,251
----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ --------- ----------------
SHORT-TERM OBLIGATIONS--5.9%
Commercial Paper--3.3%
Ameritech Capital Funding 6.25%,
1-2-97 A-1+ $470 $ 469,918
Campbell Soup Co. 6.75%, 1-2-97 A-1+ 280 279,948
------------
749,866
------------
Federal Agency Securities--2.6%
Federal Home Loan Mortgage Corp. 5.42%, 1-22-97 585 583,150
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,333,016) 1,333,016
------------
TOTAL INVESTMENTS--100.9%
(Identified cost $18,492,060) 22,907,267(a)
Cash and receivables, less liabilities--(0.9)% (197,507)
------------
NET ASSETS--100.0% $22,709,760
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $4,419,211 and gross
depreciation of $4,004 for income tax purposes. At December 31, 1996, the
aggregate cost of securities for federal income tax purposes was
$18,492,060.
(b) Non-income producing.
See Notes to Financial Statements
2-39
<PAGE>
REAL ESTATE SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $18,492,060) $22,907,267
Cash 1,172
Receivable for investment securities sold 148,032
Interest and dividends receivable 108,273
Receivable for fund shares sold 65,426
----------
Total assets 23,230,170
----------
Liabilities
Payable for investment securities purchased 463,909
Investment advisory fee 21,208
Trustees' fee 7,559
Financial agent fee 1,013
Accrued expenses 26,721
----------
Total liabilities 520,410
----------
Net Assets $22,709,760
==========
Net Assets Consist of:
Capital paid in on shares of beneficial interest $18,162,625
Undistributed net investment income 8,742
Accumulated net realized gain 123,186
Net unrealized appreciation 4,415,207
----------
Net Assets $22,709,760
==========
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 1,585,644
==========
Net asset value and offering price per share $14.32
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Investment Income
Dividends $645,491
Interest 16,241
----------
Total investment income 661,732
----------
Expenses
Investment advisory fee 92,546
Financial agent fee 7,404
Printing 21,801
Trustees 18,641
Professional 18,309
Custodian 10,810
Miscellaneous 6,369
Expenses borne by investment adviser (52,485)
----------
Total expenses 123,395
----------
Net investment income 538,337
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 357,371
Net change in unrealized appreciation (depreciation) on investments 3,569,257
----------
Net gain on investments 3,926,628
----------
Net increase in net assets resulting from operations $4,464,965
==========
</TABLE>
See Notes to Financial Statements
2-40
<PAGE>
REAL ESTATE SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year From Inception
Ended 5/1/95 to
12/31/96 12/31/95
-------------- ----------------
<S> <C> <C>
From Operations
Net investment income $ 538,337 $ 215,523
Net realized gain 357,371 44,211
Net change in unrealized appreciation (depreciation) 3,569,257 845,950
----------- ----------
Net increase in net assets resulting from operations 4,464,965 1,105,684
----------- ----------
From Distributions to Shareholders
Net investment income (529,595) (215,523)
Net realized gains (234,185) (44,211)
Tax return of capital -- (19,252)
Distribution in excess of net realized gains -- (80)
----------- ----------
Decrease in net assets from distributions to shareholders (763,780) (279,066)
----------- ----------
From Share Transactions
Proceeds from sales of shares (1,121,196 and 784,136 shares,
respectively) 14,117,141 8,019,985
Net asset value of shares issued from reinvestment of distributions
(59,531 and 25,636 shares, respectively) 763,780 279,066
Cost of shares repurchased (342,758 and 62,097 shares, respectively) (4,344,888) (653,127)
----------- ----------
Increase in net assets from share transactions 10,536,033 7,645,924
----------- ----------
Net increase in net assets 14,237,218 8,472,542
Net Assets
Beginning of period 8,472,542 0
----------- ----------
End of period (including undistributed net investment income of $8,742
and $0, respectively) $22,709,760 $8,472,542
=========== ==========
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Year From Inception
Ended 5/1/95 to
12/31/96 12/31/95
-------------- --------------
<S> <C> <C>
Net asset value, beginning of period $11.33 $10.00
Income from investment operations
Net investment income 0.50(3) 0.33(3)
Net realized and unrealized gain 3.14 1.42
------- ------
Total from investment operations 3.64 1.75
------- ------
Less distributions
Dividends from net investment income (0.50) (0.33)
Dividends from net realized gains (0.15) (0.06)
Tax return of capital -- (0.03)
------- ------
Total distributions (0.65) (0.42)
------- ------
Change in net asset value 2.99 1.33
------- ------
Net asset value, end of period $14.32 $11.33
======= ======
Total return 33.09% 17.79%(2)
Ratios/supplemental data:
Net assets, end of period (thousands) $22,710 $8,473
Ratio to average net assets of:
Operating expenses 1.00% 1.00%(1)
Net investment income 4.36% 4.80%(1)
Portfolio turnover rate 21% 10%(2)
Average commission rate paid(4) $0.0468 N/A
</TABLE>
(1) Annualized
(2) Not annualized
(3) Includes reimbursement of operating expenses by investment adviser of
$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
2-41
<PAGE>
STRATEGIC THEME SERIES
Aided by record mutual fund inflows and corporate share buybacks, the U.S.
equity market continued to climb dramatically higher in 1996, breaking one
record after another in its wake. The widely followed Dow Jones Industrial
Average finished the year at a remarkable 6448 --some 1331 points above where
it stood twelve months ago. Given last year's investment climate of slower
earnings growth and higher interest rates, combined with the stellar equity
returns posted during 1995, many on Wall Street were surprised by the stock
market's continued strength.
Market volatility increased and sector rotation intensified during 1996, as
investor opinion shifted dramatically over the direction of the economy and
interest rates. We believe that this type of market environment should be
expected in the later stages of a long bull market as it illustrates some of
the uncertainty felt by investors. In the end, large-cap stocks significantly
outdistanced their small-cap counterparts, while technology and finance
companies provided some of last year's biggest gains.
Since the Fund's inception on January 29, 1996 through December 31,1996, the
Phoenix Edge Strategic Theme Series has posted a total return of 10.33%.
During this same period, the Standard & Poor's 500 Stock Index, a commonly
used measure of U.S. stock market performance, returned 21.44%. All of these
figures assume reinvestment of any distributions, but exclude the effect of
sales charges.
After posting strong gains in the first half of 1996, Fund performance over
the last six months has lagged the market primarily because of weakness in
some of our technology, capital goods and health care holdings. Our
underweighting in large-cap stocks also held back results as these non-theme
related blue-chip companies led the market during the second half of the
year. Positive contributors to performance during this period included our
strong stock selection in energy as well as our tactical strategy of raising
the Portfolio's cash holdings during the market selloff in July.
Despite the extended rally in the U.S. equity market, thematically, we
continue to identify a number of areas that should provide above-average
long-term growth as we head into 1997. Our Software Solutions theme focuses
on companies that increase organizational efficiency by providing products
and services to manage the proliferation of new technology and solve
increasingly complex user problems. Deregulating Financial Services is
another high conviction theme that we developed in response to the
demographic shift to savings and investments and the continued trend of
government deregulation. Lastly, we continue to emphasize our Energy
Technology theme which represents energy service companies that provide
productivity enhancing solutions to exploration and production companies.
Moving forward, we believe our key investment themes will serve us well in
this challenging market environment, given their ability to capture change
and identify strong earnings growth in a timely manner. As of December 31,
1996, the Fund's asset allocation mix was 98% equities and 2% cash
equivalents.
- --------------------------------------------------------------------------------
[DESCRIPTION OF PIE CHART
Short-term Obligations and Cash 2.1%
Environmental Crisis Recycled 2.0%
Move to Outsourcing 2.2%
Clean Energy Demand 5.0%
Return to Real Assets 7.7%
Next Generation Semiconductors 7.8%
Special Situations 9.9%
Hybrid Network 10.5%
Software Solutions 11.6%
Deregulating Financial Services 12.2%
21st Century Medicine 13.1%
Energy Technology 15.9%
- --------------------------------------------------------------------------------
2-42
<PAGE>
STRATEGIC THEME SERIES
Strategic Theme Series Line
- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART
S&P 500 Strategic
Stock Index* Theme Series
1/29/96 $10,000 $10,000
12/31/96 12,144 11,033
- --------------------------------------------------------------------------------
Total Returns for Period Ending 12/31/96
From
Inception
1/29/96 to
12/31/96
- --------------------------------------------------------
Strategic Theme Series 10.33%
- --------------------------------------------------------
S&P 500 Stock Index* 21.44%
- --------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 1/29/96
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost.
*The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------------
<S> <C> <C>
COMMON STOCKS--97.9%
Banks--Money Center--2.2%
Bankers Trust New York Corp. 3,000 $ 258,750
Citicorp 3,000 309,000
--------------
567,750
--------------
Commercial--Leasing Companies--1.6%
Prime Services, Inc. (b) 15,000 412,500
--------------
Commercial Services--Miscellaneous--1.4%
Equifax, Inc. 12,000 367,500
--------------
Computer--Local Networks--4.0%
3Com Corp. (b) 9,000 660,375
Cisco Systems, Inc. (b) 6,000 381,750
--------------
1,042,125
--------------
Computer--Mainframes--1.2%
International Business Machines Corp. 2,000 302,000
--------------
Computer--Memory Devices--3.2%
EMC Corp. (b) 13,000 430,625
Seagate Technology, Inc. (b) 10,000 395,000
--------------
825,625
--------------
Computer--Mini/Micro--2.1%
Compaq Computer Corp. (b) 7,500 556,875
--------------
Computer--Services--2.2%
Microsoft Corp. (b) 7,000 578,375
--------------
Computer--Software--10.5%
Baan Company N.V. (b) 7,000 243,250
Compuware Corp. (b) 7,000 350,875
MDSI Mobile Data Solutions, Inc. (b) 20,000 317,500
National Instruments Corporation (b) 12,000 384,000
Natural Microsystems Corp. (b) 12,000 378,000
Netscape Communications Corp. (b) 5,000 284,375
Peoplesoft, Inc. (b) 9,000 431,438
Rogue Wave Software, Inc. (b) 21,500 338,625
--------------
2,728,063
--------------
Electric--Miscellaneous Components--2.3%
Sawtek, Inc. (b) 15,000 594,375
--------------
Electric--Semiconductor Manufacturers--4.8%
ESS Technology, Inc. (b) 12,000 $ 337,500
Maxim Integrated Products, Inc. (b) 6,000 259,500
Oak Technology, Inc. (b) 34,000 382,500
Vitesse Semiconductor Corp. (b) 6,000 273,000
--------------
1,252,500
--------------
Electric Products--Miscellaneous--0.9%
Firearms Training Systems, Inc. (b) 20,000 235,000
--------------
Electrical--Connectors--3.0%
Intel Corp. 6,000 785,625
--------------
Finance--Equity Real Estate Investment Trust--6.7%
Avalon Properties, Inc. 10,000 287,500
Chelsea G.C.A. Realty, Inc. 8,000 277,000
Equity Residential Properties Trust 9,000 371,250
Essex Property Trust, Inc. 10,000 293,750
Security Capital Pacific Trust 10,000 228,750
Starwood Lodging Trust 5,000 275,625
--------------
1,733,875
--------------
Finance--Investment Bankers--6.6%
Alex Brown, Inc. 4,000 290,000
Charles Schwab Corp. 18,000 576,000
Edwards (A.G.), Inc. 8,000 269,000
Merrill Lynch & Company, Inc. 7,000 570,500
--------------
1,705,500
--------------
Financial--Mortgage Real Estate Investment Trust--1.0%
Redwood Trust, Inc. 7,000 260,750
--------------
Financial Services--Miscellaneous--1.0%
Hambrecht & Quist Group, Inc. (b) 12,000 259,500
--------------
Insurance--Life--2.5%
Conseco, Inc. 10,000 637,500
--------------
Leisure--Toys/Games & Hobby--1.4%
Action Performance Cos., Inc. (b) 20,000 360,000
--------------
Medical--Biomed/Genetics--4.1%
Alpha-Beta Technology, Inc. (b) 25,000 264,063
Amgen, Inc. (b) 5,000 271,875
Biogen, Inc. (b) 10,000 387,500
Liposome Company, Inc. (b) 7,000 133,875
--------------
1,057,313
---------------
</TABLE>
See Notes to Financial Statements
2-43
<PAGE>
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------------
<S> <C> <C>
Medical--Drug/Diversified--1.0%
Abbott Laboratories 5,000 $ 253,750
------------
Medical--Ethical Drugs--3.1%
Dura Pharmaceuticals, Inc. (b) 10,000 477,500
Merck & Co., Inc. 4,000 317,000
------------
794,500
------------
Medical--Instruments--4.8%
Biopsys Medical, Inc. (b) 11,000 239,250
Heartstream, Inc. (b) 16,000 200,000
Medtronic, Inc. 12,000 816,000
------------
1,255,250
------------
Medical--Products--1.8%
Boston Scientific Corp. (b) 8,000 480,000
------------
Oil & Gas--Canadian Exploration & Production--1.5%
Flores & Rucks, Inc. (b) 7,500 399,375
------------
Oil & Gas--Drilling--1.1%
Nabors Industries, Inc. (b) 15,000 288,750
------------
Oil & Gas--Field Services--2.9%
Schlumberger Ltd. 7,500 749,062
------------
Oil & Gas--Machinery/Equipment--5.7%
Camco International, Inc. 4,500 207,562
Energy Ventures, Inc. (b) 5,500 279,812
Smith International, Inc. (b) 12,000 538,500
Varco International, Inc. (b) 20,000 462,500
------------
1,488,374
------------
Oil & Gas--Product/Pipeline--1.4%
Sonat, Inc. 7,000 $ 360,500
------------
Oil & Gas--U.S. Exploration & Production--8.2%
3DX Technologies, Inc. (b) 30,000 330,000
Parker & Parsley Petroleum Co. 8,000 294,000
Pogo Producing Co. 9,000 425,250
The Houston Exploration Co. (b) 5,400 94,500
Titan Exploration, Inc. (b) 5,000 60,000
Tom Brown, Inc. (b) 20,000 417,500
United Meridian Corp. (b) 10,000 517,500
------------
2,138,750
------------
Pollution Control--Equipment--0.9%
Cuno, Inc. (b) 15,000 223,125
------------
Pollution Control--Services--1.1%
Newpark Resources, Inc. (b) 8,000 298,000
------------
Real Estate Operations--1.0%
Fairfield Communities, Inc. (b) 10,000 247,500
------------
Retail--Wholesale Computers--0.7%
Tech Data Corp. (b) 7,000 191,625
------------
TOTAL COMMON STOCKS
(Identified cost $23,910,176) 25,431,312
------------
TOTAL INVESTMENTS--97.9%
(Identified cost $23,910,176) 25,431,312(a)
Cash and receivables, less liabilities--2.1% 540,697
------------
NET ASSETS--100.0% $25,972,009
============
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,902,955 and gross
depreciation of $400,085 for income tax purposes. At December 31, 1996,
the aggregate cost of securities for federal income tax purposes was
$23,928,442.
(b) Non-income producing.
See Notes to Financial Statements
2-44
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $23,910,176) $25,431,312
Cash 787,660
Receivable for fund shares sold 37,641
Interest and dividends receivable 24,815
----------
Total assets 26,281,428
----------
Liabilities
Payable for investment securities purchased 263,750
Investment advisory fee 16,609
Trustees' fee 3,096
Financial agent fee 1,377
Accrued expenses 24,587
----------
Total liabilities 309,419
----------
Net Assets $25,972,009
==========
Net Assets Consist of:
Capital paid in on shares of beneficial interest $24,889,007
Accumulated net realized loss (438,134)
Net unrealized appreciation 1,521,136
----------
Net Assets $25,972,009
==========
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 2,365,493
==========
Net asset value and offering price per share $10.98
======
</TABLE>
STATEMENT OF OPERATIONS
From inception January 29, 1996 to December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $ 153,055
Dividends 87,336
----------
Total investment income 240,391
----------
Expenses
Investment advisory fee 109,725
Financial agent fee 8,778
Printing 19,739
Custodian 17,586
Trustees 15,978
Professional 13,215
Miscellaneous 1,697
Expenses borne by investment adviser (40,418)
----------
Total expenses 146,300
----------
Net investment income 94,091
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized loss on securities (438,134)
Net change in unrealized appreciation (depreciation) on investments 1,521,136
----------
Net gain on investments 1,083,002
----------
Net increase in net assets resulting from operations $1,177,093
==========
</TABLE>
See Notes to Financial Statements
2-45
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
1/29/96 to
12/31/96
----------------
<S> <C>
From Operations
Net investment income $ 94,091
Net realized loss (438,134)
Net change in unrealized appreciation (depreciation) 1,521,136
-------------
Net increase in net assets resulting from operations 1,177,093
-------------
From Distributions to Shareholders
Net investment income (94,091)
Tax return of capital (21,960)
-------------
Decrease in net assets from distributions to shareholders (116,051)
-------------
From Share Transactions
Proceeds from sales of shares (3,425,481 shares) 36,431,726
Net asset value of shares issued from reinvestment of distributions (10,456 shares) 116,051
Cost of shares repurchased (1,070,444 shares) (11,636,810)
-------------
Increase in net assets from share transactions 24,910,967
-------------
Net increase in net assets 25,972,009
Net Assets
Beginning of period 0
-------------
End of period (including undistributed net investment income of $0) $ 25,972,009
=============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
1/29/96 to
12/31/96
----------------
<S> <C>
Net asset value, beginning of period $10.00
Income from investment operations
Net investment income 0.04(2)
Net realized and unrealized gain 0.99
------
Total from investment operations 1.03
------
Less distributions
Dividends from net investment income (0.04)
Tax return of capital (0.01)
------
Total distributions (0.05)
------
Change in net asset value 0.98
------
Net asset value, end of period $10.98
======
Total return 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) $25,972
Ratio to average net assets of:
Operating expenses 1.00%(1)
Net investment income 0.64%(1)
Portfolio turnover rate 391%(3)
Average commission rate paid(4) $0.0587
</TABLE>
(1) Annualized
(2) Includes reimbursement of operating expenses by investment adviser of
$0.02 per share.
(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
2-46
<PAGE>
ABERDEEN NEW ASIA SERIES
The performance of Asian equity markets since the launch of the Aberdeen New
Asia Series has been mixed, with the solid gains in Hong Kong, Malaysia and
Indonesia to some extent offset by falls in Thailand and South Korea. Since
its inception on September 17, 1996 through December 31, 1996, the Fund has
returned 0.16%. During this same period, its benchmark, the Morgan Stanley
Capital International AC Asia Pacific ex Japan Index, returned 3.30%.* All of
these figures assume reinvestment of any distributions.
A key factor in the Fund trailing the market has been the surge in the Hong
Kong stock market and in particular, local property stocks that dominate the
Hang Seng Index. We continue to hold the view that the risk in the property
sector, with prices now amongst the highest in the world, is high and further
upside is limited. We therefore have minimal exposure to Hong Kong property
in the portfolio.
In 1996, the emerging markets of the Far East enjoyed another year of strong
economic growth, with average GDP growth of around 7%. Earnings growth has
come in at the healthy level of 10-15%.
We have overweighted the stock markets of Indonesia and the Philippines,
which are benefiting from improved economic fundamentals. The Malaysian
economy is fulfilling our expectations although stock market valuations
appear stretched. Meanwhile, our investments in Australia are concentrated in
the industrial, commercial and financial sectors and generally have as a
common theme exposure to Asia and the added growth to be obtained from
transferring their proven expertise to the region.
The Indian sub-continent, although far from a mirror image of the
traditional Asian tiger, offers tremendous growth potential and
encouragingly, corporate management of the highest quality can be found.
Where we have been disappointed is in Korea and Thailand, but at current
stock market levels, feel the concerns overdone. Although the brightest light
economically has been China, it is frustrating that there are few companies
of sufficient quality in which to invest and our investment exposure remains
minimal.
Looking ahead, 1997 promises to be very similar to 1996. Average GDP growth
will be strong, running at around 7%, whilst governments continue to put the
economy at the top of their list of priorities. With trade becoming even more
intra regional and businesses moving across borders, our investment emphasis
will be keenly focused at the company level. We believe that quality
management and product as well as financial strength are crucial to long-term
investment returns. To identify these characteristics, our management team in
Singapore made well over 600 company visits in 1996.
Total Returns for Period Ending 12/31/96
From
Inception
9/17/96 to
12/31/96
------------------------------------------- ------------
Aberdeen New Asia Series 0.16%
------------------------------------------- ----------
MSCI AC Asia Pacific Ex Japan Index* 3.30%
------------------------------------------- ----------
*Morgan Stanley Capital International All Country Asia Pacific (excluding
Japan) Index is a market-value weighted average of the performance of
approximately 690 securities listed on the stock exchanges of 14 countries
in Asia and the Pacific Basin. Performance is calculated on a total return
basis, as reported by Frank Russell Company.
2-47
<PAGE>
ABERDEEN NEW ASIA SERIES
SCHEDULE OF INVESTMENTS
December 31, 1996
SHARES VALUE
------------ ------------
COMMON STOCKS--91.2%
Australia--13.1%
Australian Gas Light Co. Ltd. (Utility-Gas) 70,000 $ 398,094
Davids Ltd. (Retail) 220,000 309,293
Pacific BBA Ltd. (Miscellaneous) 110,000 387,053
QBE Insurance Group Ltd. (Insurance) 80,000 421,287
---------
1,515,727
---------
Hong Kong--23.7%
CDL Hotels International Ltd. (Hotels) 600,000 343,249
Giordano International Ltd. (Retail) 300,000 255,983
HSBC Holdings PLC (Banks) 24,800 530,634
Hongkong Electric Holdings Ltd.
(Utility-Electric) 110,000 365,486
National Mutual Asia Ltd. (Insurance) 376,000 357,290
Qingling Motors Co. (Autos & Trucks) 254,000 140,383
Smartone Telecommunications (Utility-Telephone)
(b) 175,000 334,846
Swire Pacific Ltd. Class B (Miscellaneous) 275,000 415,972
---------
2,743,843
---------
India--6.9%
Grasim Industries Ltd. Sponsored GDR
(Engineering & Construction) 30,000 457,500
Industrial Credit & Investment Corporation of
India Ltd. Sponsored GDR (Diversified
Financial Services) (b) 35,000 341,250
---------
798,750
---------
Indonesia--9.4%
PT Bank Bali (Banks) 165,000 412,064
PT Duta Anggada Realty (Property) 200,000 186,243
PT Indosat (Utility-Telephone) 180,000 495,238
---------
1,093,545
---------
Malaysia--9.2%
AMMB Holdings Berhad (Diversified Financial
Services) 60,000 503,663
Malaysian Oxygen Berhad (Chemical) 65,000 334,587
Sime UEP Properties Berhad (Property) 90,000 231,637
---------
1,069,887
---------
Philippines--6.6%
Ayala Land, Inc. Class B (Property) 335,000 382,129
Philippine Long Distance Telephone Co.
Sponsored ADR (Utility-Telephone) 7,500 382,500
---------
764,629
---------
Singapore--8.0%
Development Bank of Singapore Ltd. (Banks) 30,000 405,347
Robinson & Co. Ltd. (Retail) 60,000 242,351
Rothmans Industries Ltd. (Tobacco) 65,000 276,487
---------
924,185
---------
South Korea--6.0%
Korea Electric Power Corp. Sponsored ADR
(Utility-Electric) 20,000 $ 410,000
Samsung Electronics Sponsored GDR 144A
(Electronics) (c) 15,000 285,000
---------
695,000
---------
Thailand--8.3%
Ruam Pattana Fund II (Closed End Mutual Fund) 1,000,000 409,516
Siam Cement Co. Ltd. (Building & Construction) 9,500 297,894
Siam Commercial Bank Public Co. Ltd. (Banks) 35,000 253,900
---------
961,310
---------
TOTAL COMMON STOCKS
(Identified cost $10,571,928) 10,566,876
---------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------ -------
CONVERTIBLE BONDS--0.8%
Thailand--0.8%
Siam Commercial Bank Public Co. Ltd.
Cv. 3.25%, '04 (Banks) NR $ 100 87,500
------------
TOTAL CONVERTIBLE BONDS
(Identified cost $105,000) 87,500
------------
TOTAL LONG-TERM INVESTMENTS--92.0%
(Identified cost $10,676,928) 10,654,376
------------
SHORT-TERM OBLIGATIONS--11.2%
Brown Brothers Harriman repurchase agreement,
5.75%, dated 12/31/96 due 1/2/97, repurchase
price $1,300,415, collateralized by U.S.
Treasury Note 6.50%, 4/30/97, market value
$1,327,670 1,300 1,300,000
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,300,000) 1,300,000
------------
TOTAL INVESTMENTS--103.2%
(Identified cost $11,976,928) 11,954,376(a)
Cash and receivables, less liabilities--(3.2%) (369,170)
------------
NET ASSETS--100.0% $11,585,206
============
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $465,515 and gross
depreciation of $509,532 for income tax purposes. At December 31, 1996
the aggregate cost of securities for federal income tax purposes was
$11,998,393.
(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 qualify institutional buyers. At December 31,
1996, these securities amounted to a value of $285,000 or 2.5% of net
assets.
See Notes to Financial Statements
2-48
<PAGE>
ABERDEEN NEW ASIA SERIES
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of Total Long-Term Investments
(Unaudited)
Autos & Trucks 1.3%
Banks 15.9
Building & Construction 2.8
Chemical 3.1
Closed End Mutual Fund 3.9
Diversified Financial Services 7.9
Electronics 2.7
Engineering & Construction 4.3
Hotels 3.2
Insurance 7.3
Miscellaneous 7.5
Property 7.5
Retail 7.6
Tobacco 2.6
Utility-Electric 7.3
Utility-Gas 3.7
Utility-Telephone 11.4
-----
100.0%
=====
See Notes to Financial Statements
2-49
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $10,676,928) $10,654,376
Repurchase agreement (Identified cost $1,300,000) 1,300,000
Cash 57,338
Interest and dividends receivable 22,224
Receivable from adviser 11,584
Tax reclaim receivable 129
----------
Total assets 12,045,651
----------
Liabilities
Payable for investment securities purchased 386,031
Payable for fund shares repurchased 33,218
Trustees' fee 2,910
Financial agent fee 1,457
Accrued expenses 36,829
----------
Total liabilities 460,445
----------
Net Assets $11,585,206
==========
Net Assets Consist of:
Capital paid in on shares of beneficial interest $11,604,992
Distributions in excess of net investment income (3,944)
Accumulated net realized gain 6,760
Net unrealized depreciation (22,602)
----------
Net Assets $11,585,206
==========
Shares of beneficial interest outstanding, $1 par value, unlimited authorization 1,162,650
==========
Net asset value and offering price per share $9.96
=====
</TABLE>
STATEMENT OF OPERATIONS
From inception September 17, 1996 to December 31, 1996
<TABLE>
<S> <C>
Investment Income
Interest $49,108
Dividends 46,457
Foreign taxes withheld (6,838)
--------
Total investment income 88,727
--------
Expenses
Investment advisory fee 24,279
Financial agent fee 1,457
Custodian 24,539
Printing 7,235
Trustees 6,104
Professional 4,791
Miscellaneous 1,223
Expenses borne by investment adviser (39,279)
--------
Total expenses 30,349
--------
Net investment income 58,378
--------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 6,760
Net realized loss on foreign currency transactions (3,432)
Net change in unrealized appreciation (depreciation) on investments (22,552)
Net change in unrealized appreciation (depreciation) on foreign currency and foreign
currency transactions (50)
--------
Net loss on investments (19,274)
--------
Net increase in net assets resulting from operations $39,104
========
</TABLE>
See Notes to Financial Statements
2-50
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
9/17/96 to
12/31/96
----------------
<S> <C>
From Operations
Net investment income $ 58,378
Net realized gain 3,328
Net change in unrealized appreciation (depreciation) (22,602)
-------------
Net increase in net assets resulting from operations 39,104
-------------
From Distributions to Shareholders
Net investment income (58,378)
In excess of net investment income (512)
-------------
Decrease in net assets from distributions to shareholders (58,890)
-------------
From Share Transactions
Proceeds from sales of shares (1,343,657 shares) 13,400,256
Net asset value of shares issued from reinvestment of distributions (5,928 shares) 58,890
Cost of shares repurchased (186,935 shares) (1,854,154)
-------------
Increase in net assets from share transactions 11,604,992
-------------
Net increase in net assets 11,585,206
Net Assets
Beginning of period 0
-------------
End of period (including distributions in excess of net investment income of $3,944) $11,585,206
=============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
9/17/96 to
12/31/96
----------------
<S> <C>
Net asset value, beginning of period $10.00
Income from investment operations
Net investment income 0.05(2)
Net realized and unrealized gain (loss) (0.04)
------
Total from investment operations 0.01
------
Less distributions
Dividends from net investment income (0.05)
------
Total distributions (0.05)
------
Change in net asset value (0.04)
------
Net asset value, end of period $9.96
======
Total return 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) $11,585
Ratio to average net assets of:
Operating expenses 1.25%(1)
Net investment income 2.40%(1)
Portfolio turnover rate 2%(3)
Average commission rate paid(4) $0.0109
</TABLE>
(1) Annualized
(2) Includes reimbursement of operating expenses by investment adviser of
$0.03 per share.
(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
2-51
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 (formerly
Bond), Total Return, International, Balanced, Real Estate Securities
("Real Estate"), Strategic Theme and Aberdeen New Asia Series. The Board
of Trustees voted to change the name of the Total Return Series to the
Strategic Allocation Series, which name will be used starting in 1997. 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 Total Return 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.
2-52
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
E. Foreign Currency Translation
Foreign securities, other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting
period. Purchases and sales of foreign investments and income and expenses
are translated into U.S. dollars based upon exchange rates prevailing on
the respective dates of such transactions. The gain or loss resulting from
a change in exchange rates between the trade and settlement dates of a
portfolio transaction or between the date income is accrued and paid is
treated as a gain or loss on foreign currency. The Fund does not separate
that portion of the results of operations arising from changes in exchange
rates and that portion arising from changes in the market prices of
securities.
F. 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. 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.
I. 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.
J. 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.
K. 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 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:
2-53
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Rate for first Rate for next Rate for excess
Series $250 million $250 million over $500 million
- ------------------------- ------------- ------------- -----------------
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
Total Return 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
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, PHL 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 December 31, 1996, 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:
Growth Series $7,778,391
Real Estate Series 7,679,000
Strategic Theme Series 2,422,000
Aberdeen New Asia Series 2,994,000
Note 4--Purchases and Sales of Securities
Purchases and sales of securities during the year ended December 31, 1996
(excluding U.S. Government securities, short-term securities, and forward
currency contracts) aggregated the following:
Purchases Sales
--------------- ---------------
Growth Series $1,865,968,350 $1,647,416,886
Multi-Sector Fixed Income Series 137,698,754 116,707,797
Total Return Series 759,164,211 694,169,119
International Series 207,432,815 200,198,274
Balanced Series 338,117,817 337,496,248
Real Estate Series 12,152,673 2,561,373
Strategic Theme Series 75,112,297 50,743,367
Aberdeen New Asia Series 10,809,057 138,890
There were no purchases or sales of such securities in the Money Market
Series.
2-54
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
Purchases and sales of long-term U.S. Government securities during the year
ended December 31, 1996 aggregated the following:
Purchases Sales
--------------- ---------------
Multi-Sector Fixed Income Series $113,666,060 $104,348,297
Total Return Series 159,225,544 193,278,713
Balanced Series 68,657,655 61,795,350
There were no purchases or sales of long-term U.S. Government securities in
the Money Market, Growth, International, Strategic Theme, Real Estate, or
Aberdeen New Asia Series.
Note 5--Forward Currency Contracts
At December 31, 1996, the International Series had entered into various
forward currency contracts which contractually obligate the Series to
deliver currencies at specified dates. Open contracts were as follows:
<TABLE>
<CAPTION>
In Net
Short Contracts Exchange Settlement Unrealized
to Deliver For Date Value Appreciation
- ----------------------- ------------------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
DM 9,630,000 USD 6,321,387 1/6/97 $ 6,205,293 $ 116,094
SF 7,640,000 USD 6,133,098 1/6/97 5,676,499 456,599
YEN 1,252,000,000 USD 11,330,829 1/6/97 10,831,052 499,777
-----------
$1,072,470
===========
</TABLE>
DM = German Deutsche Mark
SF = Swiss Franc
YEN = Japanese Yen
USD = U.S. Dollar
Note 6--Reclassification of Capital Accounts
In accordance with accounting pronouncements, the Series of the Fund have
recorded several reclassifications in the capital accounts. As of December
31, 1996, the Series recorded the following reclassifications to increase
(decrease) the accounts listed below:
<TABLE>
<CAPTION>
Capital paid
Undistributed Accumulated in on shares
net investment net realized of beneficial
income gains/(losses) interest
---------------- --------------- ---------------
<S> <C> <C> <C>
Growth Series $ (25,548) $ 25,548 $ --
Multi-Sector Fixed Income Series 69,698 (69,698) --
Total Return Series (57,892) 57,891 1
International Series 1,662,959 (2,091,139) 428,180
Balanced Series 6,444 (748) (5,696)
Aberdeen New Asia Series (3,432) 3,432 --
Real Estate Series -- 80 (80)
</TABLE>
Note 7--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. In
addition, the Multi-Sector Fixed Income Series was able to utilize losses
deferred in the prior year against current year capital gains in the
amount of $1,708,357.
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. In
addition, the International Series was able to utilize losses deferred in
the prior year against current year capital gains in the amount of
$1,730,497.
TAX INFORMATION NOTICE (Unaudited)
For the fiscal year ended December 31, 1996, the following Series
distributed long-term capital gains dividends as follows:
Growth Series $33,007,184
Multi-Sector Fixed Income Series 2,669,277
Total Return Series 9,454,283
International Series 2,935,239
Balanced Series 5,689,751
Real Estate Series 130,779
2-55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [PRICE WATERHOUSE LOGO]
To the Shareholders and Trustees of
The Phoenix Edge Series Fund
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for bond ratings), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of the Money Market Series, Growth Series, Multi-Sector Fixed Income
(formerly Bond) Series, Total Return Series, International Series, Balanced
Series, Real Estate Series, Strategic Theme Series and Aberdeen New Asia
Series (constituting The Phoenix Edge Series Fund, hereafter referred to as
the "Fund") at December 31, 1996, and the results of their operations, the
changes in their net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at December 31, 1996 by
correspondence with the custodians and brokers (and the application of
alternative auditing procedures where confirmations from brokers were not
received), provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 12, 1997
2-56
<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
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
Christopher J. Kelleher, Vice President
David Lui, Vice President
William R. Moyer, Vice President
Scott C. Noble, Vice President
C. Edwin Riley, Jr., Vice President
Amy L. Robinson, Vice President
Barbara Rubin, Vice President
Leonard J. Saltiel, Vice President
Dorothy J. Skaret, Vice President
James D. Wehr, 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 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 Series)
P.O. Box 351
Boston, Massachusetts 02101
Legal Counsel
Jorden Burt, Berenson & Johnson LLP
Suite 400 East
1025 Thomas Jefferson Street N.W.
Washington, D.C. 20007-0805
Transfer Agent
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
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 Annual Report to
Shareholders for the year ended December 31, 1996,
incorporated by reference.
(b) Exhibits:
1. Declaration of Trust of the Registrant dated February 18,
1986, filed with the Registration Statement on Form N-1A on
April 18, 1986 and filed via Edgar with Post-Effective
Amendment No. 18 on June 20, 1996.
1.1 Amendment to Declaration of Trust, establishing the
International Series, filed with Post-Effective Amendment
No. 7 on March 2, 1992 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
1.2 Amendment to Declaration of Trust, conforming the Fund's
borrowing restrictions to California Department's Borrowing
Guidelines, filed with Post-Effective Amendment No. 7 on
March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
1.3 Amendment to Declaration of Trust, establishing the Balanced
Series, filed with Post-Effective Amendment No. 8 on April
28, 1992 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
1.4 Amendment to Declaration of Trust, establishing the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 12 on February 16, 1995 and filed via Edgar
with Post-Effective Amendment No. 20 on April 29, 1997.
1.5 Amendment to Declaration of Trust, establishing the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
1.6 Amendment to Declaration of Trust, changing the name of the
Series currently designated "Bond Series" to the "Multi-
Sector Fixed Income Series," filed via Edgar with
Post-Effective Amendment No. 17 on April 17, 1996.
1.7 Amendment to Declaration of Trust, establishing the Aberdeen
New Asia Series, filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
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.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc. covering the Balanced,
Bond, Growth, Money Market, Total Return and International
Series, filed with Post-Effective Amendment No. 11 on May 2,
1994 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
5.1 Form of Investment Advisory Agreement between Registrant and
Phoenix Realty Securities, Inc. covering the Phoenix Real
Estate Securities Series, filed with Post-Effective
Amendment No. 13, on April 28, 1995 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
5.2 Form of Subadvisory Agreement among the Registrant, Phoenix
Realty Securities, Inc. and ABKB/LaSalle Partners Limited
Partnership, covering the Phoenix Real Estate Securities
Series, filed with Post-Effective Amendment No. 13 on April
28, 1995 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
5.3 Form of Investment Advisory Agreement between Registrant and
Phoenix-Aberdeen International Advisors, LLC, covering the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 18 on June 20, 1996.
5.4 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Aberdeen Fund Managers, Inc. filed via Edgar
with Post-Effective Amendment No. 19 on September 3, 1996.
5.5 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Phoenix Investment Counsel, Inc. filed via
Edgar with Post-Effective Amendment No. 19 on September 3,
1996.
5.6 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.
C-1
<PAGE>
5.7 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.
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, Bond, Total Return and
Balanced Series, filed with Post-Effective Amendment No. 7
on March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
8.2 Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. covering the International Series, filed with
Post-Effective Amendment No. 12 on February 16, 1995 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
8.3 Form of Custodian Agreement between Registrant and State
Street Bank and Trust Company covering the Real Estate
Securities Series, filed with Post-Effective Amendment No.
12 on February 16, 1995 and filed via Edgar with Post-
Effective Amendment No. 20 on April 29, 1997.
8.4 Amendment to Custodian Contract between Registrant and State
Street Bank and Trust Company dated October 17, 1996 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
9.1 Form of Transfer Agency Agreement, filed with original
Registration Statement on Form N-1A on April 18, 1986 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
9.2 Form of Financial Agent Agreement filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1996.
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.
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 with Post-Effective
Amendment No. 20 on April 29, 1997 and reflected on Edgar as
Exhibit 27.
18. Powers of Attorney, filed via Edgar with Post-Effective
Amendment No. 17 on April 17, 1996.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following diagram illustrates the Registrant's place in the
organizational structure:
[GRAPHIC OMITTED]
C-3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF MAY 1, 1997
--------------- -----------------
Multi-Sector Series 4
Money Market Series* 4
Growth Series 7
Allocation Series 4
Balanced Series 4
International Series 4
Real Estate Series 5
Theme Series 5
Asia Series 5
Enhanced Index Series 0
- ---------------------
*Phoenix Mutual Life Insurance Company purchased 1 share of the Money Market
Series at a price of $10.00 per share on February 18, 1986.
ITEM 27. INDEMNIFICATION
The Declaration of Trust provides that the Fund shall indemnify each of its
Trustees and officers against liabilities arising by reason of being or having
been a Trustee or officer, except for matters as to which such Trustee or
officer shall have been finally adjudicated not to have acted in good faith and
except for liabilities arising by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Management of the Fund" in the Prospectus and "Management of the Fund"
in the Statement of Additional Information for information regarding the
business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (SEC File Nos.
801-5995 for Phoenix Investment Counsel Inc.; 801-8177 for National Securities
and Research Corporation; 801-52167 for Phoenix-Aberdeen International Advisors,
LLC) filed under the Investment Advisers Act of 1940, incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
and
101 Munson Street
P.O. Box 942
Greenfield, Massachusetts 01302-0942
ITEM 31. MANAGEMENT SERVICES
All management-related service contracts are discussed in Part A or B
of this Registration Statement.
C-4
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment using
financial statements which need not be certified, within four to
six months from the effective date of Registrant's Post-Effective
Amendment No. 21 with respect to the Research Enhanced Index
Series.
(c) The information called for by Item 5A of Form N-1A is contained
in the Fund's annual report to shareholders; accordingly, the
Fund hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Fund's latest annual
report, upon request and without charge.
(d) Registrant undertakes to provide the information specified
pursuant to Regulation S-K, Item 512 (Reg.ss.229.512), as
applicable, the terms of which are incorporated herein by
reference.
(e) Registrant undertakes to call a special meeting of shareholders
for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other
shareholders, as required by Section 16(c) of the 1940 Act, if
requested to do so by holders of at least 10% of a Portfolio's
outstanding shares.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford and the State of Connecticut
on the 15th day of July, 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 15th day of July, 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 1.8
AMENDMENT TO DECLARATION OF TRUST
<PAGE>
THE PHOENIX EDGE SERIES FUND
AMENDMENT TO DECLARATION OF TRUST
The undersigned, individually as Trustee of The Phoenix Edge Series Fund, a
Massachusetts business trust organized under a Declaration of Trust dated
February 18, 1986, as amended December 9, 1986, February 28, 1990, November 14,
1991, May 1, 1992, January 1, 1995, November 15, 1995, February 21, 1996 and
August 21, 1996 (the "Trust"), and as attorney-in-fact for each of the other
Trustees of the Trust pursuant to a certain Delegation and Power of Attorney
dated August 21, 1996, executed by each of such Trustees, a copy of which is
attached hereto, do hereby certify that at a duly held meeting of the Board of
Trustees of the Trust held May 28, 1997, at which a quorum was present, the
Board of Trustees, acting pursuant to ARTICLE VII, Section 7.3 of said
Declaration of Trust for the purpose of establishing a new Series of Shares
denominated the "Research Enhanced Index Series", unanimously voted to amend
said Trust, effective May 28, 1997, by deleting the first paragraph of Section
4.2 of ARTICLE IV thereof and by inserting in lieu of such paragraph the
following paragraph:
"Without limiting the authority of the Trustees set forth in Section 4.1
to establish and designate any further Series, the following ten Series
are hereby established and designated: 'Aberdeen New Asia Series',
'Balanced Series', 'Growth Series', 'International Series', 'Money Market
Series', 'Multi-Sector Fixed Income Series', 'Real Estate Securities
Series', 'Research Enhanced Index Series', 'Strategic Allocation Series',
and 'Strategic Theme Series'."
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June,
1997.
/s/ Philip R. McLoughlin
----------------------------------------------------
Philip R. McLoughlin, individually and as attorney-
in-fact for C. Duane Blinn, Robert Chesek, E. Virgil
Conway, Harry Dalzell-Payne, Francis E. Jeffries,
Leroy Keith, Jr., Everett L. Morris, James M. Oates,
Calvin J. Pedersen, Philip R. Reynolds, Herbert
Roth, Jr., Richard E. Segerson and Lowell P.
Weicker, Jr.
<PAGE>
DELEGATION AND POWER OF ATTORNEY
PHOENIX-ABERDEEN SERIES FUND
THE PHOENIX EDGE SERIES FUND
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX SERIES FUND
PHOENIX STRATEGIC EQUITY SERIES FUND
PHOENIX WORLDWIDE OPPORTUNITIES FUND
The undersigned, being all of the Trustees of Phoenix-Aberdeen Series
Fund, The Phoenix Edge Series Fund, Phoenix Income and Growth Fund, Phoenix
Multi-Portfolio Fund, Phoenix Multi-Sector Short Term Bond Fund, Phoenix Series
Fund, Phoenix Strategic Equity Series Fund, and Phoenix Worldwide Opportunities
Fund (sometimes hereafter collectively, the "Funds"), other than Philip R.
McLoughlin, do hereby declare, delegate and certify as follows:
1. Pursuant to Section 2.2 of that certain Agreement and Declaration of Trust
dated May 31, 1996 establishing the Phoenix-Aberdeen Series Fund, pursuant to
Section 2.2 of that certain Agreement and Declaration of Trust dated February
18, 1986, as amended, establishing The Big Edge Series Fund, now known as The
Phoenix Edge Series Fund, pursuant to Section 2.2 of that certain Declaration of
Trust of Phoenix-Chase Series Fund, as amended and restated July 28, 1980, as
further amended, now known as Phoenix Series Fund, and Section 2.2 of that
certain Agreement and Declaration of Trust dated October 15, 1987, as amended,
establishing the Phoenix Multi-Portfolio Fund, the undersigned, and each of
them, hereby appoints PHILIP R. MCLOUGHLIN, his agent and attorney-in-fact for a
period of one (1) year from the date hereof, to execute any and all instruments,
including specifically but without limitation amendments of either of said trust
instruments and appointments of trustee(s), provided that such action as
evidenced by such instrument shall have been adopted by requisite vote of the
Trustees and, where necessary, the Shareholders of such funds, such vote or
votes to be conclusively presumed by the execution of such instrument by such
attorney-in-fact.
2. Pursuant to Section 3.6 of that certain Declaration of Trust dated June 25,
1986, as amended, establishing National Total Income Fund, now known as Phoenix
Income and Growth Fund, pursuant to Section 3.6 of that certain Declaration of
Trust dated June 25, 1986, as amended, establishing National Stock Fund, now
known as Phoenix Strategic Equity Series Fund, and pursuant to Section 2.5 of
that certain Declaration of Trust dated February 20, 1992, as amended,
established National Short-Term Income Series, now known as Phoenix Multi-Sector
Short Term Bond Fund, and pursuant to Section 2.5 of that certain Declaration of
Trust of National Worldwide Opportunities
<PAGE>
DELEGATION AND POWER OF ATTORNEY
AUGUST 21, 1996
Fund dated November 4, 1991, as amended, now known as Phoenix Worldwide
Opportunities Fund, the undersigned, and each of them, hereby delegates to and
appoints PHILIP R. MCLOUGHLIN, his agent and attorney-in-fact for a period of
one (1) year from the date hereof, to execute any and all instruments, including
specifically but without limitation amendments of each and every said trust
instrument and appointments of trustee(s), provided that such action as
evidenced by such instrument shall have been adopted by requisite vote of the
Trustees and, where necessary, the Shareholders of such funds, such vote or
votes to be conclusively presumed by the execution of such instrument by such
attorney-in-fact.
3. The undersigned Trustees, and each of them, hereby further declare that a
photostatic, xerographic or other similar copy of this original instrument shall
be as effective as the original, and that, as to any such amendment of any of
the aforementioned trust agreements or declarations, such copy shall be filed
with such instrument of amendment in the records the Office of Secretary of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto subscribed this Delegation and
Power of Attorney this 21st day of August, 1996.
/s/ C. Duane Blinn /s/ Everett L. Morris
- ------------------------------ ------------------------------
C. Duane Blinn Everett L. Morris
/s/ Robert Chesek /s/ James M. Oates
- ------------------------------ ------------------------------
Robert Chesek James M. Oates
/s/ E. Virgil Conway /s/ Calvin J. Pedersen
- ------------------------------ ------------------------------
E. Virgil Conway Calvin J. Pedersen
/s/ Harry Dalzell-Payne /s/ Philip R. Reynolds
- ------------------------------ ------------------------------
Harry Dalzell-Payne Philip R. Reynolds
/s/ Francis E. Jeffries /s/ Herbert Roth, Jr.
- ------------------------------ ------------------------------
Francis E. Jeffries Herbert Roth, Jr.
/s/ Leroy Keith, Jr. /s/ Richard E. Segerson
- ------------------------------ ------------------------------
Leroy Keith, Jr. Richard E. Segerson
/s/ Lowell P. Weicker, Jr.
------------------------------
Lowell P. Weicker, Jr.
EXHIBIT 5.6
FORM OF INVESTMENT ADVISORY AGREEMENT
<PAGE>
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made effective as of the 15th day of July, 1997 (the
"Contract Date") by and between The Phoenix Edge Series Fund (the "Trust"), a
Massachusetts business trust authorized to issue shares of beneficial interest
in separate series, and Phoenix Investment Counsel, Inc. (the "Adviser"), a
Massachusetts corporation.
WITNESSETH THAT:
1. The Trust hereby appoints the Adviser to act as investment adviser
to the Trust on behalf of the Research Enhanced Index Series (the "Series"), for
the period and on the terms set forth herein. The Adviser accepts such
appointment and agrees to render the services described in this Agreement for
the compensation herein provided.
2. In the event that the Trustees desire to retain the Adviser to
render investment advisory services hereunder with respect to one or more
additional series ("Additional Series"), the Trust shall notify the Adviser in
writing. If the Adviser is willing to render such services, it shall notify the
Trust in writing, whereupon such Additional Series shall become subject to the
terms and conditions of this Agreement.
3. The Adviser shall assist in coordinating oversight of an investment
program for the Series and any Additional Series which may become subject to the
terms and conditions set forth herein (which, together with the Series is
sometimes collectively referred to as the "Series") and subject to the
engagement of a Subadviser for the Series, manage the investment and
reinvestment of the assets of each Series, subject at all times to the
supervision of the Trustees.
4. The Adviser shall, for all purposes herein, be deemed to be an
independent contractor.
5. The Adviser shall furnish at its own expense, or pay the expenses
of the Series, for the following:
(a) Office facilities, including office space, furniture and equipment;
(b) Personnel necessary to perform the functions required to manage the
investment and reinvestment of each Series' assets (including those
required for research, statistical and investment work);
(c) Personnel to serve without salaries from the Trust as officers or
agents of the Trust. The Adviser need not provide personnel to
perform, or pay the expenses of the Trust for, services customarily
performed for an open-end management investment
<PAGE>
-2-
company by its national distributor, custodian, financial agent,
transfer agent, auditors and legal counsel;
(d) Compensation and expenses, if any, of the Trustees who are also
full-time employees of the Adviser; and
(e) Fees and expenses payable to any Subadviser appointed by Phoenix
Home Life Mutual Insurance Company ("Phoenix") to act on behalf of
the Trust provided that the advisory fee payable to any such
Subadviser shall not exceed the sum described in paragraph 8(a)
below.
6. As between the Trust and the Adviser, all costs and expenses not
specifically enumerated herein as payable by the Adviser shall be paid by the
Trust. Such expenses shall include, but shall not be limited to, all expenses
(other than those specifically referred to as being borne by the Adviser)
incurred in the operation of the Trust and any public offering of its shares,
including, among others, interest, taxes, brokerage fees and commissions, fees
of Trustees who are not full-time employees of the Adviser or any of its
affiliates, expenses of Trustees' and shareholders' meetings including the cost
of printing and mailing proxies, certain expenses of insurance premiums for
fidelity and other coverage, expenses of repurchase and redemption of shares,
expenses of issue and sale of shares (to the extent not borne by its national
distributor under its agreement with the Trust), association membership dues,
charges of custodians, transfer agents, dividend disbursing agents and financial
agents, bookkeeping, auditing and legal expenses. The Trust will also pay the
fees and bear the expense of registering and maintaining the registration of the
Trust and its shares with the Securities and Exchange Commission and registering
or qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders. Additionally, if
authorized by the Trustees, the Trust shall pay for extraordinary expenses and
expenses of a non-recurring nature which may include, but not be limited to the
reasonable and proportionate cost of any reorganization or acquisition of assets
and the cost of legal proceedings to which the Trust is a party.
7. Subject to the terms of any subadvisory agreement between Adviser,
the Trust and others, Adviser undertakes to abide by policies and procedures
adopted by the Trust.
8. For providing the services and assuming the expenses outlined
herein, the Trust agrees that the Adviser shall be compensated as follows:
(a) Within eight days after the end of each month, the Trust shall pay
the Adviser a monthly fee at the annual rate of .45% of the average
aggregate daily net asset values of the Series. The amounts payable
to the Adviser with respect to the Series shall be based upon the
average of the values of the net assets of such Series as of the
close of business each day, computed in accordance with the then
effective registration statement for the Series.
<PAGE>
-3-
(b) Compensation shall accrue immediately upon the Contract Date.
(c) If there is termination of this Agreement during a month, each
Series fee for that month shall be proportionately computed upon
the average of the aggregate daily net asset values of such Series
for such partial period in such month.
(d) The Adviser agrees to reimburse the Trust for the amount, if any,
by which the total operating and management expenses for any Series
(including the Adviser's compensation, pursuant to this paragraph,
but excluding taxes, interest, costs of Series acquisitions and
dispositions and extraordinary expenses), for any "fiscal year"
exceed the level of expenses which such Series is permitted to bear
under the most restrictive expense limitation (which is not waived
by a State) imposed on open-end investment companies by any state
in which shares of such Series are then qualified. Such
reimbursement, if any, will be made by the Adviser to the Trust
within eight days after the end of each month. For the purpose of
this subparagraph (d), the term "fiscal year" shall include the
portion of the then current fiscal year which shall have elapsed at
the date of termination of this Agreement.
9. The services of the Adviser to the Trust are not to be deemed
exclusive, the Adviser being free to render services to others and to engage in
other activities. Without relieving the Adviser of its duties hereunder and
subject to the prior approval of the Trustees and subject further to compliance
with applicable provisions of the Investment Company Act of 1940, as amended,
the Adviser may appoint one or more agents to perform any of the functions and
services which are to be provided under the terms of this Agreement upon such
terms and conditions as may be mutually agreed upon among the Trust, the
Adviser, Phoenix and any such agent.
10. The Adviser shall not be liable to the Trust or to any shareholder
of the Trust for any error of judgment or mistake of law or for any loss
suffered by the Trust or by any shareholder of the Trust in connection with the
matters to which this Agreement or any Subadvisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard on the part of the Adviser in the performance of its duties hereunder.
11. It is understood that:
(a) Trustees, officers, employees, agents and shareholders of the Trust
are or may be "interested persons" of the Adviser or any subadviser
as directors, officers, stockholders or otherwise;
<PAGE>
-4-
(b) Directors, officers, employees, agents and stockholders of the
Adviser or any subadviser are or may be "interested persons" of the
Trust as Trustees, officers, shareholders or otherwise; and
(c) The existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder.
12. This Agreement shall become effective with respect to the Series as
of the Contract Date and with respect to any Additional Series, on the date
specified in the notice to the Trust from the Adviser in accordance with
paragraph 2 hereof that the Adviser is willing to serve as Adviser with respect
to such Additional Series. Unless terminated as herein provided, this Agreement
shall remain in full force and effect until August 31, 1998, and, with respect
to each Additional Series, until the next anniversary of the Contract Date on
which such Additional Series became subject to the terms and conditions of this
Agreement and shall continue in full force and effect for periods of one year
thereafter with respect to each Series ending on August 31st of each year
thereafter so long as (a) such continuance with respect to any such Series is
approved at least annually by either the Trustees or by a "vote of the majority
of the outstanding voting securities" of such Series and (b) the terms and any
renewal of this Agreement with respect to any such Series have been approved by
a vote of a majority of the Trustees who are not parties to this Agreement or
"interested persons" of any such party cast in person at a meeting called for
the purpose of voting on such approval; provided, however, that the continuance
of this Agreement with respect to each Additional Series is subject to its
approval by a "vote of a majority of the outstanding voting securities" of any
such Additional Series on or before the next anniversary of the Contract Date
following the date on which such Additional Series became a Series hereunder.
Any approval of this Agreement by a vote of the holders of a "majority
of the outstanding voting securities" of any Series shall be effective to
continue this Agreement with respect to such Series notwithstanding (a) that
this Agreement has not been approved by a "vote of a majority of the outstanding
voting securities" of any other Series of the Trust affected thereby and (b)
that this Agreement has not been approved by the holders of a "vote of a
majority of the outstanding voting securities" of the Trust, unless either such
additional approval shall be required by any other applicable law or otherwise.
13. The Adviser shall furnish any state insurance commissioner with
such information or reports in connection with the services provided under this
Agreement as the Commissioner may request in order to ascertain whether variable
life insurance or variable annuity operations are being conducted in accordance
with applicable law or regulations. The Trust shall own and control all records
that pertain to the services provided under this Agreement and such records
shall be open to inspection, audit and photocopying during regular business
hours by the Trustees, officers, counsel and auditors of the Trust.
14. The Trust may terminate this Agreement with respect to the Trust or
to the Series upon 60 days' written notice to the Adviser at any time, without
the payment of any penalty, by
<PAGE>
-5-
vote of the Trustees or, as to each Series, by a "vote of the majority of the
outstanding voting securities" of such Series. Provided further, Phoenix shall
also have the right to terminate this Agreement upon 60 days' written notice.
The Adviser may terminate this Agreement upon 60 days' written notice to the
Trust, without the payment of any penalty. This Agreement shall immediately
terminate in the event of its "assignment".
15. The terms ?majority of the outstanding voting securities",
"interested persons" and "assignment", when used herein, shall have the
respective meanings in the Investment Company Act of 1940, as amended.
16. It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but bind only the trust property of
the Trust, as provided in the Declaration of Trust. The execution and delivery
of this Agreement have been authorized by the Trustees and shareholders of the
Trust and signed by the President of the Trust, acting as such, and neither such
authorization by such Trustees and shareholders nor such execution and delivery
by such officer shall be deemed to have been made by any of them individually or
be binding upon or impose any liability on any of them personally, but shall
bind only the trust property of the Trust as provided in its Declaration of
Trust. The Declaration of Trust, as amended, is or shall be on file with the
Secretary of The Commonwealth of Massachusetts.
17. This Agreement shall be construed and the rights and obligations of
the parties hereunder enforced in accordance with the laws of the Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the day and year first written above.
THE PHOENIX EDGE SERIES FUND
By: /s/ Philip R. McLoughlin, President
------------------------------------
Philip R. McLoughlin, President
PHOENIX INVESTMENT COUNSEL, INC.
By: /s/ Michael E. Haylon
------------------------------------
Michael E. Haylon, President
EXHIBIT 5.7
FORM OF SUBADVISORY AGREEMENT
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
The Phoenix Edge Series Fund
----------------------------
________________________ 1997
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Dear Sir or Madam:
The Phoenix Edge Series Fund (the "Trust") a diversified open-end
investment company of the series type registered under the Investment Company
Act of 1940, as amended (the "Act") and a business trust organized under the
laws of the Commonwealth of Massachusetts, and Phoenix Investment Counsel, Inc.,
a Massachusetts corporation (the "Adviser"), hereby agree with J.P. Morgan
Investment Management Inc., a Delaware corporation (the "Sub-Adviser") as
follows:
1. INVESTMENT DESCRIPTION: APPOINTMENT. The Trust desires to employ the
capital of the Trust's Research Enhanced Index Series (the "Fund") by investing
and reinvesting in investments of the kind and in accordance with the
limitations specified in its Declaration of Trust, as amended to date (the
"Trust Declaration"), and in the prospectus (the "Prospectus") and the statement
of additional information (the "Statement") filed with the Securities and
Exchange Commission as part of the Trust's Registration Statement on Form N-IA,
as amended from time to time, and in such manner and to such extent as from time
to time may be approved by the Trust's Board of Trustees (the "Board"). Copies
of the Prospectus, the Statement and the Trust Declaration, each as currently in
effect, have been delivered to the Sub-Adviser. The Trust agrees, on an ongoing
basis, to provide to the Sub-Adviser as promptly as practicable copies of all
amendments and supplements to the Prospectus and the Statement and amendments to
the Trust Declaration. The Trust desires to engage and hereby appoints the
Sub-Adviser to act as a discretionary investment sub-adviser to the Fund. The
Sub-Adviser accepts the appointment and agrees to furnish the services described
herein for the compensation set forth below.
2. SERVICES AS INVESTMENT SUB-ADVISER GUIDELINES AND ADVICE. Subject to
the supervision of the Trust's Board and of the Adviser, the Sub-Adviser will
(a) manage the Fund's assets in accordance with the Fund's investment
objective(s) and policies stated in the Prospectus, Statement, Trust Declaration
and Act, but subject to the Guidelines (as such term is defined below); (b) make
investment decisions for the Fund; (c) place purchase and sale orders for
portfolio transactions for the Fund; and (d) employ professional portfolio
managers and securities analysts to provide research services to the Fund. In
providing these
<PAGE>
services, the Sub-Adviser will conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Fund's assets.
The Adviser agrees on an on-going basis to provide or cause to be provided to
the Sub-Adviser guidelines, to be revised as provided below (the "Guidelines"),
setting forth limitations, by dollar amount or percentage of net assets, on the
types of securities in which the Fund is permitted to invest or investment
activities in which the Fund is permitted to engage. Among other matters, the
Guidelines shall set forth clearly the limitations imposed upon the Fund as a
result of relevant diversification requirements under state and federal law
pertaining to insurance products, including, without limitation, the provisions
of Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code").
The Guidelines shall remain in effect until 12:00 p.m. on the third business day
following actual receipt by the Sub-Adviser of a written notice, denominated
clearly as such, setting forth revised Guidelines. The Adviser agrees to cause
to be delivered to a person designated in writing for such purpose by the
Sub-Adviser each day, by __p.m., New York time, a written report dated the date
of its delivery (the "Report") with respect to the Funds' compliance for its
current fiscal year with the short-three test set forth in Section 851(b) (3) of
the Code (the "short-three test"). The Report shall include in chart form the
Fund's gross income (within the meaning of Section 851 of the Code) from the
beginning of the current fiscal year to the date of the Report and its
cumulative income and gains described in Section 851(b) (3) of the Code for such
period. If the Report is not timely delivered, the Sub-Adviser shall be
permitted to rely on the most recent Report delivered to it. The Trust and the
Adviser agree that the Sub-Adviser may rely on the Guidelines and the Report
without independent verification of their accuracy.
3. TRANSACTION PROCEDURES. All transactions for the Fund will be
consummated by payment to, or delivery by, the Custodian(s) from time to time
designated by the Trust (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 Fund. The Sub-Adviser shall not have possession or custody of such
cash and/or securities or any responsibility or liability with respect to such
custody. The Sub-Adviser shall advise the Custodian and confirm in writing to
the Trust all investment orders for the Fund placed by it with brokers and
dealers. The Trust shall issue to the Custodian such instructions as may be
appropriate in connection with the settlement of any transaction initiated by
the Sub-Adviser. The Trust 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 Sub-Adviser shall have no responsibility or
liability with respect to custodial arrangements or the act, omissions or other
conduct of the Custodian.
4. BROKERAGE. In selecting brokers or dealers to execute transactions
on behalf of the Fund, the Sub-Adviser will seek the best overall terms
available. In assessing the best overall terms available for any transaction,
the Sub-Adviser will consider factors it deems relevant, including, without
limitation, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In selecting brokers or dealers to
execute a particular transaction, and in evaluating the best overall terms
available, the Sub-Adviser is authorized to consider the brokerage and research
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934, as amended) provided to the Fund and/or other accounts over which the
Sub-Adviser or its affiliates exercise investment discretion. Subject to
governing law, the Trust shall have the right to request that Fund transactions
be executed by brokers and dealers by or through whom sales of Phoenix
investment/insurance products are made.
2
<PAGE>
5. INFORMATION PROVIDED TO THE TRUST. The Sub-Adviser will keep the
Trust and the Adviser informed of developments materially affecting the Fund,
and will, on its own initiative, furnish the Trust and the Adviser from time to
time with whatever information the Sub-Adviser believes is appropriate for this
purpose.
6. STANDARD OF CARE. The Sub-Adviser shall exercise its best judgment
in rendering the services described in paragraphs 2, 3 and 4 above. The
Sub-Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement
(each such act or omission shall be referred to as "Disqualifying Conduct"). The
Sub-Adviser shall not be deemed to have engaged in Disqualifying Conduct if it
complies with the Guidelines and acts in reliance on the Report, and the
Sub-Adviser's failure to act in accordance therewith shall not constitute
evidence that it engaged in Disqualifying Conduct.
7. PROXIES. The Trust, 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 Fund may be invested. At the request of the Trust, the
Sub-Adviser shall provide the Trust with its recommendations as to the voting of
particular proxies.
8. COMPENSATION. In consideration of the services rendered pursuant to
this Agreement, the Adviser will pay the Sub-Adviser on or before the 10th day
of each month a fee for the previous month at the annual rates set forth in
Schedule A hereto of each of the Fund's average daily net assets. The fee for
the period from the [date the initial public sale of the Fund's shares
commences] to the end of the month during which such sale shall have been
commenced shall be prorated according to the proportion that such period bears
to the full monthly period. Upon any termination of this Agreement before the
end of a month, the fee for such part of that month shall be prorated according
to the proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Sub-Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Prospectus
and/or the Statement.
9. EXPENSES. The Sub-Adviser will bear all of its expenses in
connection with the performance of its services under this Agreement. All other
expenses to be incurred in the operation of the Fund will be borne by the Trust,
except to the extent specifically assumed by the Sub-Adviser. The expenses to be
borne by the Trust include, without limitation, the following: organizational
costs, taxes, interest, brokerage fees and commissions, Trustee's fees,
Securities and Exchange Commission fees and state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing agents'
fees, certain insurance premiums, industry association fees, outside auditing
and legal expenses, costs of independent pricing services, costs of maintaining
existence, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing stockholders, costs of stockholders' reports
and meetings, and any extraordinary expenses.
10. SERVICES TO OTHER COMPANIES OR ACCOUNTS. The Trust understands that
the Sub-Adviser now acts, will continue to act and may act in the future as
investment adviser to fiduciary and other
3
<PAGE>
managed accounts and as investment adviser to other investment companies, and
the Trust has no objection to the Sub-Adviser so acting, provided that whenever
the Fund and one or more other accounts or investment companies advised by the
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The Sub-Adviser agrees to allocate similarly
opportunities to sell securities. The Trust recognizes that, in some cases, this
procedure may limit the size of the position that may be acquired or sold for
the Fund. In addition, the Trust understands that the persons employed by the
Sub-Adviser to assist in the performance of the Sub-Adviser's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of the Sub-Adviser of any
affiliate of the Sub-Adviser to engage in and devote time and attention to other
business or to render services of whatever kind or nature. To the extent
permitted by law, the Sub-Adviser may bunch or aggregate its orders for the Fund
with orders of its other clients, provided that no other clients whose orders
are aggregated with orders of the Fund shall receive an effective purchase price
lower, or an effective sale price higher, than the Fund with respect to such
aggregate orders.
11. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the Act, the Sub-Adviser hereby agrees that all records which it
maintains for the Fund are the property of the Trust and further agrees to
surrender promptly to the Trust copies of any of such records upon the Fund's or
the Adviser's request. The Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 3 1a-2 under the Act the records relating to its
activities hereunder required to be maintained by Rule 31a-1 under the Act and
to preserve the records relating to its activities hereunder required by Rule
204-2 under the Investment Advisers Act of 1940, as amended, for the period
specified in said Rules.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SUB-ADVISER. The
Sub-Adviser 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 hereunder. The Sub-Adviser agrees
that such records are the property of the Trust, and will be
surrendered to the Trust or to Adviser as agent of the Trust promptly
upon request of either.
C. It has or shall adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and will provide the Trust and
Adviser with a copy of the code of ethics and evidence of its adoption.
Sub-Adviser acknowledges receipt of the written code of ethics adopted
by and on behalf of the Trust (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 Sub-Adviser shall certify to
the Fund and to Adviser that the Sub-Adviser has complied with the
requirements of Rule 17j-1 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 Sub-Adviser shall permit
the Trust and Adviser to examine the reports requiring to be made by
the Sub-Adviser under Rule 17j-1(c)(1) and this subparagraph.
D. Reference is hereby made to the Declaration of Trust dated
February 18, 1986, establishing the Trust, a copy of which has been
filed with the Secretary of the Commonwealth of
4
<PAGE>
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 Trust shall be held to any
personal liability in connection with the affairs of the Trust. Without limiting
the generality of the foregoing, neither the Sub-Adviser 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, policyholder, certificateholder, trustee, officer, agent or
employee of the Trust or of any successor thereof, whether such liability now
exists or is hereafter incurred for claims against the trust estate.
13. TERM OF AGREEMENT. This Agreement shall become effective as of
________ 1997 and shall continue until ________ 1999, and thereafter shall
continue automatically for successive annual periods ending on ___________ of
each year, provided such continuance is specifically approved at least annually
by (i) the Trust's Board or (ii) a vote of "majority" (as defined in the Act) of
the Fund's outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Trust's Board who are not
"interested persons" (as defined in the Act) of any party to this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 30 days' written
notice, by the Adviser, by the Trust's Board, by vote of holders of a majority
of the Fund's shares or by the Sub-Adviser, and will terminate five business
days after the Sub-Adviser receives written notice of the termination of the
advisory agreement between the Trust and the Adviser. This Agreement also will
terminate automatically in the event of its assignment (as defined in the Act).
14. INDEMNIFICATION. The Adviser agrees to indemnify and hold harmless
the Sub-Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorneys' fees and other related expenses),
howsoever arising, from or in connection with this Agreement or the performance
by the Sub-Adviser of its duties hereunder; provided, however, that nothing
contained herein shall require that the Sub-Adviser be indemnified for
Disqualifying Conduct.
15. DISCLOSURE. Neither the Trust nor the Adviser shall, without the
prior written consent of the Sub-Adviser, make representations regarding or
reference to the Sub-Adviser or any affiliates in any disclosure document,
advertisement, sales literature or other promotional materials.
16. MISCELLANEOUS. All notices provided for by this Agreement shall be
in writing and shall be deemed given when received, against appropriate receipt,
by ______________ in the case of the Sub-nAdviser, ____________ in the case of
the Adviser, and the Fund's Secretary in the case of the Fund, or such other
person as a patty shall designate by notice to the other parties. No provision
of this Agreement may be changed, waived, discharged or terminated orally, but
only by an instrument of writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought. This Agreement
constitutes the entire agreement among the parties hereto and supersedes any
prior agreement among the parties relating to the subject matter hereof. The
paragraph headings of this Agreement are for convenience of reference and do not
constitute a part hereof. This Agreement shall be governed in accordance with
the internal laws of the Commonwealth of Massachusetts, without giving effect to
principles of conflict of laws.
5
<PAGE>
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
THE PHOENIX EDGE SERIES FUND
By:___________________________________
Name:_________________________________
Title:________________________________
PHOENIX INVESTMENT COUNSEL, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Accepted:
J.P. Morgan Investment Management Inc.
By:_____________________________
Name: __________________________
Title: _________________________
6
<PAGE>
SCHEDULE A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEE
(AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS OF THE FUND)
SUB-ADVISER FUND(S) -----------------------------
- ----------- -------
<S> <C> <C>
J.P Morgan Investment Research Enhanced Index .25%- first $100 Million
Management Inc. .20%- excess of $100 Million
</TABLE>
EXHIBIT 10.4
OPINION AND CONSENT OF COUNSEL
<PAGE>
July 15, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
This undersigned serves as Counsel to Phoenix Duff & Phelps
Corporation, a controlling interest of which is held by Phoenix Home Life Mutual
Insurance Company ("Phoenix Home Life"). Shares of The Phoenix Edge Series Fund,
a Massachusetts business trust (the "Fund") are issued by Phoenix Home Life and
certain of its affiliates through one or more designated separate accounts
thereof. In my capacity as such, I have represented these entities in connection
with the preparation and filing of Post-Effective Amendment No. 22 to the Fund's
Registration Statement on Form N-1A under which shares of the Fund have been
registered (the "Registration Statement"). I am admitted to practice law in the
State of Connecticut and am familiar with Massachusetts law applicable to this
entity.
This opinion is furnished in connection with the registration under the
Securities Act of 1933, as amended, of shares of beneficial interest of the
Research Enhanced Index Series ("Shares") of the Fund pursuant to the
Registration Statement.
In rendering my opinion, I have examined such documents, records, and
matters of law as I deemed necessary for purposes of this opinion. I have
assumed the genuineness of all signatures of all parties, the authenticity of
all documents submitted as originals, the correctness of all copies, and the
correctness of all facts set forth in the certificates delivered to me and the
correctness of all written or oral statements made to me.
Based upon and subject to the foregoing, it is my opinion that the Shares
that will be issued by the Fund, when sold consistent with the terms of purchase
set forth in the Registration Statement, will be legally issued, fully paid, and
nonassessable.
<PAGE>
Securities and Exchange Commission
July 15, 1997
Page 2
My opinion is rendered solely in connection with the Registration
Statement and may not be relied upon for any other purposes without my written
consent. I hereby consent to the use of this opinion as an exhibit to such
Registration Statement.
Yours truly,
/s/ Thomas N. Steenburg
-------------------------------
Thomas N. Steenburg
EXHIBIT 11
WRITTEN CONSENT OF PRICE WATERHOUSE LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 22 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 12, 1997, relating to the financial statements and financial highlights
of the Money Market Series, Growth Series, Multi-Sector Fixed Income Series,
Total Return (currently Strategic Allocation) Series, International Series,
Balanced Series, Real Estate Series, Strategic Theme Series and Aberdeen New
Asia Series of the Phoenix Edge Series Fund, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Independent Accountants" and
"Financial Statements" in such Statement of Additional Information and to the
references to us under the headings "Financial Highlights" and "Other
Information" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 14, 1997
