As filed with the Securities and Exchange Commission on April 29, 1998
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. 25 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 28 [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:
THOMAS N. STEENBURG EDWIN L. KERR, ESQ.
VICE PRESIDENT, COUNSEL AND SECRETARY C/O PHOENIX HOME LIFE MUTUAL
PHOENIX DUFF & PHELPS CORPORATION INSURANCE COMPANY
56 PROSPECT STREET ONE AMERICAN ROW
HARTFORD, CT 06115 HARTFORD, CT 06115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------
It is proposed that this filing will become effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 1998 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>
THE PHOENIX EDGE SERIES FUND
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS (PART A) AND
STATEMENT OF ADDITIONAL INFORMATION (PART B)
OF INFORMATION REQUIRED BY FORM N-1A
PURSUANT TO RULE 495(A)
PART A
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Introduction
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Introduction; Investment Objectives and Policies; Other
Special Investment Methods; The Fund and Its Management
5. Management of the Fund..................................... The Fund and Its Management; Custodian, Transfer Agent
and Dividend Paying Agent
6. Capital Stock and Other Securities......................... The Fund and Its Management; Shares of Beneficial Interest;
Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered....................... Purchase of Shares; Net Asset Value; Redemption of Shares
8. Redemption or Repurchase................................... Purchase of Shares; Net Asset Value; Redemption of Shares
9. Pending Legal Proceedings.................................. Not Applicable
</TABLE>
PART B
<TABLE>
<CAPTION>
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------- -------------------------------------------
<S> <C>
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>
IMPORTANT NOTICE TO CALIFORNIA RESIDENTS
The following funds as described in this prospectus are not yet available to
California residents and are pending California state approval:
o Engemann Nifty Fifty ("Nifty Fifty")
o Seneca Mid-Cap Growth ("Seneca Mid-Cap")
o Phoenix Growth and Income ("Growth & Income")
o Phoenix Value Equity ("Value")
o Schafer Mid-Cap Value ("Schafer Mid-Cap")
We will notify California residents when these funds become available upon
approval by the State.
P-1
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS ("VPMO"):
101 Munson Street P.O. Box 8027
Greenfield, Massachusetts Boston, MA 02266-8027
PROSPECTUS
May 1, 1998
The Phoenix Edge Series Fund (formerly "The Big Edge Series Fund"), a
Massachusetts business trust (the "Fund"), is an open-end management investment
company which is intended to meet a wide range of investment objectives with its
15 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
Multi-Sector Series will not, however, invest more than 35% of its assets,
determined at the time of investment, in high yield (high risk) fixed income
securities ("junk bonds"). These lower rated securities may be more susceptible
to real or perceived adverse economic conditions than investment grade
securities. High yield (high risk) securities are regarded as predominantly
speculative with regard to each issuer's continuing ability to make interest and
principal payments. In addition, the secondary market for high yield (high risk)
securities may be less liquid than the market for investment trade securities.
Investors should carefully assess the risks associated with an investment in the
Multi-Sector Series. See "Investment Objectives and Policies."
Money Market Series. The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity. The Money Market Series invests exclusively in high quality money
market instruments. AN INVESTMENT IN THE MONEY MARKET SERIES IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
SERIES WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10 PER SHARE.
Growth Series. The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
Strategic Allocation ("Allocation") Series. The investment objective of the
Allocation Series 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.
1
<PAGE>
Aberdeen New Asia ("Asia") Series. This Series seeks as its investment
objective long-term capital appreciation. It is intended that this Series will
invest primarily in a diversified portfolio of equity securities of issuers
located in at least three different countries throughout Asia, other than Japan.
Research Enhanced Index ("Enhanced Index") Series. The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500"). It is intended that the
Series will invest in a portfolio of undervalued common stocks and other equity
securities which appear to offer growth potential and an overall volatility of
return similar to that of the S&P 500.
Engemann Nifty Fifty ("Nifty Fifty") Series. As its investment objective,
this Series seeks to achieve long-term capital appreciation by investing in
approximately 50 different securities which, in the opinion of the Adviser,
offer the best potential for long-term growth of capital. At least 75% of the
Series' assets will be invested in common stocks of high quality growth
companies. The remaining portion will be invested in common stocks of small
corporations with rapidly growing earnings per share or common stocks believed
to be undervalued.
Seneca Mid-Cap Growth ("Seneca Mid-Cap") Series. As its investment
objective, this Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Series seeks to outperform the Standard & Poor's
Mid-Cap 400 Index.
Phoenix Growth and Income ("Growth & Income") Series. This Series seeks, as
its investment objective, dividend growth, current income and capital
appreciation by investing in common stocks. The Fund seeks to achieve its
objective by selecting securities primarily from equity securities of the 1,000
largest companies traded in the United States, ranked by market capitalization.
Phoenix Value Equity ("Value") Series. The primary investment objective is
long-term capital appreciation with a secondary investment objective of current
income. The Series seeks to achieve its objective by investing in a diversified
portfolio of common stocks that meet certain quantitative standards that
indicate above average financial soundness and intrinsic value relative to
price.
Schafer Mid-Cap Value ("Schafer Mid-Cap") Series. Long-term capital
appreciation is the primary investment objective of this Series with current
income as the secondary investment objective. The Series will invest in common
stocks of established companies having a strong financial position and a low
stock market valuation at the time of purchase which are believed to offer the
possibility of increase in value.
There can be no assurance that any Series will achieve its objectives. See
"Investment Objectives and Policies."
This Prospectus gives you the facts about the Fund and each of its Series
that you should know before directing investment in the Fund, and it should be
read and kept for future reference. A Statement of Additional Information
("SAI") dated May 1, 1998, which contains further information about the Fund,
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in this Prospectus. A free copy of the SAI may be
obtained by calling Variable Products Operations ("VPO") of Phoenix at (800)
447-4312, or by writing to Phoenix Variable Products Mail Operations at PO Box
8027, Boston, Massachusetts 02266-8027.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus should be read and retained future reference.
2
<PAGE>
THE PHOENIX EDGE SERIES FUND
TABLE OF CONTENTS
Heading Page
- ----------------------------------------------------------------
Fund Expenses............................................ 4
Financial Highlights..................................... 5
Introduction............................................. 10
Investment Objectives and Policies....................... 11
Multi-Sector Series.................................. 11
Money Market Series.................................. 13
Growth Series........................................ 13
Allocation Series.................................... 14
International Series................................. 14
Balanced Series...................................... 16
Real Estate Series................................... 16
Theme Series......................................... 17
Asia Series.......................................... 18
Enhanced Index Series................................ 18
Nifty Fifty Series................................... 19
Seneca Mid-Cap Series................................ 19
Growth & Income Series............................... 20
Value Series......................................... 20
Schafer Mid-Cap Series............................... 20
Other Special Investment Methods......................... 21
Convertible Securities............................... 21
Repurchase Agreements................................ 21
Options.............................................. 21
Financial Futures and Related Options................ 21
Foreign Securities................................... 22
Leverage............................................. 22
Private Placements & Rule 144A Securities............ 23
Mortgage-Backed Securities........................... 23
Lending of Portfolio Securities...................... 24
When-Issued Securities............................... 24
Investment Restrictions.................................. 24
Portfolio Turnover....................................... 24
The Fund and Its Management.............................. 25
Investment Advisers.................................. 25
Portfolio Managers................................... 26
Balanced Series.................................. 26
Allocation Series................................ 26
Multi-Sector Series.............................. 26
Growth Series.................................... 26
International Series............................. 26
Money Market Series.............................. 26
Real Estate Series............................... 26
Theme Series..................................... 26
Asia Series...................................... 26
Enhanced Index Series............................ 26
Nifty Fifty Series............................... 27
Seneca Mid-Cap Series............................ 27
Growth & Income Series........................... 27
Value Series..................................... 27
Schafer Mid-Cap Series........................... 27
Advisory Fees........................................ 27
Financial Agent...................................... 28
Expenses............................................. 28
Portfolio Transactions and Brokerage................. 28
Performance History.................................. 28
Shares of Beneficial Interest............................ 29
Purchase of Shares....................................... 30
Net Asset Value.......................................... 30
Redemption of Shares..................................... 30
Dividends and Distributions.............................. 30
Taxes ................................................. 31
Custodian, Transfer Agent and
Dividend Paying Agent................................ 31
Other Information........................................ 31
Appendix ................................................ 31
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.
3
<PAGE>
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder in
each Series of the Fund will incur. Expenses borne by these separate accounts
and by the owners of the contracts and policies are not reflected in the table.
Please refer to the applicable Variable Contract prospectus for such charges.
The expenses and fees set forth in the table (except for the Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series) are for the fiscal
year ended December 31, 1997.
SHAREHOLDER TRANSACTION EXPENSES
ALL SERIES
----------
Sales Load Imposed on Purchases.................................. None
Sales Load Imposed on Reinvested Dividends....................... None
Deferred Sales Load.............................................. None
Redemption Fees.................................................. None
Exchange Fees.................................................... None
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets for the year ending December 31, 1997)
<CAPTION>
MONEY
GROWTH MULTI-SECTOR ALLOCATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME
------ ------------ ---------- ------ ------------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
Investment Advisory Fees......... 63% .50% .58% .40% .75% .55% .75% .75%
12b-1 Fees......................... None None None None None None None None
Other Operating Expenses
(After Reimbursement)............ .11%(1) .15%(1) .13%(1) .15%(1) .26%(1) .16%(1) .25%(2) .25%(3)
---- ---- ---- ---- ---- ----- ----- -----
Total Fund Operating Expenses.... 74% .65% .71% .55% 1.01% .71% 1.00% 1.00%
ENHANCED
ASIA INDEX NIFTY FIFTY GROWTH & INCOME VALUE SENECA MID-CAP SCHAFER MID-CAP
---- ----- ----------- --------------- ----- -------------- ---------------
Management Fees
Investment Advisory Fees......... 1.00% .45% .90% .70% .70% .80% 1.05%
12b-1 Fees......................... None None None None None None None
Other Operating Expenses
(After Reimbursement)............ .25%(3) .10%(1) .15%(1) .15%(1) .15%(1) .25%(1) .15%(1)
----- ---- ---- ---- ---- ----- -----
Total Fund Operating Expenses... 1.25% .55% 1.05% .85% .85% 1.05% 1.20%
</TABLE>
EXAMPLE:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. As noted above, the Fund charges
no redemption fees of any kind.
<TABLE>
<CAPTION>
MONEY
GROWTH MULTI-SECTOR ALLOCATION MARKET INTERNATIONAL BALANCED REAL ESTATE THEME
------ ------------ ---------- ------ ------------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year............................ $ 8 $ 7 $ 7 $ 6 $ 10 $ 7 $ 10 $ 10
3 Years........................... $ 24 $ 21 $ 23 $ 18 $ 32 $ 22 $ 32 $ 32
5 Years........................... $ 41 $ 36 $ 40 $ 31 $ 56 $ 39 $ 55 $ 55
10 Years.......................... $ 92 $ 81 $ 88 $ 69 $ 124 $ 87 $ 122 $ 122
ENHANCED
ASIA INDEX NIFTY FIFTY GROWTH & INCOME VALUE SENECA MID-CAP SCHAFER MID-CAP
---- ----- ----------- --------------- ----- -------------- ---------------
1 Year............................ $ 13 $ 6 $ 11 $ 9 $ 9 $ 11 $ 12
3 Years........................... $ 40 $ 18 $ 33 $ 27 $ 27 $ 33 $ 38
5 Years........................... $ 69 $ 31 $ 58 $ 47 $ 47 $ 58 $ 66
10 Years.......................... $151 $ 69 $ 128 $ 105 $ 105 $ 128 $ 145
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR PERFORMANCE. ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE PURPOSE OF THE TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR WILL BEAR DIRECTLY OR INDIRECTLY AT
THE FUND LEVEL. SEE "THE FUND AND ITS MANAGEMENT."
(1) Phoenix Investment Counsel, Inc. ("PIC") has agreed to reimburse the Series
for the amount, if any, by which each Series' operating expenses other than
the management fee for any fiscal year exceed .15% of the average net assets
of the Series, except for the International, Enhanced Index, Theme and
Seneca Mid-Cap Series, which are .40%, .10%, .25% and .25%, respectively. If
these reimbursements had not been in place for the fiscal year ended
December 31, 1997, total operating expenses for the Multi-Sector,
Theme and Enhanced Index Series would have been .66%, 1.14% and 1.05%,
respectively, of the average net assets of such Series. Without
reimbursement, other operating expenses are estimated to be approximately
.45%, .88%, .40%, .40% and .26% of the average net assets of the Nifty
Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series,
respectively, for the fiscal year ending December 31, 1998. Without
reimbursement, the total operating expenses are estimated to be
approximately 1.35%, 1.68%, 1.10%, 1.10% and 1.31% of the average net assets
of the Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer
Mid-Cap Series, respectively, for the fiscal year ending December 31, 1998.
(2) Duff & Phelps Investment Management Co. and/or Phoenix and/or PHL Variable
have agreed to reimburse the Real Estate Series' operating expenses for the
amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ended December 31, 1997, total operating expenses for the Real Estate Series
would have been 1.07% of average net assets of such Series.
(3) Phoenix-Aberdeen International Advisors, LLC and/or Phoenix and/or PHL
Variable have agreed to reimburse the Asia Series' operating expenses for
the amount, if any, by which such Series' operating expenses other than the
management fees for any fiscal year exceed .25% of the average net assets of
such Series. If this reimbursement had not been in place for the fiscal year
ending December 31, 1997, total operating expenses for the Asia Series would
have been 2.00% of the average net assets of such Series.
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, 1997, 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
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 0.50 0.56 0.38(1) 0.28(1) 0.35 0.58 0.79 0.88 0.72
---- ---- ---- ------ ------ ---- ---- ---- ---- ----
Total from investment
operations.................. 0.50 0.50 0.56 0.38 0.28 0.35 0.58 0.79 0.88 0.72
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment
income......................... (0.50) (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions........... (0.50) (0.50) (0.56) (0.38) (0.28) (0.35) (0.58) (0.79) (0.88) (0.72)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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).................. 4.99% 4.98% 5.55% 3.77% 2.80% 3.50% 5.80% 7.90% 8.80% 7.20%
Ratios/supplemental data:
Net assets, end of period
(thousands)....................$126,607 $131,361 $102,943 $ 94,586 $ 72,946 $ 69,962 $ 51,692 $ 38,709 $ 28,808 $ 22,294
Ratio to average net assets of:
Operating expenses............. 0.55% 0.55% 0.53%(3) 0.55% 0.55% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income.......... 5.07% 4.89% 5.57% 3.85% 2.84% 3.49% 5.76% 7.87% 8.96% 7.24%
</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) 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>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 18.89 $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83 $ 8.81
Income from investment
operations
Net investment
income........... 0.13 0.19 0.20 0.23(1,2) 0.16(2) 0.22(2) 0.39(2) 0.35(2) 0.27(2) 0.32(2)
Net realized
and unrealized
gain............. 3.70 2.10 4.60 0.02 2.77 1.25 4.64 0.10 2.88 0.02
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from
investment
operations..... 3.83 2.29 4.80 0.25 2.93 1.47 5.03 0.45 3.15 0.34
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from
net investment
income........... (0.13) (0.18) (0.17) (0.23) (0.15) (0.23) (0.37) (0.35) (0.27) (0.32)
Dividends from
net realized
gains............ (3.43) (1.35) (2.19) (0.92) (1.20) (0.66) (1.95) -- (0.09) --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions... (3.56) (1.53) (2.36) (1.15) (1.35) (0.89) (2.32) (0.35) (0.36) (0.32)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Change in net asset
value.............. 0.27 0.76 2.44 (0.90) 1.58 0.58 2.71 0.10 2.79 0.02
---- ---- ---- ----- ---- ---- ---- ---- ---- ----
Net asset value,
end of period...... $ 19.16 $ 18.89 $ 18.13 $ 15.69 $ 16.59 $ 15.01 $ 14.43 $ 11.72 $ 11.62 $ 8.83
========== ========== ======== ======== ======== ======== ======== ======== ======== ========
Total Return(5).... 21.07% 12.58% 30.85% 1.48% 19.69% 10.29% 43.83% 3.98% 36.06% 3.83%
Ratios/supplemental
data:
Net assets, end
of period
(thousands)...... $1,505,568 $1,235,395 $985,389 $616,221 $446,368 $245,565 $102,259 $ 40,061 $ 29,931 $ 18,051
Ratio to average
net assets of:
Operating
expenses......... 0.74% 0.72% 0.75%(3) 0.80% 0.79% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income........... 0.64% 1.03% 1.12% 1.38% 0.97% 1.66% 2.14% 3.19% 2.51% 3.64%
Portfolio turnover
rate............... 284% 167% 173% 185% 185% 214% 237% 272% 285% 326%
Average commission
rate paid(4)....... $0.0496 $0.0455 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) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
(5) 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.
5
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11 $ 9.08
Income from investment
operations
Net investment
income........... 0.75(1) 0.79(1) 0.83(1,3) 0.72(1,3) 0.66(1,3) 0.66(3) 0.74(3) 0.80(3) 0.99(3) 0.92(3)
Net realized
and unrealized
gain (loss)...... 0.34 0.43 1.22 (1.28) 0.84 0.25 0.85 (0.37) (0.25) (0.01)
---- ---- ---- ----- ---- ---- ---- ----- ----- -----
Total from
investment
operations..... 1.09 1.22 2.05 (0.56) 1.50 0.91 1.59 0.43 0.74 0.91
---- ---- ---- ----- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from
net investment
income........... (0.77) (0.78) (0.81) (0.73) (0.66) (0.66) (0.74) (0.80) (1.00) (0.88)
Dividends from
net realized
gains............ (0.28) (0.32) -- -- (0.15) -- -- -- -- --
----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Total
distributions... (1.05) (1.10) (0.81) (0.73) (0.81) (0.66) (0.74) (0.80) (1.00) (0.88)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Change in net asset
value.............. (0.04) 0.12 1.24 (1.29) 0.69 0.25 0.85 (0.37) (0.26) 0.03
----- ---- ---- ----- ---- ---- ---- ----- ----- ----
Net asset value,
end of period...... $ 10.38 $ 10.34 $ 10.22 $ 8.98 $ 10.27 $ 9.58 $ 9.33 $ 8.48 $ 8.85 $ 9.11
======== ======== ======== ======== ======== ======== ======= ======== ======== ========
Total Return(2).... 10.93% 12.42% 23.54% (5.47%) 15.90% 10.03% 19.41% 5.14% 8.30% 10.36%
Ratios/supplemental
data:
Net assets,
end of period
(thousands)...... $191,627 $145,044 $109,046 $ 74,686 $ 79,393 $ 43,090 $ 21,957 $ 13,558 $ 13,947 $ 11,081
Ratio to average
net assets of:
Operating
expenses......... 0.65%(6) 0.65% 0.65%(4) 0.66% 0.65% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income........... 7.25%(6) 7.80% 8.55% 7.62% 6.71% 7.47% 8.65% 9.26% 10.99% 10.37%
Portfolio turnover
rate............... 151% 191% 147% 181% 169% 166% 269% 318% 340% 262%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007, $0.006 and $0.005 per share, respectively.
(2) 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) 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.
ALLOCATION SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68 $ 9.87
Income from investment
operations
Net investment
income............. 0.32 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)
Net realized
and unrealized
gain (loss)........ 2.46 0.91 1.84 (0.56) 1.17 0.99 2.76 0.02 1.38 (0.24)
---- ---- ---- ----- ---- ---- ---- ---- ---- -----
Total from
investment
operations....... 2.78 1.23 2.29 (0.20) 1.40 1.36 3.18 0.60 1.89 0.22
---- ---- ---- ----- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from
net investment
income............. (0.33) (0.31) (0.45) (0.37) (0.23) (0.37) (0.42) (0.58) (0.52) (0.41)
Dividends from
net realized
gains (1.98) (0.90) (0.89) (0.46) (0.32) (1.10) (0.86) -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions..... (2.31) (1.21) (1.34) (0.83) (0.55) (1.47) (1.28) (0.58) (0.52) (0.41)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Change in net asset
value................ 0.47 0.02 0.95 (1.03) 0.85 (0.11) 1.90 0.02 1.37 (0.19)
---- ---- ---- ----- ---- ----- ---- ---- ---- -----
Net asset value,
end of period...... $ 14.12 $ 13.65 $ 13.63 $ 12.68 $ 13.71 $ 12.86 $ 12.97 $ 11.07 $ 11.05 $ 9.68
======== ======== ======== ======== ======== ======== ======== ======== ======= =======
Total Return(2).... 20.73% 9.05% 18.22% (1.45%) 11.02% 10.67% 29.44% 5.62% 19.88% 2.33%
Ratios/supplemental
data:
Net assets, end
of period
(thousands)...... $429,002 $374,244 $353,838 $289,083 $256,011 $163,628 $ 98,415 $ 62,839 $57,901 $59,109
Ratio to average
net assets of:
Operating
expenses......... 0.71%(7) 0.70% 0.67%(4) 0.74% 0.74% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment
income........... 2.09%(7) 2.26% 3.28% 2.71% 1.82% 2.90% 3.48% 5.39% 4.73% 4.62%
Portfolio turnover
rate............... 368% 287% 170% 220% 269% 326% 255% 302% 302% 314%
Average commission
rate paid(5)....... $0.0547 $0.0530 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) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs or spreads on shares traded on a principal basis.
6
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
-----------------------
1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07 $ 10.00
Income from investment
operations
Net investment income(4)..... 0.12 0.11 0.12 0.08 0.07(2) 0.09 0.24(2) 0.07(2)
Net realized and unrealized
gain (loss).................. 1.61 2.25 1.02 (0.07) 3.32 (1.40) 1.53 (0.88)
---- ---- ---- ----- ---- ----- ---- -----
Total from investment
operations................. 1.73 2.36 1.14 0.01 3.39 (1.31) 1.77 (0.81)
---- ---- ---- ---- ---- ----- ---- -----
Less distributions:
Dividends from net investment
income....................... (0.22) (0.19) (0.04) (0.03) -- (0.04) (0.24) (0.07)
Dividends from net realized
gains........................ (1.50) (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........ (1.72) (0.54) (0.29) (0.37) -- (0.04) (0.67) (0.12)
----- ----- ----- ----- ----- ----- ----- -----
Change in net asset value...... 0.01 1.82 0.85 (0.36) 3.39 (1.35) 1.10 (0.93)
---- ---- ---- ----- ---- ----- ---- -----
Net asset value, end of period. $ 14.53 $ 14.52 $ 12.70 $ 11.85 $ 12.21 $ 8.82 $ 10.17 $ 9.07
========= ========= ========= ========= ========= ========= ======== ========
Total Return(3)................ 12.04% 18.65% 9.59% 0.03% 38.44% (12.89%) 19.78% (8.10%)
Ratios/supplemental data:
Net assets, end of period
(thousands).................... $ 194,108 $ 172,668 $ 134,455 $ 134,627 $ 61,242 $ 13,772 $ 6,119 $ 2,010
Ratio to average net
assets of:
Operating expenses............. 1.01% 1.04% 1.07% 1.10% 1.15% 1.50% 1.50% 1.50%(1)
Net investment income.......... 0.72% 0.80% 0.95% 0.64% 0.49% 1.13% 2.44% 1.82%(1)
Portfolio turnover rate........ 184% 142% 249% 172% 193% 74% 104% 48%(1)
Average commission rate
paid(5)........................ $0.0181 $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>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/92 TO
-----------------------
1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77 $ 10.00
Income from investment operations
Net investment income...................... 0.38 0.36 0.40(4) 0.38(2,4) 0.32(2,4) 0.19(4)
Net realized and unrealized gain (loss).... 1.73 0.89 2.02 (0.70) 0.60 0.77
---- ---- ---- ----- ---- ----
Total from investment operations......... 2.11 1.25 2.42 (0.32) 0.92 0.96
---- ---- ---- ----- ---- ----
Less distributions:
Dividends from net investment income....... (0.40) (0.35) (0.40) (0.36) (0.32) (0.19)
Dividends from net realized gains.......... (1.51) (1.14) (0.25) (0.10) (0.06) --
----- ----- ----- ----- ----- -----
Total distributions...................... (1.91) (1.49) (0.65) (0.46) (0.38) (0.19)
----- ----- ----- ----- ----- -----
Change in net asset value.................... 0.20 (0.24) 1.77 (0.78) 0.54 0.77
---- ----- ---- ----- ---- ----
Net asset value, end of period............... $ 12.26 $ 12.06 $ 12.30 $ 10.53 $ 11.31 $ 10.77
======== ======== ======== ======== ======== ========
Total Return(3).............................. 17.93%(7) 10.56% 23.28% (2.80%) 8.57% 9.72(7)
Ratios/supplemental data:
Net assets, end of period (thousands)...... $231,180 $204,285 $193,302 $161,105 $158,144 $ 54,467
Ratio to average net assets of:
Operating expenses......................... 0.71%(1) 0.68% 0.65%(5) 0.69% 0.70% 0.50%(1)
Net investment income...................... 2.92%(1) 2.93% 3.44% 3.44% 3.16% 3.59%(1)
Portfolio turnover rate...................... 181% 229% 223% 171% 161% 110%(1)
Average commission rate paid(6).............. $0.0525 $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) 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.
7
<PAGE>
REAL ESTATE SECURITIES SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO
-----------------------
1997 1996 12/31/95
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period............................................ $ 14.32 $ 11.33 $ 10.00
Income from investment operations
Net investment income......................................................... 0.50(2) 0.50(2) 0.33(2)
Net realized and unrealized gain.............................................. 2.62 3.14 1.42
---- ---- ----
Total from investment operations............................................ 3.12 3.64 1.75
---- ---- ----
Less distributions:
Dividends from net investment income.......................................... (0.48) (0.50) (0.33)
Dividends from net realized gains............................................. (0.58) (0.15) (0.06)
Tax return of capital......................................................... -- -- (0.03)
----- ----- -----
Total distributions......................................................... (1.06) (0.65) (0.42)
----- ----- -----
Change in net asset value....................................................... 2.06 2.99 1.33
---- ---- ----
Net asset value, end of period.................................................. $ 16.38 $ 14.32 $ 11.33
======== ======== =========
Total Return(4)................................................................. 22.05% 33.09% 17.79%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 54,659 $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses............................................................ 1.00% 1.00% 1.00%(1)
Net investment income......................................................... 3.59% 4.36% 4.80%(1)
Portfolio turnover rate......................................................... 41% 21% 10%(3)
Average commission rate paid(5)................................................. $ 0.0490 $ 0.0468 N/A
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.01,
$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
YEAR ENDED 1/29/96 TO
12/31/97 12/31/96
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................ $ 10.98 $ 10.00
Income from investment operations
Net investment income......................................................... 0.05(2) 0.04(2)
Net realized and unrealized gain.............................................. 1.82 0.99
---- ----
Total from investment operations............................................ 1.87 1.03
---- ----
Less distributions:
Dividends from net investment income.......................................... (0.05) (0.04)
Dividends from net realized gains (1.16) --
In excess of net realized gains............................................... (0.31) --
Tax return of capital......................................................... (0.01) (0.01)
----- -----
Total distributions......................................................... (1.53) (0.05)
----- -----
Change in net asset value....................................................... 0.34 0.98
---- ----
Net asset value, end of period.................................................. $ 11.32 $ 10.98
======== ========
Total Return(4)................................................................. 17.16% 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 47,620 $ 25,972
Ratio to average net assets of:
Operating expenses............................................................ 1.00% 1.00%(1)
Net investment income......................................................... 0.42% 0.64%(1)
Portfolio turnover rate......................................................... 642% 391%(3)
Average commission rate paid(5)................................................. $ 0.0579 $ 0.0587
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.02
and $0.02 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) The 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.
8
<PAGE>
ABERDEEN NEW ASIA SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED 9/17/96 TO
12/31/97 12/31/96
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................ $ 9.96 $ 10.00
Income from investment operations
Net investment income......................................................... 0.15(2) 0.05(2)
Net realized and unrealized gain (loss)....................................... (3.36) (0.04)
----- -----
Total from investment operations............................................ (3.21) 0.01
----- ----
Less distributions:
Dividends from net investment income.......................................... (0.15) (0.05)
Dividends from net realized gains (0.01) --
In excess of net investment income (0.10) --
Tax return of capital......................................................... (0.05) --
----- -----
Total distributions......................................................... (0.31) (0.05)
----- -----
Change in net asset value....................................................... (3.52) (0.04)
----- -----
Net asset value, end of period.................................................. $ (6.44) $ 9.96
========= ========
Total Return(4)................................................................. (32.39)%(3) 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 10,017 $ 11,585
Ratio to average net assets of:
Operating expenses............................................................ 1.25% 1.25%(1)
Net investment income......................................................... 1.63%(1) 2.40%(1)
Portfolio turnover rate......................................................... 27% 2%(3)
Average commission rate paid(5)................................................. $ 0.0109 $ 0.0109
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.07
and $0.03 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) The 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.
ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
FROM
INCEPTION
7/15/97 TO
12/31/97
--------
<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)....................................... 0.54
----
Total from investment operations............................................ 0.59
----
Less distributions:
Dividends from net investment income.......................................... (0.05)
Dividends from net realized gains (0.05)
-----
Total distributions......................................................... (0.10)
-----
Change in net asset value....................................................... 0.49
----
Net asset value, end of period.................................................. $ 10.49
========
Total Return(5)................................................................. 5.83%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 30,851
Ratio to average net assets of:
Operating expenses............................................................ 0.55%(1)
Net investment income......................................................... 1.46%(1)
Portfolio turnover rate......................................................... 9%(3)
Average commission rate paid(4)................................................. $ 0.0293
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.02
per share.
(3) Not annualized.
(4) The fund is required to disclose its average commission rate per share for
securities trades on which commissions are charged. This rate generally does
not reflect mark-ups, mark-downs or spreads on shares traded on a principal
basis.
(5) 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.
ENGEMANN NIFTY FIFTY SERIES
SENECA MID-CAP GROWTH SERIES
PHOENIX GROWTH & INCOME SERIES
PHOENIX VALUE EQUITY SERIES
SCHAFER MID-CAP VALUE SERIES
These Series commenced operations as of March 2, 1998; accordingly,
data for these Series is not yet available.
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 10 Krey Boulevard, East Greenbush, New York 12144. Phoenix is the nation's
9th largest mutual life insurance company and has consolidated assets of $18.5
billion as of December 31, 1997. 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, 1997,
it had assets of $428 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, 1997, it had assets of $11.8 million.
The interests and rights of a Contract Owner or Policyowner in the shares is
subject to the terms of the Contract or Policy and is described in the
accompanying Prospectus for that particular product. The rights of the Accounts
as shareholders should be distinguished from the rights of Contract Owners and
Policyowners described in the accompanying Prospectus and in the Contract or
Policy for that particular product. As long as shares of the Fund are sold only
to the Accounts, the terms "shareholder" or "shareholders" in this Prospectus
refer to the Accounts.
THE INVESTMENT ADVISERS
The investment adviser of the Money Market, Multi-Sector, Balanced,
Allocation, Growth, International, Theme, Enhanced Index, Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series is Phoenix Investment
Counsel ("PIC" or "Adviser"). PIC is an indirect, less than wholly-owned
subsidiary of Phoenix.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the following series
to the subadviser indicated, for which services each is paid a fee by PIC.
Enhanced Index Series J.P. Morgan Investment Management,
Inc. ("J.P. Morgan")
Nifty Fifty Series Roger Engemann & Associates, Inc.
("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC
("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
("Schafer")
The investment adviser for the Real Estate Series at its inception was
Phoenix Realty Securities, Inc. ("PRS" or "Adviser"). PRS is a wholly-owned
indirect subsidiary of Phoenix. On March 2, 1998, Duff & Phelps Investment
Management Co. ("DPIM"), purchased the management rights for the Series from PRS
and PRS' contract was assigned to DPIM. DPIM is a less than wholly-owned
subsidiary of Phoenix.
The Asia Series is managed by Phoenix-Aberdeen International Advisors, LLC
("PAIA" or "Adviser"). PAIA is a joint venture between PM Holdings, Inc., a
subsidiary of Phoenix, and Aberdeen Fund
10
<PAGE>
Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset Management plc.
Pursuant to a subadvisory agreement with the Fund, PAIA delegates certain
investment decisions and research functions with respect to the Asia Series to
PIC and to Aberdeen Fund Managers, Inc., for which each is paid a fee by PAIA.
As compensation for investment management services, the Advisers are
entitled to a fee, payable monthly and based on an annual percentage of the
average aggregate daily net asset values of each Series. These Fund charges and
other expenses are described more fully in the section, "The Fund and Its
Management - Advisory Fees."
OFFERING PRICES
Shares in each of the Series of the Fund are offered to the Accounts
continuously at the net asset value determined at the close of business on the
day the application is accepted and paperwork is complete and in good working
order. For information on pricing for initial and subsequent purchase payments
under Contracts or Policies, see the accompanying Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
To the extent that shares are sold to the Accounts in order to fund the
benefits under the Contracts or Policies, the structure of the Fund permits
Contract Owners and Policyowners, within the limitations described in the
Contracts or Policies, to allocate their investments in response to or in
anticipation of changes in market or economic conditions.
Each Series has a different investment objective and is designed to meet
different investment needs. The differences in objectives and policies among the
Series can be expected to affect the investment return of each Series and the
degree of market and financial risk to which each Series is subject. The
investment objective of each Series is deemed to be a fundamental policy which
may not be changed without the approval of a vote of a majority of the
outstanding shares of that Series. Since certain risks are inherent in the
ownership of any security, there can be no assurance that any Series will
achieve its investment objective. The investment policies of each Series also
will affect the rate of portfolio turnover. A high rate of portfolio turnover
generally involves correspondingly greater transaction costs, which must be
borne directly by each Series. The portfolio turnover rate for each Series,
except the Money Market Series (which does not normally pay brokerage
commissions), is included under "Financial Highlights." The rate for several
Series has been, and is expected to be, in excess of 100%; accordingly, such
Series will pay more in brokerage commissions than would be the case if they had
lower portfolio turnover rates. See "Portfolio Turnover" and "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 65% 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'
assets generally will be invested in each market sector, but the Series may
invest any amount of its assets in any one sector (except as noted below), and
may choose not to invest in a sector in order to achieve its investment
objective. The Multi-Sector Series may not invest more than 35% of its assets in
high yield (high risk) corporate fixed income securities nor more than 50% of
its assets in foreign debt obligations, such percentages as determined at the
time of investment. See "Other Special Investment Methods - Foreign Securities"
for a discussion of foreign debt obligations. The Series' remaining assets may
be invested in common stock and other equity securities when such investments
are consistent with its primary investment objective or are acquired as part of
a unit consisting of a combination of fixed income securities and equity
securities. See "Other Special Investment Methods."
Higher yields are available ordinarily from securities in the lower rated
categories of recognized rating agencies (Ba to Ca by Moody's Investors Service,
Inc. ("Moody's") or BB to CC by Standard & Poor's Corporation ("S&P")) and from
unrated securities of comparable quality. However, the Multi-Sector Series will
not invest in securities in the two lowest rating categories (Ca and C for
Moody's and CC and C for S&P) unless PIC believes that the financial condition
of the issuer, or the protections afforded to the particular securities, is
stronger than otherwise would be indicated by the low ratings. When the
investment objective of this Series can be met by investing in securities in
higher rating categories, such investments will be made. Moreover, the Series
may retain securities whose ratings have changed. The Appendix contains a more
detailed description of such ratings.
The table below shows the dollar weighted average of total investments for
the year ended December 31, 1997, listed by Moody's rating categories, or
comparable rating by another nationally recognized statistical rating
organization ("NRSRO"). The column titled "Not Rated" reflects the percentage of
portfolio holdings which were not rated by any NRSRO but which the Adviser has
judged to be comparable in quality to the corresponding rating categories.
MOODY'S RATING RATED NOT RATED
Aaa............. 22.9% 1.8%
Aa.............. 5.0% 0.0%
A............... 4.5% 0.0%
Baa............. 18.1% 2.5%
Ba.............. 17.7% 2.9%
B............... 19.2% 2.4%
D............... 0.0% 0.5%
----- -----
Total........... 87.4% 10.1%
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.
11
<PAGE>
Risk Factors. Under normal conditions, up to 50% of the Multi-Sector Series'
assets may be invested in high yield (high risk) fixed income securities
commonly referred to as "junk bonds." These securities ("High Yield-High Risk
Securities") ordinarily will be in the lower rating categories of NRSROs or will
be nonrated securities deemed by the Adviser to be substantially equivalent to
securities in such lower rating categories. High Yield-High Risk Securities
generally involve a greater volatility of price and risk of nonpayment of
principal and interest than securities in higher rating categories.
Additionally, yields on these securities fluctuate over time.
The risk of loss due to default by the issuer is significantly greater for
the holders of High Yield-High Risk Securities because such securities are
generally unsecured and are often subordinated to other creditors of the issuer.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of High Yield-High Risk Securities may experience
financial stress and may not have sufficient revenues to meet their interest
payment obligations. The issuer's ability to service its debt obligations also
may be adversely affected by specific corporate developments, or the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing.
Factors adversely impacting the market value of High Yield-High Risk
Securities will adversely impact the Series' net asset value to the extent the
Series' assets are invested in such securities. In addition, the Series may
incur additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings.
Because the High Yield-High Risk Securities market is relatively new and its
growth paralleled along economic expansion, it is not clear how this market may
withstand a prolonged recession or economic downturn.
The Series may have difficulty disposing of certain High Yield-High Risk
Securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all High Yield-High Risk Securities,
there is no established retail secondary market for many of these securities,
and the Series anticipates that such securities could be sold only to a limited
number of dealers or institutional investors. To the extent a secondary trading
market for High Yield-High Risk Securities does exist, it is generally not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on the market price of the security,
and accordingly, the Series' net asset values, and on the Series' ability to
dispose of particular issues when necessary to meet its liquidity needs or on
its ability to respond to a specific economic event, or an event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Series to obtain accurate market quotations for purposes of valuing the Series'
portfolios. Market quotations are generally available on many high yield issues
only from a limited number of dealers and may not necessarily represent firm
bids of such dealers of prices for actual sales. While all these considerations
are generally relevant to many high yield Securities, they may be particularly
relevant to securities which represent, for example, the right to receive only
the interest payments ("IOs") to be made on a particular security. The yield and
value of IOs can be very sensitive to the rate of principal payments on the debt
security as well as to various market factors. IOs issued by private issuers are
generally considered illiquid. Government-issued IOs backed by fixed-rate
mortgages may be deemed liquid if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of High Yield-High Risk Securities, especially in a thinly
traded market.
From time to time, proposals have been discussed and new legislation adopted
designed to limit the use of certain High Yield-High Risk Securities by issuers
in connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such laws, or proposals,
if enacted into law, could reduce the market for such securities generally, and
could negatively affect the financial condition of issuers of High Yield-High
Risk Securities and the high yield market in general. For example, under a
provision of the Code enacted in 1989, a corporate issuer may be limited from
deducting all of the original issue discount on high-yield discount obligations
(i.e., certain types of debt securities issued at a significant discount to
their face amount).
The market values of High Yield-High Risk Securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also tend to be more sensitive to
economic conditions than are higher rated securities. Accordingly, these lower
rated securities are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. Even securities rated BBB or Baa,
ratings which are considered investment grade, possess some speculative
characteristics.
The Series has no requirements regarding whether the securities they
purchase must be rated. While credit ratings evaluate the safety of principal
and interest payments, they do not evaluate market value risk of High Yield-High
Risk Securities. In addition, credit rating agencies may not change credit
ratings on a timely basis to reflect subsequent events. Accordingly, use of
lower rated securities places more importance on the ability of the Adviser than
does investing in higher quality fixed income securities. The Adviser will base
its investment decisions for the Funds on its own determination of reasonable
investment risk and reward. The Adviser's judgment as to the "reasonableness" of
the risk involved in any particular investment will be a function of its
experience in managing fixed-income investments and its evaluation of (i)
general economic and financial conditions; (ii) a specific issuer's (a) business
and management, (b) cash flow, (c) earnings coverage of interest and dividends,
(d) ability to operate under adverse economic conditions and (e) fair market
value of assets; and (iii) such other considerations as the Adviser may deem
appropriate.
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
12
<PAGE>
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
("FDIC") or the Federal Savings and Loan Insurance Corporation
("FSLIC");
(c) commercial paper which at the date of investment is issued or guaranteed
by a company whose commercial paper is rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., or F-1 by Fitch's
Investors Service or, if not rated, is issued or guaranteed by a company
which at the date of the investment has an outstanding debt issue rated
AA or higher by Standard & Poor's or Aa or higher by Moody's;
(d) other corporate obligations maturing in one year or less which at the
date of investment are rated AA or higher by Standard & Poor's or Aa or
higher by Moody's; and
(e) repurchase agreements with recognized securities dealers and member
banks of the Federal Reserve System with respect to any of the foregoing
obligations.
All of the Money Market Series investments will mature in 397 days or less.
In addition, the average maturity of the Series' portfolio securities based on
their dollar value will not exceed 90 days. By limiting the maturity of its
investments, the Money Market Series seeks to lessen the changes in the value of
its assets caused by market factors.
Generally, investments will be limited to securities rated in the two
highest short-term rating categories by at least two nationally recognized
statistical rating organizations, or by one such organization if only one has
rated the security, and comparable unrated securities. In addition, no more than
5% of the Series' total assets will be invested in securities of any one issuer
or in securities not rated in the highest short-term rating category. Moreover,
no more than the greater of 1% of the Series' total assets or $1 million will be
invested in the securities of any one issuer that are not in the highest
short-term rating category.
This Series, consistent with its investment objective, will attempt to
maximize yield through portfolio trading. This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market. It is
expected that the Series' portfolio transactions will be generally with issuers
or dealers acting as principal. Accordingly, this Series will normally not pay
any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the period of time remaining to
maturity of the security. Long-term obligations may fluctuate more in value than
short-term obligations. If interest rates increase after a security is
purchased, the security, if sold, could be sold for a loss. On the other hand,
if interest rates decline after a purchase, the security, if sold, could be sold
at a profit. If, however, the security is held to maturity, no gain or loss will
be realized as a result of interest rate fluctuations, although the day-to-day
valuation of the portfolio could fluctuate. Substantial withdrawals of the
amounts held in the Money Market Series could require it to sell portfolio
securities at a time when a sale might not be favorable. The value of a
portfolio security also may be affected by other factors, including factors
bearing on the creditworthiness of its issuer.
GROWTH SERIES
The investment objective of the Growth Series is to achieve intermediate and
long-term growth of capital, with income as a secondary consideration. The
Series seeks to achieve its investment objective by investing principally in
common stocks of corporations believed by PIC to offer growth potential over
both the intermediate and the long term. In pursuing capital growth, emphasis is
placed on the selection of securities of well-established corporations with
aggressive and experienced managements. This Series may invest not more than 20%
of the market value of its total assets in convertible securities, that is, debt
securities and preferred stocks which are convertible into, or carry the right
to purchase, common stock or other equity securities. It is not intended at this
time that this Series will invest in warrants.
Although the Growth Series will not make a practice of short-term trading,
purchases and sales of securities will be made whenever necessary to achieve the
investment objective of the Series without regard to the resulting brokerage
costs.
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.
13
<PAGE>
ALLOCATION SERIES
The investment objective of the Allocation Series (formerly designated the
"Total Return Series") is to realize as high a level of total rate of return
over an extended period of time as is considered consistent with prudent
investment risk. The Series seeks to achieve its investment objective by
investing in three market segments: stocks, bonds and money market instruments.
In addition to trading techniques described fully in the Statement of Additional
Information, the Series has retained the flexibility to write (sell) covered
call options, to purchase call and put options and to enter into financial
futures contracts.
The Allocation Series will adjust the mix of investments among the three
market segments to capitalize on perceived variations in return potential
produced by the interaction of changing financial markets and economic
conditions. It is expected that such adjustments normally will be made in a
gradual manner over a period of time. THERE ARE NO MINIMUM OR MAXIMUM
PERCENTAGES AS TO THE AMOUNT OF THE SERIES' ASSETS WHICH MAY BE INVESTED IN EACH
OF THE MARKET SEGMENTS. MAJOR CHANGES IN INVESTMENT MIX MAY OCCUR SEVERAL TIMES
A YEAR OR OVER SEVERAL YEARS, DEPENDING UPON MARKET AND ECONOMIC CONDITIONS AND,
EXCEPT FOR RESTRICTIONS NOTED HEREIN AND UNDER "INVESTMENT RESTRICTIONS," THE
INVESTMENT ADVISER HAS COMPLETE FLEXIBILITY IN DETERMINING THE AMOUNT AND NATURE
OF COMMON STOCK, DEBT OR MONEY MARKET INSTRUMENTS IN WHICH THE SERIES MAY
INVEST.
Investments in one of the three market segments will be made with a specific
purpose in mind. Investments in the stock segment will be for the purpose of
attempting to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Investments in the bond
segment will be for the purpose of attempting to achieve as high a total rate of
return on an annual basis as is considered consistent with the preservation of
capital values and may include investments of up to 5% of the Series' total
assets in high risk fixed income securities (commonly referred to as "junk
bonds"). Investments in the money market segment will be for the purpose of
attempting to achieve high current income, the preservation of capital, and
liquidity. The types of securities in each of these three market segments in
which the Allocation Series will invest are listed in the Statement of
Additional Information.
Cash may be held to provide for expenses and anticipated redemption payments
and so that orderly redemption payments may be carried out in accordance with
the Allocation Series' investment policies.
See Multi-Sector Series and Money Market Series for a description of risks
generally associated with investing in the Allocation Series.
INTERNATIONAL SERIES
The International Series seeks as its investment objective a high total
return consistent with reasonable risk. It intends to achieve its objective by
investing primarily in an internationally diversified portfolio of equity
securities. It intends to reduce its risk by engaging in hedging transactions
involving options, futures contracts and foreign currency transactions (see
"Other Special Investment Methods"). Investments may be made for capital growth
or for income or any combination thereof for the purpose of achieving a high
overall return.
There is no limitation on the percentage or amount of the International
Series assets which may be invested for capital growth or income, and therefore
at any particular time the investment emphasis may be placed solely or primarily
on growth of capital or on income. In determining whether the International
Series will be invested for capital growth or income, the Adviser will analyze
the international equity and fixed income markets and seek to assess the degree
of risk and level of return that can be expected from each market. The
International Series will invest primarily in non-United States issuers, and
under normal circumstances, more than 80% of the International Series' total
assets will be invested in non-United States issuers located in not less than
three foreign countries.
In pursuing its objective, the International Series will invest primarily in
common stocks of established non-United States companies believed to have
potential for capital growth, income or both. However, there is no requirement
that the International Series invest exclusively in common stocks or other
equity securities. The International Series may invest in other types of
securities including, but not limited to, convertible securities, preferred
stocks, bonds, notes and other debt securities of companies (including
Euro-currency instruments and securities) or obligations of domestic or foreign
governments and their political subdivisions, and in foreign currency
transactions. The Series may invest up to 10% of its total assets in bonds
(sometimes referred to as "junk bonds") considered to be less than investment
grade (but which are not in default at the time of investment), which may
subject the Series to risks attendant to such bonds (see "Risk Factors" below).
When the Adviser believes that the total return potential in debt securities
equals or exceeds the potential return on equity securities, the Series may
substantially increase its holdings in debt securities. The International Series
may establish and maintain part or all of its assets in reserves for temporary
defensive purposes or to enable it to take advantage of buying opportunities.
The International Series' reserves may be invested in domestic as well as
foreign short-term money market instruments including, but not limited to,
government obligations, certificates of deposit, bankers' acceptances, time
deposits, commercial paper, short-term corporate debt securities and repurchase
agreements. The International Series may also engage in certain options
transactions, and enter into futures contracts and related options for hedging
purposes, invest in repurchase agreements and lend portfolio securities. (See
"Other Special Investment Methods.")
The International Series also may invest in the securities of other
investment companies subject to the limitations contained in the 1940 Act (see
"Investment Restrictions" in the Statement of Additional Information). In
certain countries, investments may be made only by investing in other investment
companies that, in turn, are authorized 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
14
<PAGE>
different foreign countries will be represented in the International Series'
investments. The International Series may, from time to time, have more than 25%
of its assets invested in any major industrial or developed country which, in
the view of the Adviser, poses no unique investment risk. The International
Series may purchase securities of companies, wherever organized, which have
their principal activities and interests outside the United States. Under
exceptional economic or market conditions abroad, the International Series may,
for temporary defensive purposes, invest all or a major portion of its assets in
U.S. government obligations or securities of companies incorporated in and
having their principal activities in the United States. The International Series
also may invest its reserves in domestic short-term money market instruments as
described above.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily will consider the
following factors: prospects for relative economic growth among foreign
countries; expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; the
outlook for currency relationships and the range of individual investment
opportunities available to the international investor.
The International Series may make investments in developing countries, which
involve exposure to economic structures that are generally less diverse and
mature than in the United States, and to political systems which may be less
stable. A developing country can be considered to be a country which is in the
initial stages of its industrialization cycle. In the past, markets of
developing countries have been more volatile than the markets of developed
countries; however, such markets often have provided higher rates of return to
investors. The Adviser believes that these characteristics can be expected to
continue in the future.
Generally, the Series will not trade in securities for short-term profits
but, when circumstances warrant, securities may be sold without regard to the
length of time held.
Risk Factors. There are substantial and different risks involved which
should be carefully considered by any investor considering foreign investments.
For example, there is generally less publicly available information about
foreign companies than is available about companies in the United States.
Foreign companies are generally not subject to uniform audit and financial
reporting standards, practices and requirements comparable to those in the
United States. In addition, if it should become necessary, the Fund could
encounter difficulties involving legal processes abroad.
Foreign securities involve currency risks. Exchange rates are determined by
forces of supply and demand in the foreign exchange markets, and these forces
are in turn affected by a range of economic, political, financial, governmental
and other factors. Exchange rate fluctuations can affect the Portfolio's net
asset value and dividends either positively or negatively depending upon whether
foreign currencies are appreciating or depreciating in value relative to the
U.S. dollar. Exchange rates fluctuate over both the short and long term. The
U.S. dollar value of a foreign security tends to decrease when the value of the
dollar rises against the foreign currency in which the security is denominated
and tends to increase when the value of the dollar falls against such currency.
Fluctuations in exchange rates also may affect the earning power and asset value
of the foreign entity issuing the security. Dividend and interest payments may
be repatriated based on the exchange rate at the time of disbursement, and
restrictions on capital flows may be imposed. Losses and other expenses may be
incurred in converting between various currencies in connection with purchases
and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as those
in the United States. In most foreign markets, volume and liquidity are less
than in the United States and, at times, volatility of price can be greater than
in the United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on United States exchanges. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the United States.
There also is the possibility of adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, political or social instability, or diplomatic
developments which could adversely affect investments, assets or securities
transactions of the International Series in some foreign countries. The
International Series is not aware of any investment or exchange control
regulations which might substantially impair the operations of the Series as
described, although this could change at any time.
Particular risks are posed by investments in third world countries or
so-called "emerging markets." These securities may be especially volatile based
on relative economic, political and market conditions present in these
countries. The economics of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries with
which they trade. Certain emerging market countries are either comparatively
undeveloped or are in the process of becoming developed and may consequently be
economically based on a relatively few or closely interdependent industries. A
high proportion of the shares of many emerging market issuers also may be held
by a limited number of large investors trading significant blocks of securities.
While the Adviser will strive to be sensitive to publicized reversals of
economic conditions, political unrest and adverse changes in trading status,
unanticipated political and social developments may affect the values of a
Portfolio's investments in such countries and the availability of additional
investments in such countries.
For many foreign securities, there are U.S. dollar-denominated American
Depository Receipts ("ADRs"), which are traded in the United States on exchanges
or over the counter and are sponsored 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
15
<PAGE>
of the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject. The International Series also may invest in European Depository
Receipts ("EDRs"), which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and are designed for use in the European
securities markets. EDRs are not necessarily denominated in the currency of the
underlying security.
The dividends and interest payable on certain of the International Series'
foreign securities may be subject to foreign withholding taxes, thus reducing
the net amount available for distribution to the International Series'
shareholders. Investors should understand that the expense ratio of the
International Series can be expected to be higher than those of investment
companies investing in domestic securities since the costs of operation are
higher.
Since the International Series may invest up to 10% of its total assets in
bonds considered to be less than investment grade, it may be exposed to greater
risks than if it did not invest in such bonds. With lower rated bonds, there is
a greater possibility that an adverse change in the financial condition of the
issuer may affect its ability to pay principal and interest. See "Risk Factors"
described in connection with the Multi-Sector Series for additional information
regarding investing in lower rated securities.
BALANCED SERIES
The Balanced Series seeks as its investment objectives reasonable income,
long-term capital growth and conservation of capital. The Balanced Series
intends to invest based on combined considerations of risk, income, capital
enhancement and protection of capital value.
The Balanced Series may invest in any type or class of security. Normally,
the Balanced Series will invest in common stocks and fixed income securities;
however, it also may invest in securities convertible into common stocks. At
least 25% of the value of its assets will be invested in fixed income senior
securities. The overall economic and financial outlook determines the allocation
of assets between fixed income and common stock investments. Fixed income
investments are typically made in high quality, lower risk securities. Common
stock investments are made in companies with intermediate and long-term earnings
growth potential such as are invested in by the Growth Series. The Series
attempts to invest in common stocks belonging to fundamentally attractive
sectors and industries and strives to be overweighted in these areas relative to
their representation in broad market indices such as the Standard & Poor's 500.
The current outlook and the asset allocation are continuously reviewed.
The Series may also engage in certain options transactions and enter into
financial futures contracts and related options for hedging purposes and may
invest in deferred or zero coupon debt obligations. (See "Other Special
Investment Methods" and the Statement of Additional Information.)
In implementing the investment objectives of this Series, management will
select securities believed to have potential for the production of current
income, with emphasis on securities that also have potential for capital
enhancement. In an effort to protect its assets against major market declines,
or for other temporary defensive purposes, the Balanced Series may actively
pursue a policy of retaining cash or investing part or all of its assets in cash
equivalents, such as government securities and high grade commercial paper.
REAL ESTATE SERIES
The Real Estate Series seeks as its investment objective capital
appreciation and income with approximately equal emphasis. It intends under
normal circumstances to invest in marketable securities of publicly traded real
estate investment trusts ("REITs") and companies that are principally engaged in
the real estate industry. Under normal circumstances, the Series intends to
invest at least 75% of the value of its assets in these securities.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. Generally,
REITs can be classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Hybrid REITs combine the
characteristics of both equity REITs and mortgage REITs. The Series intends to
emphasize investment in equity REITs.
In determining whether an issuer is "principally engaged" in the real estate
industry, the Adviser 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 the Adviser 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 so that the Adviser believes there are
extraordinary risks associated with investment therein), the Series may invest
up to 100% of its total assets in short-term
16
<PAGE>
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 the Adviser at the time of purchase;
and other long- and short-term instruments which are rated A or higher by S&P or
Moody's at the time of purchase.
Risk Factors. The Real Estate Series is non-diversified under the federal
securities laws. As a non-diversified portfolio, there is no restriction under
the Investment Company Act of 1940 (the "1940 Act") on the percentage of assets
that may be invested at any time in the securities of any one issuer. To the
extent that the Real Estate Series is not fully diversified, it may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if it were more broadly diversified. In
addition, investments by the Real Estate Series in securities of companies
providing mortgage servicing will be subject to the risks associated with
refinancing and their impact on servicing rights.
Although the Real Estate Series does not invest directly in real estate, it
does invest primarily in real estate securities and, accordingly, the value of
shares of the Real Estate Series will fluctuate in response to changes in
economic conditions within the real estate industry. Risks associated with the
direct ownership of real estate and with the real estate industry in general
include, among other things, possible declines in the value of real estate;
risks related to general and local economic conditions; possible lack of
availability of mortgage funds; over-building; extended vacancies of properties;
increases in competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability to third
parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from flood, earthquakes or other natural
disasters; limitations on and variations in rents; dependency on property
management skill; the appeal of properties to tenants; and changes in interest
rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to the risks of financing projects. The Series may invest in new or
unseasoned REIT issuers and it may be difficult or impossible for the Adviser 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 (the "Code"), as amended, and failing to maintain
their exemptions from the 1940 Act. REITs whose underlying assets include
long-term health care properties, such as nursing, retirement and assisted
living homes may be impacted by federal regulations concerning the health care
industry. The Series will indirectly bear its proportionate share of any
expenses paid by the Series itself.
REITs (especially mortgage REITs) are subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations usually rises. Conversely, when interest rates rise, the value of a
REIT's investment in fixed rate obligations can be expected to decline. In
contrast, as interest rates on adjustable rate mortgage loans are reset
periodically, yields on a REIT's investment in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
In addition, investing in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be more subject to abrupt or erratic price movements than larger capitalization
stocks included in the S&P 500 Index.
THEME SERIES
The Theme Series seeks as its investment objective long-term appreciation of
capital through investing in securities of companies that the Adviser believes
are particularly well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide. Examples of thematic
investing would include investing in oil and gas exploration companies during
the energy shortage years of the late 1970s, owning companies which benefited
from lower inflation trends during the early 1980s, investing in companies
acquiring cellular franchises in the late 1980s and technology companies during
the 1990s.
The Adviser will not concentrate its investments in amounts greater than 25%
of the assets of the Series in any particular "industry(ies)" or group(s) of
"industries" without shareholder approval. In determining when and whether to
invest in particular industries, the Adviser will establish strategic (major
changes affecting markets for prolonged periods) and tactical (focused,
short-term) investment themes. Investment themes shall generally reflect trends
which appear likely to drive stocks with similar technologies and products or
which embody broad social, economic, political and technological considerations;
offer substantial appreciation potential; present a visionary idea or creative
solution; and exhibit some independence from economic cycles. The Adviser may
change investment themes once it has determined that an investment theme has
become saturated or fully exploited. The Adviser may pursue one or more
investment themes at any time.
The Adviser will seek to identify companies which, in addition to being
considered well positioned to benefit from investment themes identified, are
also believed to possess attributes such as, but not 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
17
<PAGE>
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. If deemed appropriate, the Series may
invest in South Pacific nations such as Australia and New Zealand. There is no
requirement that the Series, at any given time, invest in any one particular
country or in all of the countries listed above or in any other Asian countries
or other developing markets that are open to foreign investment. In determining
the appropriate distribution of investments among various countries and
geographic regions, the Adviser ordinarily will consider the following factors:
prospects for relative economic growth among Asian countries; expected levels of
inflation; relative price levels of the various capital markets; governmental
policies influencing business conditions; the outlook for currency relationships
and the range of individual investment opportunities available to the
international investor. The Series may make investments in developing or
emerging market countries, which involve exposure to economic structures that
are generally less diverse and mature than in the United States, and to
political systems which may be less stable. A developing country can be
considered to be a country which is in the initial stages of its
industrialization cycle. In the past, markets of developing countries have been
more volatile than the markets of developed countries; however, such markets
often have provided higher rates of return to investors.
In certain countries, investments may be made only by investing in other
investment companies that, in turn, are authorized to invest in the securities
that are issued in such countries. The Series may therefore invest in the
securities of other investment companies subject to the limitations contained in
the 1940 Act (see "Investment Restrictions" in the Statement of Additional
Information). The Series' purchase of the securities of other investment
companies (and closed-end companies) results in the layering of expenses
including operating costs, investment advisory and administrative fees.
The Series may establish and maintain reserves of up to 100% of its assets
for temporary defensive purposes under abnormal market or economic conditions.
The Series' reserves may be invested in domestic as well as foreign short-term
money market instruments including, but not limited to, government obligations,
certificates of deposit, bankers' acceptances, time deposits, commercial paper,
short-term corporate debt securities and repurchase agreements. When the Series'
assets are held in cash or cash equivalents, it is not investing in securities
intended to meet the Series' investment objective.
See International Series for a description of risks associated with foreign
investments.
Additional discussion regarding risks involved in investing in the Series
are described in the "Other Special Investment Methods" section below.
ENHANCED INDEX SERIES
The investment objective of the Enhanced Index Series is to seek high total
return by investing in a broadly diversified portfolio of equity securities of
large and medium capitalization companies within market sectors reflected in the
S&P 500. Under normal market conditions, the Series shall invest at least 80% of
its net assets in common stocks and other equity securities. The Series seeks to
achieve its investment objective by investing in a portfolio of undervalued
common stock and other equity securities which appear to offer growth potential
and an overall volatility of return similar to that of the S&P 500.
The S&P 500 is a market weighted compilation of 500 common stocks selected
on a statistical basis by Standard & Poor's Corporation. The S&P 500 is
typically composed of issues in the industrial, financial, public utilities and
transportation sectors. Most stocks that comprise the S&P 500 are traded on the
New York Stock Exchange ("NYSE"), although some are traded on the American Stock
Exchange and in the Over-the-Counter market ("OTC").
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
18
<PAGE>
to exclude stocks within economic sectors which appear to be extremely
overvalued. See "Other Special Investment Methods."
The Series may retain cash or invest part or all of its assets in money
market instruments and cash equivalents for temporary or defensive purposes.
Money market instruments sought for investment for such purposes include
obligations issued or guaranteed by the U.S. Government or any of its
instrumentalities or agencies, commercial paper, bank obligations, repurchase
agreements and other debt obligations of the U.S. Government and foreign
issuers.
Risk Factors. While the Adviser shall seek to reduce volatility relative to
the S&P 500 through diversification and continual evaluation of index equities,
the value of the Series' assets are expected to positively correlate with
changes in the S&P 500 and the stock market generally. Consequently, economic
downturns and interest rate increases may cause a precipitous decrease in the
value of the Series' holdings.
The Series commenced operations on July 15, 1997 based upon an initial
capitalization of $15 million provided by Phoenix. The ability of the Series to
raise additional capital for investment purposes may directly affect the
spectrum of portfolio holdings and performance.
NIFTY FIFTY SERIES
The Nifty Fifty Series seeks its objective through investment in
approximately 50 different securities which the Adviser believes represent the
best potential to achieve long-term growth of capital. Dividend and interest
income to be received from portfolio securities is largely incidental.
Under normal market conditions, it is expected that at least 75% of the
Nifty Fifty Series' assets will be invested in common stocks of high-quality
growth companies (i.e., companies which generally exceed $50 million in annual
net income) which, at the time of investment, would satisfy the applicable
listing requirements of the NYSE with respect to demonstrated earning power,
years in operation, number of publicly held shares and net tangible assets.
It is expected that the remaining portion of the Nifty Fifty Series'
investment portfolio will be invested in common stocks of corporations with
rapidly growing earnings per share or in common stocks of corporations that are
believed to be undervalued by other criteria used by the Adviser. Some of these
companies may be unseasoned, although others may be well-known and established.
While the Nifty Fifty Series anticipates being fully invested at all times,
except for temporary defensive purposes, it may for short periods of time have
more or less than 50 different securities while it is establishing or
eliminating a particular position.
The Nifty Fifty Series may invest in the securities of companies listed on
any exchange or traded in the over-the-counter market, and is expected to invest
principally in common stocks. The Series' investments may also include, to a
limited extent, preferred stocks, warrants and convertible debt obligations, if
deemed appropriate by the Adviser in meeting the Series' objectives.
The Nifty Fifty Series may invest in foreign securities, but typically this
is less than 5% of its assets.
Risk Factors. Many of the companies of the Nifty Fifty Series' investment
portfolio may be considered small (i.e., less than $50 million in annual net
income), and the volatility of price movements of the securities of such
companies is likely to be greater than that of the S&P 500. Since this Series
contains securities of a limited number of companies, it may be more sensitive
to changes in the market value of a single issuer or industry in its portfolio;
therefore, the net asset value per share of the Nifty Fifty Series may fluctuate
substantially, and the Series may not be appropriate for short-term investors.
SENECA MID-CAP SERIES
The Seneca Mid-Cap Series seeks appreciation greater than that of the S&P
Mid-Cap Index. The Seneca Mid-Cap Series invests primarily in common stocks of
growth companies that meet certain fundamental standards and that the Adviser
believes have the potential for above-average market appreciation. This Series
generally invests at least 65% of its assets in common stocks of companies with
market capitalizations between $500 million and $5 billion, although it may at
times have significant investments in companies with higher or lower market
capitalizations.
In evaluating companies' potential for market appreciation, the Adviser
seeks companies that, among other things, it believes will demonstrate greater
long-term earnings growth than the average company included in the S&P Mid-Cap
Index. This approach is based on the belief that growth in a company's earnings
will correlate with growth in the price of its stock. The Adviser seeks to
identify companies that have the most attractive earnings prospects and
favorable valuations. Although this analysis stresses the long-term potential
for earnings growth, this Series may buy securities in anticipation of
relatively short-term price gains and may engage in other opportunistic trading
activities.
This Series may also invest in preferred stocks, warrants and debt
instruments, including bonds convertible into common stocks. When the Adviser
determines that market conditions warrant, the Series may invest without limit
in cash and cash equivalents for temporary defensive purposes, although this is
not expected to occur routinely. The Series may engage in hedging transactions
using, among other things, options and futures contracts.
The Series may invest as much as 20% of its assets in foreign securities if
those securities meet the same criteria for the Series' investments in general.
At times the Series may have no foreign investments. Generally, the Series'
foreign investments will be made through American Depository Receipts ("ADRs")
or stocks of foreign issuers that are traded directly on U.S. securities
exchanges or in the NASDAQ Stock Market.
Risk Factors. As this Series invests primarily in common stocks, its
investments are subject to stock market price volatility. The Series is intended
for investors who have the perspective, patience and financial ability to take
on above-average stock market volatility in pursuit of long-term capital growth.
Prices of securities issued by medium-capitalization companies are often more
volatile than those of large, well-established companies, in part because of the
relatively fewer shares available and the potential for developments in a
smaller company's business to have relatively greater impact on its earnings and
revenues than developments in the business of larger companies. In addition, the
risk of insolvency (with attendant losses to shareholders) is greater for
smaller companies than for larger companies. As a result, because of its
investment focus on companies
19
<PAGE>
with medium-capitalization, the Seneca Mid-Cap Series' performance can be
expected to be more volatile.
GROWTH & INCOME SERIES
The Growth & Income Series' investment objective is to seek dividend growth,
current income and capital appreciation by investing in common stocks. Under
normal circumstances, the Series is designed to seek a total return exceeding
that of the S&P 500 and a dividend yield exceeding the S&P 500's dividend yield.
Under normal circumstances, at least 65% of the Series' assets will be invested
in common stock or other equity securities; however, it is the intention of the
Adviser to be fully invested in equity securities.
The Adviser utilizes a quantitative value strategy in pursuit of the Series'
investment objective. Quantitative value is an active management strategy which
involves selection of securities primarily from the equity securities of the
1,500 largest companies traded in the United States, ranked by market
capitalization. The Adviser optimizes the portfolio to achieve a desired balance
of risk and return potential, including a targeted yield that exceeds the yield
of the S&P 500. This strategy seeks securities of companies relatively
undervalued and with improving fundamentals.
The Series' management strategy may cause its portfolio to be more heavily
weighted in some industries than in others. However, the Series will not invest
25% or more of its total assets in securities of companies whose principal
business activities are in the same industry.
VALUE SERIES
The Value Series' primary investment objective is to seek long-term capital
appreciation, and its secondary objective is to seek current income by investing
in a diversified portfolio of common stocks. The Series seeks to achieve its
objective by investing in common stocks that meet certain quantitative standards
that, in the judgment of the Adviser, indicates above average financial
soundness and intrinsic value relative to price. Under normal market conditions,
at least 65% of the Series' total assets will be invested in common stocks.
The Adviser applies a selection process which selects stocks that, at the
time of purchase, meet certain investment criteria relating to price, dividend
yield, going concern value and debt levels. In selecting the securities, the
Adviser screens a universe of over 2,500 companies for the Value Series. From
this universe, the Adviser anticipates that only a few hundred companies will
meet one or more of its investment criteria. Each of these companies is analyzed
on the basis of the Adviser's projections of the companies' growth in earnings
and dividends, earnings momentum and undervaluation based on a dividend discount
model. Target prices and value ranges are developed from this analysis and
portfolio selection is made from among the top-rated securities. The securities
selected for the Series are generally traded on the NYSE, the American Stock
Exchange and in OTC markets.
A security normally will be sold once it reaches its target price, when
negative changes occur with respect to the company or its industry, or when
there is significant change in the security with respect to one or more of the
investment criteria. The Series may at times continue to hold equity securities
that no longer meet the criteria but that are believed suitable in view of the
Series' objectives.
SCHAFER MID-CAP SERIES
The Schafer Mid-Cap Series' primary investment objective is long-term
capital appreciation, and portfolio securities are selected primarily with a
view to achievement of this objective. The Series' primary objective is also a
fundamental policy of the Series and may not be changed without shareholder
approval. Current income is a secondary objective in the selection of
investments. This secondary objective is not a fundamental policy of the Series
and may be changed by a vote of a majority of the Board of Trustees without a
vote of the shareholders.
The policy of the Series is to invest in securities which are believed by
the Adviser to offer the possibility of increase in value, for the most part,
consisting of common stocks of established companies having a strong financial
position and a low stock market valuation at the time of purchase (as measured
by price/earnings ratios as compared with average price/earnings ratios of major
market indices, e.g., S&P 500) in relation to investment value (as measured by
prospective earnings and dividend growth rates as compared with market averages
of such rates). Investments are then monitored by the Series' Adviser for price
movement and earnings developments. Once a security is purchased, it will
generally be held in the portfolio until it no longer meets the Series'
financial or valuation criteria as determined by the Series' Adviser.
The Series expects to purchase and sell securities at such times as it deems
to be in the best interest of its shareholders. Although there may be some
short-term portfolio turnover, securities are generally purchased which the
Adviser believes will appreciate in value over the long term. The Series
anticipates that its annual portfolio turnover rate should not significantly
exceed 50%. The Series, however, has not placed any limit on its rate of
portfolio turnover and securities may be sold without regard to the time they
have been held when, in the opinion of the Adviser, investment considerations
warrant such action.
The Series does not concentrate its investments in any particular industry
or group of industries, but diversifies its holdings among as many different
companies and industries as seems appropriate in the light of conditions
prevailing at any given time.
Other than as considered appropriate for cash reserves, the Series will
generally maintain a fully invested position in common stocks of publicly-held
companies, primarily in stocks of companies listed on a national securities
exchange and other equity securities (common stocks or securities convertible
into common stocks). Investments may also be made in debt securities which are
convertible into equity securities and preferred stocks which are convertible
into common stock and in warrants or other rights to purchase common stock,
which in each case are considered equity securities by the Adviser. The Adviser
rarely engages in market timing by shifting the portfolio or a significant
portion thereof in or out of the market in anticipation of market fluctuations.
Although the Series' portfolio will normally be fully invested in equity
securities as described above, a portion of its assets may be held from time to
time in cash or cash equivalents (e.g., short-term money market securities such
as U.S. Treasury bills, prime-rated commercial paper, certificates of deposit,
variable rate
20
<PAGE>
demand notes or repurchase agreements) when the Adviser is unable to identify
attractive equity investments.
The Series expects to invest primarily in the securities of U.S. issuers,
although it may also invest up to 20% of its assets in securities of foreign
issuers, or depository receipts for such securities, which are traded in a U.S.
market or are available through a U.S. broker or dealer, regardless of whether
such securities or depository receipts are traded in U.S. dollars, and which
meet the criteria for investment selection set forth above. See "International
Series" for a description of risks associated with foreign investments.
OTHER SPECIAL INVESTMENT METHODS
- --------------------------------------------------------------------------------
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, Nifty
Fifty, Seneca Mid-Cap, Schafer Mid-Cap, Growth & Income, Value and Asia Series
may invest in repurchase agreements. However, no more than 10% of a Series' net
assets will be invested in repurchase agreements having maturities of more than
seven days. A repurchase agreement is a transaction where a Series buys a
security at one price and the seller simultaneously agrees to buy that same
security back at a higher price. Repurchase agreements will be entered into with
commercial banks, brokers and dealers considered by the Board of Trustees and
the Adviser, acting at the Board's direction, to be creditworthy. In addition,
the repurchase agreements are fully collateralized by the underlying instrument
and are marked to market every business day. However, the use of repurchase
agreements involves certain risks such as default by, or insolvency of, the
other party to the transaction.
OPTIONS
The Multi-Sector, Money Market, Growth, Allocation, Balanced, International,
Theme, Enhanced Index, Seneca Mid-Cap, Growth & Income, Value and Asia Series
may write (sell) covered call options on securities owned by them, including
convertible securities, provided that such call options are listed on a national
securities exchange. Generally, when a Series writes a covered call option, it
will acquire the underlying security or will have absolute and immediate right
to acquire that security without additional consideration upon conversion or
exchange of other securities held by the Series. The Money Market, Growth and
Multi-Sector Series may only purchase call options for the purpose of
terminating a call option previously written. The Allocation, Balanced,
International, Value, Growth & Income, Seneca Mid-Cap and Theme Series also may
buy exchange-traded call and put options on equity and debt securities and on
stock market indexes. The International, Enhanced Index, Value, Growth & Income,
Seneca Mid-Cap and Theme Series also may write or buy OTC options, buy put
options on securities indices and enter into options transactions on a foreign
currency. Generally, a put option on a securities index is similar to a put
option on an individual security, except that the value of the option depends on
the weighted value of the group of securities comprising the index and all
settlements are made in cash. The International, Theme, Enhanced Index, Growth &
Income and Asia Series also may invest up to 5% of its net assets in warrants
and stock rights, which are almost identical to call options except that they
are issued by the issuer of the underlying security rather than an option
writer. However, no more than 2% of its net assets will be invested in warrants
and stock rights not traded on the NYSE or American Stock Exchange. A complete
description of options, warrants and stock rights and their associated risks is
contained in the Statement of Additional Information. Options are forms of
"derivatives" in that their value is dependent on fluctuations in the value of
other securities.
The Fund understands the position of the staff of the SEC to be that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid securities. The Fund has adopted procedures for engaging in OTC options
transactions for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the International, Enhanced Index, Value,
Growth & Income, Seneca Mid-Cap and Theme Series. A brief description of these
procedures and related limitations appears in the Statement of Additional
Information.
FINANCIAL FUTURES AND RELATED OPTIONS
The Allocation, Value, Growth & Income, Seneca Mid-Cap and Balanced Series
may enter into financial futures contracts for the purchase or sale of debt
obligations traded on exchanges regulated by 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, Value, Growth & Income, Seneca Mid-Cap or Balanced
21
<PAGE>
Series' futures contracts (both receipts and delivery) will not exceed 10% of
such Series' total assets.
The International, Theme, Enhanced Index, Value, Seneca Mid-Cap, Growth &
Income and Asia Series also may enter into financial futures contracts and
related options to hedge against anticipated changes in the market value of its
portfolio securities or securities which it intends to purchase or in the
exchange rate of foreign currencies. The International, Theme and Asia Series
will not purchase or sell any financial futures contract or related option if,
immediately thereafter, the sum of the cash or U.S. Treasury bills committed
with respect to its existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of the
Series' total assets.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or a
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There is also the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
even though the purchase or sale of the contract would not have resulted in a
loss. Futures are forms of derivatives.
A complete description of financial futures and related options is contained
in the Statement of Additional Information.
FOREIGN SECURITIES
The International and Asia Series will purchase foreign securities as
discussed above. In addition, the other Series may invest up to 25% (up to 35%
for the Theme Series, 20% for the Seneca Mid-Cap and Schafer Mid-Cap Series and
typically less than 5% for the Nifty Fifty Series) of total net asset value in
foreign securities. The Multi-Sector Series may invest up to 50% of total net
asset value in foreign debt securities. The Series, other than the
International, Theme, Multi-Sector 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.
The foreign debt securities in which the Series may invest are issued by
foreign issuers in developed countries considered creditworthy by the Adviser
and in so-called emerging market countries. The Series will invest in government
obligations supported by the authority to levy taxes sufficient to ensure the
payment of all principal and interest due on such obligations. Because foreign
government obligations, like U.S. government obligations, are generally
guaranteed as to principal and interest by the government issuing the security,
the principal risk of investing in foreign government obligations is that the
foreign government will not or will be unable to, meet its obligations. The
Series also may purchase securities of nongovernmental issuers considered
creditworthy by the Adviser.
While the International, Theme, Multi-Sector and Asia Series may purchase
foreign debt securities denominated in foreign currencies ("non-U.S. dollar
securities"), the amount invested in such non-U.S. dollar securities may vary
depending on the relative yield of such securities, the relative strength of the
economies and the financial markets of such countries, the relative interest
rates available in such countries and the relationship of such countries'
currencies to the U.S. dollar. Investments in non-U.S. dollar securities and
currency will be evaluated on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and political data.
Investments in foreign securities, particularly those of nongovernmental
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
noninvestment grade debt so long as the asset is liquid, unencumbered and marked
to market daily equal to the market value of the contract, minus the Series'
initial margin deposit with respect thereto) will be deposited in a segregated
account with the Fund's custodian bank to collateralize fully the position and
thereby ensure that it is not leveraged.
When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. A
Series also may hedge its foreign currency exchange rate risk by engaging in
currency financial futures and options transactions. For more information about
foreign currency transactions, see the Statement of Additional Information.
LEVERAGE
The Theme, Value, Seneca Mid-Cap and Enhanced Index Series may, from time to
time, increase their 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
22
<PAGE>
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.
Schafer Mid-Cap, Growth & Income and Nifty Fifty Series may not borrow
except for emergency or other extraordinary purposes, only from a bank, and only
in an amount not to exceed 5% of the Series' total assets (33-1/3% in the case
of Growth & Income Series). Growth & Income and Nifty Fifty Series must also
maintain a 300% asset coverage ratio. Schafer Mid-Cap Series may collateralize
any such borrowings with up to 10% of its total assets; Growth & Income Series
may collateralize any such borrowing with up to 33-1/3% of its total assets.
PRIVATE PLACEMENTS AND RULE 144A SECURITIES
Each Series may purchase securities which have been privately issued and are
subject to legal restrictions on resale or which are issued to qualified
institutional investors under special rules adopted by the SEC. Such securities
may offer higher yields than comparable publicly traded securities. Such
securities ordinarily can be sold by the Series in secondary market transactions
to certain qualified investors pursuant to rules established by the SEC, in
privately negotiated transactions to a limited number of purchasers or in a
public offering made pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"). Public sales of such
securities by the Fund may involve significant delays and expense. Private sales
often require negotiation with one or more purchasers and may produce less
favorable prices than the sale of similar unrestricted securities. Public sales
generally involve the time and expense of the preparation and processing of a
registration statement under the 1933 Act (and the possible decline in value of
the securities during such period) and may involve the payment of underwriting
commissions. In some instances, the Series may have to bear certain costs of
registration in order to sell such shares publicly. Except in the case of
securities sold to qualifying institutional investors under special rules
adopted by the SEC for which the Trustees determine the secondary market is
liquid, Rule 144A Securities will be considered illiquid. Trustees may determine
the secondary market is liquid based upon the following factors which will be
reviewed periodically as required pursuant to procedures adopted by the Series:
the number of dealers willing to purchase or sell the security; the frequency of
trades; dealer undertakings to make a market in the security; and the nature of
the security and its market. Investing in Rule 144A Securities could have the
effect of increasing the level of these Series' illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Each Series may invest up to 15% of its net assets in illiquid
securities.
MORTGAGE-BACKED SECURITIES
The Multi-Sector, Real Estate and Seneca Mid-Cap Series also may invest in
mortgage-backed securities such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and collateralized
mortgage obligations ("CMOs"). CMOs are hybrid instruments with characteristics
of both mortgage-backed and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
Government National Mortgage Association (GNMA), or Federal National Mortgage
Association. CMOs are structured into multiple classes, with each class bearing
a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive principal only
after the first class has been retired. REMICs are similar to CMOs and are fixed
pools of mortgages with multiple classes of interests held by investors.
The Series also may invest in pass-through securities that are derived from
mortgages. A pass-through security is formed when mortgages are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
The Series may purchase pass-through securities at a premium or at a
discount. The value of pass-through securities in which the Series may invest
will fluctuate with changes in interest rates. The value of such securities
varies inversely with interest rates, except that when interest rates decline,
the value of pass-through securities may not increase as much as other debt
securities because of the prepayment feature. Changes in the value of such
securities will not affect interest income from those obligations but will be
reflected in the Series' net asset value.
A particular risk associated with pass-through securities involves the
volatility of prices in response to changes in interest rates or prepayment
risk. Prepayment rates are important because of their effect on the yield and
price of securities. Prepayments occur when the holder of an individual mortgage
prepays the remaining principal
23
<PAGE>
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 (other than Nifty Fifty
Series) may, from time to time, lend securities from its portfolio to brokers,
dealers and financial institutions deemed creditworthy and receive, as
collateral, cash or cash equivalents which at all times while the loan is
outstanding will be maintained in amounts equal to at least 100% (except the
Asia Series which will maintain an amount equal to at least 102%) of the current
market value of the loaned securities. Any cash collateral will be invested in
short-term securities which will increase the current income of the Series
lending its securities. A Series will have the right to regain record ownership
of loaned securities to exercise beneficial rights such as voting rights and
subscription rights. While a securities loan is outstanding, the Series is to
receive an amount equal to any dividends, interest or other distributions with
respect to the loaned securities. A Series may pay reasonable fees to persons
unaffiliated with the Fund for services in arranging such loans.
Even though securities lending usually does not impose market risks on the
lending Series, a Series would be subject to risk of loss due to an increase in
value if the borrower fails to return the borrowed securities for any reason
(such as the borrower's insolvency). Moreover, if the borrower of the securities
is insolvent, under current bankruptcy law, a Series could be ordered by a court
not to liquidate the collateral for an indeterminate period of time. If the
borrower is the subject of insolvency proceedings and the collateral held may
not be liquidated, the result could be a material adverse impact on the
liquidity of the lending Series.
WHEN-ISSUED SECURITIES
The Enhanced Index Series may commit to purchase new issues of securities on
a when-issued or forward delivery basis for payment and delivery on a later
date. The price and yield are generally fixed on the commitment to purchase
date. During the period between purchase and settlement, the Series does not
earn interest. Upon settlement, the security's market value may become more or
less than the purchase price.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund may not invest more than 25% of the assets of any one Series in any
one industry (except that the Money Market and Allocation Series may invest more
than 25% of their assets in the banking industry and the Real Estate Series may
invest at least 75% of its assets in the real estate industry). If the Fund
makes loans of the portfolio securities of any Series, the market value of the
securities loaned may not exceed 25% of the market value of the total assets of
such Series.
In addition to the investment restrictions described above, each Series'
investment program is subject to further restrictions which are described in the
Statement of Additional Information. The restrictions for each Series are
fundamental and may not be changed without shareholder approval.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Each Series pays brokerage commissions for purchases and sales of portfolio
securities. A high rate of portfolio turnover involves a correspondingly greater
amount of brokerage commissions and other costs which must be borne directly by
a Series and thus indirectly by its shareholders. It also may result in the
realization of larger amounts of short-term capital gains, which are taxable to
shareholders as ordinary income. The rate of portfolio turnover is not a
limiting factor when the Adviser deems changes appropriate. It is anticipated
that the turnover rate for the Enhanced Index, Nifty Fifty, Seneca Mid-Cap,
Growth & Income, Value and Schafer Mid-Cap Series generally will not exceed
100%. Although securities for the Theme Series are not purchased for the
short-term, the Adviser's strict sell discipline may result in rates of
portfolio turnover equivalent to those identified by the SEC as appropriate for
capital appreciation funds with substantial short-term trading. The Adviser's
approach dictates that underperforming securities and securities not consistent
with prevailing themes will be sold. Portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the Series' securities
(excluding short-term securities). The turnover rate may vary greatly from year
to year and may be affected by cash requirements for redemptions of shares of a
Series and by compliance with provisions of the Internal Revenue Code, relieving
investment companies which distribute substantially all of their net income from
federal income taxation on the amounts distributed. The rates of portfolio
turnover for each Series (other than the Money Market, Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap 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
24
<PAGE>
"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 15 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 adviser to all Series except the Real Estate and Asia
Series is Phoenix Investment Counsel, Inc. ("PIC"), which is located at 56
Prospect Street, Hartford, Connecticut 06115. 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. In addition to
the Fund, PIC 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, Core Equity Portfolio and the Enhanced Reserves
Portfolio), Phoenix Growth and Income Fund of Phoenix Equity Series Fund,
Phoenix Investment Trust 97 and Phoenix Multi-Portfolio Fund (all portfolios
other than the Real Estate Securities Portfolio) and as subadviser to Sun
America Series Trust. PIC also serves as subadviser to the Asia Series. PIC was
originally organized in 1932 as John P. Chase, Inc. As of December 31, 1997, PIC
had approximately $20.5 billion in assets under management.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated (JPM & Co.), 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. JPM
& Co., through J.P. Morgan and its other investment management subsidiaries, had
approximately $255 billion in assets under management as of December 31, 1997.
Roger Engemann & Associates ("Engemann") serves as subadviser to the Nifty
Fifty Series. Engemann is a wholly owned subsidiary of Pasadena Capital
Corporation which, in turn, is a wholly-owned subsidiary of PD&P. Engemann has
been engaged in the investment management business since 1969 and provides
investment counseling services to retirement plans, colleges, corporations,
trusts and individuals. Engemann also serves as investment adviser to the
Phoenix-Engemann Funds. As of December 31, 1997, Engemann had approximately $6.2
billion in assets under management.
Seneca Capital Management, LLC ("Seneca") serves as subadviser to the Seneca
Mid-Cap Series. PD&P owns a majority interest in Seneca; the balance is owned by
certain of its employees, including Gail Seneca, one of the portfolio management
team leaders, and the former limited partners of GMG/Seneca Capital Management,
LLC. Seneca (including its predecessor, GMG/Seneca Capital Management LP) has
been an investment adviser since 1989, managing equity and fixed-income
securities portfolios primarily for institutions and individuals. As of December
31, 1997, Seneca had approximately $4.4 billion in assets under management.
Schafer Capital Management, Inc. ("Schafer"), serves as subadviser to the
Schafer Mid-Cap Series. Schafer's principal place of business is located at 101
Carnegie Center, Suite 107, Princeton, New Jersey. Schafer has been engaged in
the investment management business since 1981, specializing in long-term
investing in the equity markets. As of December 31, 1997, Schafer had
approximately $1.7 billion in assets under management.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM"). DPIM is a subsidiary of PD&P and is located at 55 East
Monroe Street, Suite 3600, Chicago, Illinois 60603. PD&P is a NYSE traded
company that provides investment management and related services to
institutional investors, corporations and individuals through operating
subsidiaries. DPIM also serves as investment adviser to the Core Equity Fund of
Phoenix Equity Series Fund, the Enhanced Reserves, Core Equity and Real Estate
Equity Securities Portfolios of Phoenix Duff & Phelps Institutional Mutual
Funds, the Real Estate Securities Portfolio of Phoenix Multi-Portfolio Fund and
three closed-end funds: Duff & Phelps Utilities Income Inc., Duff & Phelps
Utilities Tax-Free Income Inc. and Duff & Phelps Utility and Corporate Bond
Trust Inc. As of December 31, 1997, DPIM had approximately $13 billion in assets
under management.
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors, LLC ("PAIA"). PAIA is located at One American Row, Hartford,
Connecticut 06102. PAIA, a Delaware limited liability company formed in 1996 and
jointly owned and managed by PM Holdings, Inc., a 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 One Financial Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida
33394. PAIA also serves as investment adviser to Phoenix-Aberdeen Series Fund.
While many of the officers and directors of the Adviser and subadviser have
extensive experience as investment professionals, due to its recent formation,
PAIA has no prior operating history. Aberdeen Fund Managers, Inc. also serves as
subadviser to the Asia Series and to Phoenix-Aberdeen Series Fund.
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 December 31, 1997, Aberdeen Asset Management and its advisory
25
<PAGE>
subsidiaries had approximately $19 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. Investment and trading decisions for the Balanced Series
are made by a team of equity investment professionals and a team of fixed income
investment professionals.
Allocation Series. Ms. Mary E. Canning serves as portfolio manager of the
Allocation Series and, as such, is primarily responsible for the day-to-day
management of the Series' investments. Ms. Canning has served as portfolio
manager since August 1996, and previously served as co-manager from June to
August 1996. Since April 1998, Ms. Canning has been a managing director,
equities, of PIC; she was a vice president of PIC from 1991 to 1998 and also is
a vice president of the Fund and of Phoenix Series Fund (since 1987). From June
1991 to November 1995, Ms. Canning was associate portfolio manager, Common
Stock, Phoenix Home Life Mutual Insurance Company and held various other
positions with Phoenix Home Life from 1982 to 1991.
Multi-Sector Series. Mr. David L. Albrycht has served as portfolio manager
of the Multi-Sector Series since March 1998 and, as such, is primarily
responsible for the day-to-day management of the Series' portfolio. He also is
portfolio manager of Phoenix Multi-Sector Fixed Income Fund, Inc., (since April
1995, co-manager March 1994 to April 1995), Phoenix Multi-Sector Short Term Bond
Fund (since August 1993), and Phoenix Strategic Income Fund of Phoenix
Multi-Portfolio Fund (since August 1993). Mr. Albrycht is a managing director,
fixed income of PIC and National Securities & Research Corporation, an affiliate
of PIC. He has held various investment management positions with Phoenix and its
affiliates since 1989.
Growth Series. Investment and trading decisions for the Growth Series are
made by a team of equity investment professionals.
International Series. Mr. David Lui is the portfolio manager of the
International Series and, as such, is primarily responsible for the day-to-day
management of the Series' investments. He also is portfolio manager of Phoenix
Worldwide Opportunities Fund and the International Portfolio of Phoenix
Multi-Portfolio Fund. Mr. Lui previously served as co-portfolio manager for
these funds from July 1996 until March 1998 and as associate portfolio manager
from June 1995 to July 1996. Mr. Lui is a managing director, equities of PIC and
National Securities & Research Corporation, an affiliate of PIC (since 1996).
From 1993 to 1995, Mr. Lui was a 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. Since April 1998, Ms. Sapia is a
director of money market trading of PIC. Previously, from April 1997 to April
1998, she was 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. Mr. Michael Schatt is responsible for managing the
assets of the Real Estate Series. Mr. Schatt is employed as managing director of
PD&P and is a vice president of the Fund, Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Portfolio Fund, Duff & Phelps Utilities Income Inc.
and DPIM. His current responsibilities include serving as coportfolio manager of
the Real Estate Securities Portfolio of Phoenix Multi-Portfolio Fund, the Real
Estate Equity Securities Portfolio of Phoenix Duff & Phelps Institutional Mutual
Funds, and managing the real estate investment securities of Duff & Phelps
Utilities Income Inc. Previously he served as director of the Real Estate
Advisory Practice for Coopers & Lybrand, LLC, and has over 16 years experience
in the real estate industry.
Theme Series. Mr. William J. Newman serves as portfolio manager of the Theme
Series and, as such, is primarily responsible for the day-to-day management of
the Series' portfolio. Mr. Newman also serves as portfolio manager of the
Mid-Cap Portfolio of Phoenix Multi-Portfolio Fund, and the Small Cap Fund and
Strategic Theme Fund of Phoenix Strategic Equity Series Fund. Mr. Newman also is
executive vice president, managing director of the small/mid-cap team and chief
investment strategist of PIC. Mr. Newman joined Phoenix in March 1995 as chief
investment strategist and managing director for Phoenix Investments. 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 Aberdeen Asset
Management Asia 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
26
<PAGE>
and research and development of structured equities. Prior to joining J.P.
Morgan in 1992, Mr. Wiess was a stock index arbitrager for seven years at
Oppenheimer & Co.
Nifty Fifty Series. Mr. Roger Engemann, Mr. James E. Mair and Mr. John S.
Tilson are primarily responsible for the day-to-day management of the Series.
Messrs. Engemann, Mair and Tilson also manage the investment portfolio of
Phoenix Aggressive Growth Fund of Phoenix Series Fund. Each is a managing
director, equities of PIC. Mr. Engemann has been president of Engemann since its
inception. Messrs. Mair and Tilson are both executive vice presidents of
Engemann, and both have been with Engemann since 1983.
Seneca Mid-Cap Series. Ms. Gail P. Seneca and Mr. Richard D. Little are the
portfolio management team leaders for the Series and, as such, are primarily
responsible for the day-to-day management of the Series' assets. Ms. Seneca is
the chief executive officer and chief investment officer of Seneca and a team
leader of the portfolio management team of each of the Seneca Funds. From
October 1987 until October 1989, Ms. Seneca was senior vice president of the
Asset Management Division of Wells Fargo Bank and from October 1983 to September
1987, she was investment strategist and portfolio manager for Chase Lincoln
Bank, heading the Fixed Income Division. Mr. Little has been with Seneca since
December 1989. He is a general partner and director of Equities. Before he
joined Seneca, Mr. Little held positions as an analyst, board member and
regional manager with Smith Barney, NatWest Securities and Montgomery
Securities.
Growth & Income Series. Mr. Steven L. Colton serves as portfolio manager of
the Growth & Income Series and, as such, is primarily responsible for the
day-to-day operation of the Series. Mr. Colton joined PD&P in June 1997; he is a
managing director, value equities of PIC. Mr. Colton also is portfolio manager
of the Growth and Income Fund of Phoenix Equity Series Fund and is one of the
portfolio managers of Phoenix Income and Growth Fund. Previously, Mr. Colton was
portfolio manager for the American Century Income & Growth Fund from its
inception in December 1990 through May 1997.
Value Series. Mr. Christian C. Bertelsen serves as portfolio manager of the
Value Series and, as such, is primarily responsible for the day-to-day
management of the Series' investments. Mr. Bertelsen joined PD&P in July 1997;
he is a managing director, value equities of PIC. Mr. Bertelson also is
portfolio manager of Phoenix Value Equity Fund and Phoenix Small Cap Value Fund
of Phoenix Investment Trust 97. Previously, from 1996 to July 1997, Mr.
Bertelsen was employed by Dreman Value Advisors where he served as chief
investment officer and portfolio manager of the Kemper-Dreman Contrarian and
Small Cap Value Funds. From 1993 to 1996, Mr. Bertelsen was a senior vice
president of Eagle Asset Management where he managed private and institutional
assets, as well as the Heritage Value Equity Fund. Mr. Bertelsen has over 30
years' investment experience.
Schafer Mid-Cap Series. Mr. David K. Schafer is the portfolio manager for
the Schafer Mid-Cap Series and, as such, is primarily responsible for the
day-to-day management of the Series' portfolio. Mr. Schafer has been in the
investment management business for more than twenty-five years. Mr. Schafer is
the president of Schafer Capital Management, Inc. and is also portfolio manager
for the Strong Schafer Value Fund. Mr. Schafer was a securities analyst, first
for Arnold Bernhard & Co., Inc., publisher of The Value Line Investment Survey,
from June 1966 to June 1968; for J & W Seligman & Co. from June 1968 to December
1970; and for Fariston Management Corp., from January 1971 to November 1972. In
1972, he joined the treasury department of INCO Ltd. to supervise that company's
pension assets, and in 1974 he began managing a portion of those assets himself.
In 1981, Mr. Schafer left INCO Ltd. to found Schafer Capital Management.
ADVISORY FEES
As compensation for its services for all Series, the Advisers are entitled
to a fee at an annual rate of the average daily net assets of the Series,
payable monthly, as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market..... .40% .35% .30%
Multi-Sector..... .50% .45% .40%
Balanced......... .55% .50% .45%
Allocation....... .60% .55% .50%
Growth........... .70% .65% .60%
International.... .75% .70% .65%
Theme ........... .75% .70% .65%
Nifty Fifty...... .90% .80% .70%
Growth & Income.. .70% .65% .60%
Value............ .70% .65% .60%
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
SERIES
- ------
Enhanced Index... .45%
Seneca Mid-Cap... .80%
Schafer Mid-Cap.. 1.05%
The total advisory fees of .75%, .75%, .90%, .80% and 1.05% of the aggregate
net assets of the International, Theme, Nifty Fifty, Seneca Mid-Cap and Schafer
Mid-Cap Series, respectively, is greater than that paid by most mutual funds;
however, the Board of Trustees of the Fund has determined that it is similar to
fees charged by other mutual funds whose investment objectives are similar to
those of the International, Theme, Nifty Fifty, Seneca Mid-Cap and Schafer
Mid-Cap Series.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the Enhanced Index
Series to J.P. Morgan, with respect to the Nifty Fifty Series to Engemann, with
respect to Seneca Mid-Cap Series to Seneca, and with respect to Schafer Mid-Cap
Series to Schafer for which they are paid a fee by PIC. In accordance with the
subadvisory agreement between the Fund and J.P. Morgan, J.P. Morgan is paid a
monthly fee at the annual rate of .25% of the average aggregate daily net asset
values of the Enhanced Index Series up to $100 million and .20% of such value in
excess of $100 million. Pursuant to the subadvisory agreement between the Fund
and Engemann, Engemann is paid a monthly fee at the annual rate of .45% of the
average aggregate daily net asset values of the Nifty Fifty Series up to
$250,000,000, .425% of such values between $250,000,000 and $500,000,000, and
.40% of such values in excess of $500,000,000. Pursuant to the subadvisory
agreement between the Fund and Seneca, Seneca is paid a monthly fee at the
annual rate of .40% of the average aggregate daily net asset values of the
Seneca Mid-Cap Series. In accordance with the subadvisory agreement between the
Fund and Schafer, Schafer is paid a monthly fee at the annual rate of .85% of
the
27
<PAGE>
average aggregate daily net asset values of the Schafer Mid-Cap Series up to
$175 million and .80% of such value in excess of $175 million. The subadvisory
agreements relating to the Enhanced Index, Nifty Fifty, Seneca Mid-Cap and
Schafer Mid-Cap Series provide, among other things, that J.P. Morgan, Engemann,
Seneca and Schafer shall effectuate the purchase and sale of securities for the
Series and provide related advisory services.
DUFF & PHELPS INVESTMENT MANAGEMENT CO.
---------------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate...... .75% .70% .65%
The total advisory fee of .75% of the aggregate net assets of the Real
Estate Series is greater than that paid by most mutual funds; however, the Board
of Trustees of the Fund has determined that it is similar to fees charged by
other mutual funds whose investment objectives are similar to that of the Real
Estate Series.
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series...... 1.00%
The total advisory fee of 1.00% of the aggregate net assets of the Asia
Series is greater than that paid by most mutual funds; however, the Board of
Trustees of the Fund has determined that it is similar to fees charged by other
mutual funds whose investment objectives are similar to those of the Asia
Series.
For providing research and other domestic advisory services to the Asia
Series, PAIA pays to PIC a monthly subadvisory fee at an annual rate equivalent
to .30% of the average aggregate daily net asset value of the Series. For
implementing certain portfolio transactions and providing research and other
services to the Series, PAIA also pays a monthly subadvisory fee to Aberdeen
Fund Managers, Inc. equivalent to .40% of the average aggregate daily net asset
value of the Series. For implementing certain portfolio transactions, providing
research and other services with regard to investments in particular geographic
areas, Aberdeen Fund Managers, Inc. shall engage the services of its affiliates,
Aberdeen Fund Managers Ltd. and Aberdeen Asset Management Asia 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. PFPC,
Inc. has been retained by PEPCO to perform certain administrative and pricing
services for the Fund for which PEPCO pays PFPC a fee. While PEPCO has delegated
certain responsibilities to PFPC, PEPCO retains full responsibility for the
performance of all duties of financial agent.
EXPENSES
Each Series (except the International, Real Estate, Theme, Asia, Enhanced
Index and Seneca Mid-Cap Series) pays a portion or all of its total operating
expenses other than the management fee, up to .15% of its total average net
assets. The International, Real Estate, Theme, Asia, Enhanced Index and Seneca
Mid-Cap Series pay total operating expenses other than the management fee up to
.40%, .25%, .25%, .25%, .10% and .25%, respectively, of its total average net
assets. Expenses above these limits are paid by the Advisers, Phoenix, PHL
Variable or PLAC.
PORTFOLIO TRANSACTIONS AND BROKERAGE
No Series has any obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to the Statement
of Policy on Brokerage Allocation adopted by the Board of Trustees, the Advisers
are primarily responsible for the portfolio decisions of each Series and the
placing of its portfolio transactions. In placing orders, it is the policy of
each Series to obtain the most favorable net results, taking into account
various factors, including price, dealer spread or commission, if any, size of
the transaction and difficulty of execution. While the Advisers generally seek
reasonably competitive spreads or commissions, the Series will not necessarily
be paying the lowest spread or commission available. The Statement of Additional
Information contains more information on brokerage allocation.
PERFORMANCE HISTORY
From time to time, the Fund may include the performance history of any or
all of the Series (along with applicable separate account performance history)
in advertisements, sales literature or reports. Performance information about
each Series is based on that Series' past performance only and is not an
indication of future performance. Performance information may be expressed as
yield and effective yield of the Money Market Series, as yield of the
Multi-Sector Series and as total return of any Series. Current yield for the
Money Market Series will be based on the income earned by the Series over a
given 7-day period (less a hypothetical charge reflecting deductions for
expenses taken during the period) and then annualized, i.e., the income earned
in the period is assumed to be earned every seven days over a 52-week period and
is stated in terms of an annual percentage return on the investment. Effective
yield is calculated similarly but reflects the compounding effect of earnings on
reinvested dividends.
For the Multi-Sector Series, quotations of yield will be based on all
investment income per share earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per share on the last day of the period.
When a Series advertises its total return, it usually will be calculated for
one year, five years and ten years or since inception if the Series has not been
in existence for at least ten years. Total return is measured by comparing the
value of a hypothetical $1,000 investment in the Series at the beginning of the
relevant period to the value of the investment at the end of the period,
assuming the reinvestment of all distributions at net asset value and the
deduction of the maximum sales charge applicable at the beginning of the
relevant period.
28
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDING 12/31/97
----------------------------------------------------------
COMMENCEMENT LIFE OF
SERIES DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ------ ---- ------ ------- -------- ----
Multi-Sector.... 1/1/83 10.93% 11.04% 10.80% 11.00%
Balanced........ 5/1/92 17.93% 11.15% N/A 11.58%
Allocation...... 9/17/84 20.73% 11.24% 12.18% 13.17%
Growth.......... 1/1/83 21.07% 16.72% 17.57% 18.58%
International... 5/1/90 12.04% 15.07% N/A 8.98%
Real Estate .... 5/1/95 22.05% N/A N/A 27.50%
Theme........... 1/29/96 17.16% N/A N/A 14.28%
Asia............ 9/17/96 (32.39%) N/A N/A (26.12%)
Enhanced Index.. 7/15/97 N/A N/A N/A 5.83%
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%
1997......... 10.93% 17.93% 20.73% 21.07%
REAL ENHANCED
YEAR INTERNATIONAL ESTATE THEME ASIA SERIES INDEX
- ---- ------------- ------ ----- ----------- -----
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
1997........ 12.04% 22.05% 17.16% (32.39%) 5.83%*
*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 7-day period, which period
will end on the date of the most recent financial statements. The yield for the
Series during this 7-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 7-day period
ending December 31, 1997.
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 7-day period:.......... 10.009858
Calculation:
Ending account value.............................. 10.009858
Less beginning account value...................... 10.000000
Net change in account value....................... 0.009858
Base period return:
(adjusted change/beginning account value)......... 0.000986
Current yield = return x (365/7) =................... 5.14%
Effective yield = [(1 + return)(365/7)]-1 =............ 5.27%
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 THE INSURANCE COMPANY'S SEPARATE
ACCOUNT. IF PERFORMANCE INFORMATION INCLUDED THE EFFECT OF THESE ADDITIONAL
CHARGES, IT WOULD BE LOWER.
The Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of each Series and a comparison of that
performance to a securities market index.
SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The Fund currently has fifteen Series of shares of beneficial interest.
Shares (including fractional shares) of each Series have equal rights with
regard to voting, redemptions, dividends, distributions and liquidations with
respect to that Series. All voting rights of the Accounts as shareholders are
passed through to the Contract Owners and Policyowners. Shareholders of all
Series currently vote on the election of Trustees and other matters. On matters
affecting an individual Series (such as approval of an Investment Advisory
Agreement or a change in fundamental investment policies), a separate vote of
that Series is required.
Fund shares attributable to any Phoenix, PHL Variable or PLAC assets and
Fund shares for which no timely instructions from Contract Owners or
Policyowners are received will be voted by Phoenix, PHL Variable and PLAC in the
same proportion as those shares in that Series for which instructions are
received.
Shares are fully paid, nonassessable, redeemable and fully transferable when
they are issued. Shares do not have cumulative voting rights, preemptive rights
or subscription rights.
The assets received by the Fund for the issue or sale of shares of each
Series, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such Series, and constitute the
underlying assets of such Series. The underlying assets
29
<PAGE>
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 are 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 owner of the Accounts from the Fund,
should be taken in response thereto. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in federal income tax
laws, (3) changes in the investment management of any portfolio of the Fund or
(4) differences in voting instructions between those given by policyowners and
those given by contract owners.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the NYSE on days when the NYSE is open for trading. The
net asset value per share of a Series is determined by adding the values of all
securities and other assets of the Series, subtracting liabilities and dividing
by the total number of outstanding shares of the Series.
The Series' investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by the
Trustees or their delegates. Foreign and domestic debt securities (other than
short-term investments) are valued on the basis of broker quotations or
valuations provided by a pricing service approved by the Trustees when such
prices are believed to reflect the fair value of such securities. Foreign and
domestic equity securities are valued at the last sale price or, if there has
been no sale that day, at the last bid price, generally. Short-term investments
having a remaining maturity of less than 61 days are valued at amortized cost,
which the Trustees have determined approximates market. For further information
about security valuations, see the Statement of Additional Information.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem all full and fractional shares of the Fund presented
for redemption. The Fund may, at the discretion of the Trustees and to the
extent consistent with state and federal law, make payment for shares of a
particular Series redeemed in whole or in part in securities or other assets of
such Series taken at current values. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption.
The right to redeem shares or to receive payment with respect to any
redemption only may be suspended for more than seven days for any period during
which trading on the NYSE is restricted as determined by the SEC or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the SEC as a result of
which disposal of portfolio securities or determination of the net asset value
of each Series is not reasonably practicable, and for such other periods as the
SEC may by order permit for the protection of shareholders of each Series.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
All dividends and distributions with respect to the shares of any Series
will be payable in shares of such Series at net asset value or, at the option of
the Account as shareholder, in cash.
The net investment income of the Money Market Series will be declared as
dividends daily. Dividends will be distributed and reinvested in additional
shares on the last business day of every month. The net income of the Money
Market Series for Saturdays, Sundays and other days on which the NYSE is closed
will be declared as dividends on the next business day.
The Multi-Sector, Growth, Allocation, Balanced, International, Enhanced
Index, Theme, Nifty Fifty, Seneca Mid-Cap, Growth & Income, Value and Schafer
Mid-Cap Series will distribute substantially all net investment income to
shareholders at least annually, although it is anticipated that these
distributions will be made on a quarterly basis. Net realized capital gains, if
any, will be distributed annually. The Real Estate Series will distribute its
net investment income to its shareholders quarterly and net realized capital
gains, if any, to its
30
<PAGE>
shareholders annually. The Asia Series will distribute its net investment income
to its shareholders on a semiannual 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 nondiversified 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 the Multi-Sector, Money Market, Growth,
Strategic Allocation, Balanced and Strategic Theme Series is The Chase Manhattan
Bank, N.A., One Chase Manhattan Plaza, Floor 3B, New York, New York 10081. The
Custodian of the assets of the International and Asia Series is Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, Attention:
Manager, Securities Division. The Custodian of the assets of the Real Estate,
Growth & Income, Value, Seneca Mid-Cap, Nifty Fifty, Schafer Mid-Cap and
Enhanced Index Series is State Street Bank and Trust, One 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 VPO at (800) 447-4312.
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 S&P or P-1 by Moody's 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 S&P 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.
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 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
31
<PAGE>
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.
S&P'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirement.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
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.
32
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS ("VPMO"):
101 Munson Street P.O. Box 8027
Greenfield, Massachusetts Boston, MA 02266-8027
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Prospectus. Accordingly, this Statement should be read
together with the Fund's current Prospectus, dated May 1, 1998, which may be
obtained by calling Variable Products Operations ("VPO") at (800) 447-4312, or
by writing to VPMO.
------------------
TABLE OF CONTENTS*
PAGE
----
The Phoenix Edge Series Fund (1)......................................... 2
Investment Policies (11)................................................. 2
Investment Restrictions (24)............................................. 12
Portfolio Turnover (24).................................................. 13
Management of the Fund (25).............................................. 13
Investment Advisers (25)................................................. 21
Brokerage Allocation (28)................................................ 23
Determination of Net Asset Value (30).................................... 24
Investing In the Fund (30)............................................... 24
Redemption of Shares (30)................................................ 24
Taxes (31)............................................................... 25
Custodian (31)........................................................... 25
Foreign Custodian........................................................ 25
Independent Accountants.................................................. 25
Financial Statements..................................................... 25
* Numbers in parentheses are cross-references to related sections of the
Prospectus.
1
<PAGE>
THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
The Phoenix Edge Series Fund (the "Fund") is an open-end investment company
as defined in the Investment Company Act of 1940. It was formed on February 18,
1986 as a Massachusetts business trust and commenced operations on December 5,
1986. The Phoenix Home Life Variable Accumulation Account is a separate account
of Phoenix Home Life Mutual Insurance Company ("Phoenix") created on June 21,
1982. The Phoenix Home Life Variable Universal Life Account is a separate
account of Phoenix created on June 17, 1985. The PHL Variable Accumulation
Account is a separate account of PHL Variable Insurance Company ("PHL Variable")
formed on December 7, 1994. The Phoenix Life and Annuity Variable Universal Life
Account is a separate account of Phoenix Life and Annuity Company ("PLAC")
formed in March 1996. The executive offices of the Accounts, Phoenix, PHL
Variable and PLAC are located at One American Row, Hartford, Connecticut. The
Accounts own the majority of the shares of the Fund.
INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The investment objectives and policies of each Series are described in the
"Investment Objectives and Policies" section of the Prospectus. The following
specific policies supplement the information contained in that section of the
Prospectus.
MONEY MARKET INSTRUMENTS
Certain money market instruments used extensively by the Money Market and
Allocation Series are described below. They also may be used by the
International, Real Estate, Theme, Enhanced Index and Asia Series and may be
used by the other Series to a very limited extent to invest otherwise idle cash,
or on a temporary basis for defensive purposes.
Repurchase Agreements. Repurchase Agreements are agreements by which a
Series purchases a security and obtains a simultaneous commitment from the
seller (a member bank of the Federal Reserve System or, to the extent permitted
by the Investment Company Act of 1940, a recognized securities dealer) that the
seller will repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. In fact, such a
transaction is a loan of money to the seller of the securities.
A repurchase transaction is usually accomplished either by crediting the
amount of securities purchased to the accounts 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 Bank 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
2
<PAGE>
days. By limiting the maturity of its investments, the Series seeks to lessen
the changes in the value of its assets caused by market factors. This Series,
consistent with its investment objective, will attempt to maximize yield through
portfolio trading. This may involve selling portfolio instruments and purchasing
different instruments to take advantage of disparities of yields in different
segments of the high grade money market or among particular instruments within
the same segment of the market. It is expected that the Series' portfolio
transactions generally will be with issuers or dealers in money market
instruments acting as principal. Accordingly, this Series will normally not pay
any brokerage commissions.
The value of the securities in the Money Market Series' portfolio can be
expected to vary inversely to changes in prevailing interest rates, with the
amount of such variation depending primarily on the period of time remaining to
maturity of the security. Long-term obligations may fluctuate more in value than
short-term obligations. If interest rates increase after a security is
purchased, the security, if sold, could be sold at a loss. On the other hand, if
interest rates decline after a purchase, the security, if sold, could be sold at
a profit. If, however, the security is held to maturity, no gain or loss will be
realized as a result of interest rate fluctuations, although the day-to-day
valuation of the portfolio could fluctuate. Substantial withdrawals of the
amounts held in the Money Market Series could require it to sell portfolio
securities at a time when a sale might not be favorable. The value of a
portfolio security also may be affected by other factors, including factors
bearing on the credit-worthiness of its issuer. A more detailed discussion of
amortized cost is contained under "Determination of Net Asset Value."
ALLOCATION SERIES: MARKET SEGMENT INVESTMENTS AND TRADING
Market Segment Investments. The Allocation Series seeks to achieve its
investment objective by investing in the three market segments of stocks, bonds
and money market instruments described below.
(1) STOCK--common stocks and other equity-type securities such as preferred
stocks, securities convertible into common stock and warrants;
(2) BONDS--bonds and other debt securities with maturities generally
exceeding one year, including:
(a) publicly offered straight debt securities having a rating within
the four highest grades as determined by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation
(AAA, AA, A or BBB) or, if unrated, those publicly offered
straight debt securities which are judged by the Account to be of
equivalent quality to securities so rated;
(b) obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities;
(c) obligations (payable in U.S. dollars) issued or guaranteed as to
principal and interest by the Government of Canada or of a
Province of Canada or any instrumentality or political subdivision
thereof, provided such obligations have a rating within the
highest grades as determined by Moody's (Aaa, Aa or A) or Standard
& Poor's (AAA, AA or A) and do not exceed 25% of the Allocation
Series' total assets;
(d) publicly offered straight debt securities issued or guaranteed by
a national or state bank or bank holding company (as defined in
the Federal Bank Holding Company Act, as amended) having a rating
within the three highest grades as determined by Moody's (Aaa, Aa
or A) or Standard & Poor's (AAA, AA or A), and certificates of
deposit of such banks; and
(e) high yield, high risk fixed income securities (commonly referred
to as "junk bonds") having a rating below Baa by Moody's Investors
Service, Inc. or BBB by Standard & Poor's Corporation or unrated
securities of comparable quality provided such securities do not
exceed 5% of the Allocation Series' total assets.
(3) MONEY MARKET--money market instruments and other debt securities with
maturities generally not exceeding one year, including:
(a) those money market instruments described in this Statement of
Additional Information; and
(b) reverse repurchase agreements with respect to any of the foregoing
obligations. Reverse repurchase agreements are agreements in which
the Series, as the seller of the securities, agrees to repurchase
them at an agreed time and price. This transaction constitutes a
borrowing of money by the seller of the securities. The Series
will maintain sufficient funds in a segregated account with its
Custodian to repurchase securities pursuant to any outstanding
reverse repurchase agreement. The Series is required to maintain
at all times asset coverage of at least 300% for all obligations
under reverse repurchase agreements.
Trading. In order to achieve the Series' investment objective, the timing
and amounts of purchases and sales of particular securities and particular types
of securities (i.e., common stock, debt, money market instruments) will be of
significance. As a result, the Allocation Series intends to use trading as a
means of managing the portfolio of the Series in seeking to achieve its
investment objective. Trading is used primarily in anticipation of, or in
response to, market developments or to take advantage of yield disparities. The
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 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 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 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 Adviser believes that the result of the trading, net of
transaction costs,
3
<PAGE>
will benefit the Series. Purchases and sales of securities will be made,
whenever necessary in the Adviser's view, to achieve the total return investment
objective of the Series without regard to the resulting brokerage costs.
In addition to the traditional investment techniques for purchasing and
selling and engaging in trading, the Allocation Series may enter into financial
futures and options contracts.
ENHANCED INDEX SERIES
The investment strategy of the Enhanced Index Series is to earn a total
return modestly in excess of the total return performance of the S&P 500
(including the reinvestment of dividends) while maintaining a volatility of
return similar to the S&P 500. The Series is appropriate for investors who seek
a modestly enhanced total return relative to that of large- and medium-sized
U.S. companies typically represented in the S&P 500. The Portfolio intends to
invest in securities of approximately 350 issuers, which securities are rated by
the Series' Subadviser to have above average expected returns.
The Series' seeks to achieve its investment objective through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
o Fundamental research: The Series' Subadviser's approximately 25 domestic
equity analysts, each an industry specialist with an average of
approximately 12 years experience, follow over 900 predominantly large- and
medium-sized U.S. companies--approximately 550 of which form the universe
for the Series' investments. A substantial majority of these companies are
issuers of securities which are included in the S&P 500. The analysts'
research goal is to forecast normalized, longer-term earnings and dividends
for the companies that they cover.
o Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by a dividend discount model, which calculates those
expected returns by solving for the rate of return that equates the
company's current stock price to the present value of its estimated
long-term earnings power. Within each sector, companies are ranked by their
expected return and grouped into quintiles; those with the highest expected
returns (Quintile 1) are deemed the most undervalued relative to their
long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
o Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Sector weightings will generally
approximate those of the S&P 500. The Series will normally be principally
comprised, based on the dividend discount model, of stocks in the first four
quintiles. Finally, the Series holds a large number of stocks to enhance its
diversification.
Under normal market circumstances, the Series' Adviser will invest at least
80% of its net assets in equity securities consisting of common stocks and other
securities with equity characteristics such as trust interests, limited
partnership interests, preferred stocks, warrants, rights and securities
convertible into common stock. The Series' primary equity investments will be
the common stock of large- and medium-sized U.S. companies with market
capitalizations above $1 billion. Such securities will be listed on a national
securities exchange or traded in the over-the-counter market. The Series may
invest in similar securities of foreign corporations, provided that the
securities of such corporations are included in the S&P 500.
The Series intends to manage its portfolio actively in pursuit of its
investment objective. Since the Series has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its objective.
FINANCIAL FUTURES AND RELATED OPTIONS
The Allocation, Value, Growth & Income, Seneca Mid-Cap and Balanced Series
may enter into financial futures contracts for the purchase or sale of debt
obligations which are traded on exchanges that are licensed and regulated by
Commodity Futures Trading Commission.
A futures contract on a debt obligation is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of obligations having a standard face value
and rate of return. By entering into a futures contract for the purchase of a
debt obligation, a Series will legally obligate itself to accept delivery of the
underlying security and pay the agreed price. Futures contracts are valued at
the most recent settlement price, unless such price does not reflect the fair
value of the contract, in which case such positions will be valued by or under
the direction of the Board of Trustees of the Fund.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or loss. While futures positions taken by a Series usually would be
liquidated in this manner, it may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to do
so.
The purpose of hedging in debt obligations is to establish more certainty
than otherwise would be possible in the effective rate of return on portfolio
securities. A Series might, for example, take a "short" position in the futures
markets by entering into contracts for the future delivery of securities held by
it in order to hedge against an anticipated rise in interest rates that would
adversely affect the value of such securities. When hedging of this type is
successful, any depreciation in the value of securities will be substantially
offset by appreciation in the value of the futures position. On the other hand,
a Series might take a "long" position by entering into contracts for the future
purchase of securities. This could be done when the Series anticipated the
future purchase of particular debt securities but expects the rate of return
then available in the securities market to be less favorable than rates that are
currently available in the futures markets.
A Series will incur brokerage fees in connection with its financial futures
transactions, and will be required to deposit and maintain funds with its
custodian in its own name as margin to guarantee performance of its future
obligations.
While financial futures would be traded to reduce certain risks, futures
trading itself entails certain other risks. One risk arises because
4
<PAGE>
of the imperfect correlation between movements in the price of the futures
contracts and movements in the price of the debt securities which are the
subject of such contracts. In addition, the market price of futures contracts
may be affected by certain factors, such as the closing out of futures contracts
by investors through offsetting transactions, margin, deposit and maintenance
requirements, and the participation of speculators in the futures market.
Another risk is that there may not be a liquid secondary market on an exchange
or board of trade for a given futures contract or at a given time, and in such
event it may not be possible for the Series to close a futures position.
Finally, successful use of futures contracts by a Series is subject to the
Adviser's ability to correctly predict movements in the direction of interest
rates and other factors affecting the market for debt securities. Thus, while a
Series may benefit from the use of such contracts, the operation of these risk
factors may result in a poorer overall performance for the Series than if it had
not entered into any futures contract.
A Series is required to maintain, at all times, an asset coverage of at
least 300% for all of its borrowings, which include obligations under any
financial futures contract on a debt obligation or reverse repurchase agreement.
In addition, immediately after entering into a futures contract for the receipt
or delivery of a security, the value of the securities called for by all of the
Series' futures contracts (both for receipts and delivery) will not exceed 10%
of its total assets. A futures contract for the receipt of a debt obligation
will be offset by any asset, including equity securities and noninvestment grade
debt so long as the asset is liquid, unencumbered and marked to market daily
held in a segregated account with the custodian bank for the Series in an amount
sufficient to cover the cost of purchasing the obligation.
International, Enhanced Index, Value, Seneca Mid-Cap, Growth & Income and
Asia Series. The International, Enhanced Index, Value, Seneca Mid-Cap, Growth &
Income and Asia Series may enter into financial futures contracts and related
options as a hedge against anticipated changes in the market value of its
portfolio securities or securities which it intends to purchase or in the
exchange rate of foreign currencies. Hedging is the initiation of an offsetting
position in the futures market which is intended to minimize the risk associated
with a position's underlying securities in the cash market.
Financial futures contracts consist of interest rate futures contracts,
foreign currency futures contracts and securities index futures contracts. An
interest rate futures contract obligates the seller of the contract to deliver,
and the purchaser to take delivery of, the interest rate securities called for
in the contract at a specified future time and at a specified price. A foreign
currency futures contract obligates the seller of the contract to deliver, and
the purchaser to take delivery of, the foreign currency called for in the
contract at a specified future time and at a specified price. A securities index
assigns relative values to the securities included in the index, and the index
fluctuates with changes in the market values of the securities so included. A
securities index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. An option on a financial futures contract gives the purchaser
the right to assume a position in the contract (a long position if the option is
a call and a short position if the option is a put) at a specified exercise
price at any time during the period of the option.
The Series may purchase and sell financial futures contracts which are
traded on a recognized exchange or board of trade and may purchase or exchange
board-traded put and call options on financial futures contracts.
The Series will engage in transactions in financial futures contracts and
related options only for hedging purposes and not for speculation. In addition,
it will not purchase or sell any financial futures contract or related option
if, immediately thereafter, the sum of the cash or U.S. Treasury bills committed
with respect to its existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of its
total assets. At the time of the purchase of a futures contract or a call option
on a futures contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the futures contract, minus the initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged. The extent to which the Series may enter into
financial futures contracts and related options also may be limited by
requirements of the Internal Revenue Code of 1986 (the "Code") 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 buy 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
5
<PAGE>
presently exists in interest rate futures contracts covering long-term U.S.
Treasury bonds, U.S. Treasury notes, 3-month U.S. Treasury bills and GNMA
certificates. Securities index futures contracts are currently traded with
respect to the S&P 500. A clearing corporation associated with the New York
Stock Exchange ("NYSE") or board of trade on which a financial futures contract
trades assumes responsibility for the completion of transactions and also
guarantees that open futures contracts will be performed.
In contrast to the situation when such Series purchases or sells a security,
no security is delivered or received by the Series upon the purchase or sale of
a financial futures contract. Initially, this Series will be required to deposit
in a segregated account with its custodian bank an amount of cash, U.S. Treasury
bills or liquid high grade debt obligations. This amount is known as initial
margin and is in the nature of a performance bond or good faith deposit on the
contract. The current initial deposit required per contract is approximately 5%
of the contract amount. Brokers may establish deposit requirements higher than
this minimum. Subsequent payments, called variation margin, will be made to and
from the account on a daily basis as the price of the futures contract
fluctuates. This process is known as marking to market.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. In the case of a call, this amount will be equal to the amount by which
the market price of the futures contract at the time of exercise exceeds, or, in
the case of a put, is less than the exercise price of the option on the futures
contract. For more information regarding options, see below.
Although financial futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Theme Series will pay commissions on financial futures contracts and
related options transactions. These commissions may be higher than those which
would apply to purchases and sales of securities directly.
OPTIONS
MONEY MARKET, GROWTH, BALANCED, INTERNATIONAL, MULTI-SECTOR, ALLOCATION,
THEME, ENHANCED INDEX, SENECA MID-CAP, GROWTH & INCOME, VALUE AND ASIA SERIES:
Writing Covered Call Options. The Multi-Sector, Money Market, Growth,
Balanced, Allocation, Theme, Enhanced Index, International, Seneca Mid-Cap,
Growth & Income, Value and Asia Series may write (sell) covered call options on
securities owned by them, including securities into which convertible securities
are convertible, provided that such call options are listed on a national
securities exchange.
A call option gives the holder the right to buy a security at a specified
price (the exercise price) for a stated period of time. Prior to the expiration
of the option, the seller of the option has an obligation to sell the underlying
security to the holder of the option at the original price specified regardless
of the market price of the security at the time the option is exercised. The
seller of the call option receives a cash payment (premium) at the time of sale,
which premium is retained by the seller whether or not the option is exercised.
The premium represents consideration to the seller for undertaking the
obligations under the option contract and thereby foregoing the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price (except insofar as the premium represents such a profit).
A call option may be purchased to terminate a call option previously
written. The premium paid in connection with the purchase of a call option may
be more than, equal to or less than the premium received upon writing the call
option which is being terminated.
When a Series writes a covered call option, an amount equal to the premium
received by it is included in assets of the Series offset by an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. Market value is the last
sale price of the options on the NYSE on which it is traded or, in absence of a
sale, the mean between last bid and offer prices. If an option which the Series
has written either expires or enters into a closing purchase transaction, the
Series realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished.
In order to maintain its qualification as a regulated investment company
under Subchapter M of the 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
6
<PAGE>
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 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 an outstanding written option.
Buying Call and Put Options. The Allocation, Balanced, Enhanced Index,
Value, Growth & Income, Seneca Mid-Cap and Theme Series may buy national
exchange-traded call and put options on equity and debt securities and on
various stock market indexes. The Money Market, Growth and Multi-Sector Series
may purchase a call option only to terminate a call option previously written.
(See "Writing Covered Call Options" above for a description of call options.)
A put option on equity or debt securities gives the holder the right to sell
such a security at a specified price (the exercise price) for a stated period of
time. Prior to the expiration of the option, the seller of the option has an
obligation to buy the underlying security from the holder of the option at the
original price specified regardless of the market price of the security at the
time the option is exercised.
Call and put options on stock market indexes operate the same way as call
and put options on equity or debt securities except that they are settled in
cash. In effect, the holder of a call option on a stock market index has the
right to buy the value represented by the index at a specified price for a
stated period of time. Conversely, the holder of a put option on a stock market
index has the right to sell the value represented by the index for a specified
price for a stated period of time. To be settled in cash means that if the
option is exercised, the difference in the current value of the stock market
index and the exercise value must be paid in cash. For example, if a call option
was bought on the XYZ stock market index with an exercise price of $100
(assuming the current value of the index is 110 points, with each point equal to
$1.00), the holder of the call option could exercise the option and receive $10
(110 points minus 100 points) from the seller of the option. If the index equals
90 points, the holder of the option receives nothing.
The seller of an option receives a cash payment (premium) at the time of
sale, which premium is retained by the seller whether or not the option is
exercised. The premium represents consideration to the seller for undertaking
the obligation under the option contract. In the case of call options, the
premium compensates the seller for the loss of the opportunity to profit from
any increase in the value of the security or the index. The premium to a seller
of a put option compensates the seller for the risk assumed in connection with a
decline in the value of the security or index.
A Series may close an open call or put option position by selling a call
option, in the case of an open call position, or a put option, in the case of an
open put option, which is the same as the option being closed. The Series will
receive a premium for selling such an option. The premium received may be more
than, equal to or less than the premium paid by the Series when it bought the
option which is being closed.
Immediately after entering into an opening option position the total value
of all open option positions based on exercise price will not exceed ten percent
(10%) of the Allocation or Balanced Series' total assets. The premium paid by
the Series for the purchase of a call or a put option and the expiration or
closing sale transaction with respect to such options are treated in a manner
analogous to that described above, except there is no liability created to the
Series. The premium paid for any such option is included in assets and marked to
the market value on a current basis. If the options expire, the Series will
realize a short-term loss on the amount of the cost of the option. If a
purchased put or call option is closed out by the Series entering into a closing
sale transaction, the Series will realize a short-term gain or loss, depending
upon whether the sale proceeds from the closing sale transaction are greater or
less than the cost of the put or call option.
INTERNATIONAL, THEME, ENHANCED INDEX, SENECA MID-CAP, VALUE, GROWTH &
INCOME AND ASIA SERIES:
To promote their objectives, the International, Theme, Enhanced Index,
Seneca Mid-Cap, Value, Growth & Income and Asia Series may write covered call
options and purchase call and put options on securities. In addition, the Series
may write secured put options and enter into option transactions on foreign
currency.
Writing (Selling) Call and Put Options. A call option on a security or a
foreign currency gives the purchaser of the option, in return for the premium
paid to the writer (seller), the right to buy the underlying security or foreign
currency at the exercise price at any time during the option period. Upon
exercise by the purchaser, the writer of a call option has the obligation to
sell the underlying security or foreign security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index and all settlements are made in cash. A call option may be terminated by
the writer (seller) by entering into a closing purchase transaction in which it
purchases an option of the same series as the option previously written.
7
<PAGE>
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 during the option period. Call options on securities indices will be
written only to hedge in an economically appropriate way portfolio securities
which are not otherwise hedged with options or financial futures contracts and
will be "covered" by identifying the specific portfolio securities being hedged.
Call options on foreign currencies and put options on securities and foreign
currencies will be covered by securities acceptable for escrow. The Series may
not write options on more than 50% of its total assets. Management presently
intends to cease writing options if and as long as 25% of such total assets are
subject to outstanding options contract.
The Series will write call and put options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of portfolio
securities or foreign currencies will be offset to the extent of the premiums
received (net of transaction costs). If an option is exercised, the premium
received on the option will effectively increase the exercise price or reduce
the difference between the exercise price and market value.
During the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of loss should the price
of the underlying security or foreign currency decline. Writing call options
also involves risks relating to the Series' ability to close out options it has
written.
During the option period, the writer of a put option has assumed the risk
that the price of the underlying security or foreign currency will decline below
the exercise price. However, the writer of the put option has retained the
opportunity for any appreciation above the exercise price should the market
price of the underlying security or foreign currency increase. Writing put
options also involves risks relating to a Portfolio's ability to close out
options it has written.
Purchasing Call and Put Options, Warrants and Stock Rights. The
International, Theme, Enhanced Index, Growth & Income and Asia Series may invest
up to an aggregate of 5% of its total assets in exchange-traded or
over-the-counter call and put options on securities and securities indices and
foreign currencies. Purchases of such options may be made for the purpose of
hedging against changes in the market value of the underlying securities or
foreign currencies. The Series will invest in call and put options whenever, in
the opinion of the Adviser or Subadviser, a hedging transaction is consistent
with its investment objectives. The Series may sell a call option or a put
option which it has previously purchased prior to the purchase (in the case of a
call) or the sale (in the case of a put) of the underlying security or foreign
currency. Any such sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the call or put which is sold. Purchasing a call or
put option involves the risk that the Series may lose the premium it paid plus
transaction costs.
Warrants and stock rights are almost identical to call options in their
nature, use and effect except that they are issued by the issuer of the
underlying security, rather than an option writer, and they generally have
longer expiration dates than call options. The International, Theme, Enhanced
Index, Growth & Income and Asia Series intend to invest up to 5% of their
respective net assets in warrants and stock rights, but no more than 2% of its
net assets in warrants and stock rights not listed on the NYSE or the American
Stock Exchange.
Over-the-Counter ("OTC") Options. OTC options differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. However, the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and foreign currencies, and in a
wider range of expiration dates and exercise prices than exchange-traded
options. Since there is no exchange, pricing is normally done by reference to
information from a market maker, which information is carefully monitored or
caused to be monitored by the Adviser or Subadviser and verified in appropriate
cases.
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the International Series
may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Series writes an OTC option, it generally can
close out that option prior to its expiration only by entering into a closing
purchase transaction with the dealer to which it originally wrote the option. If
a covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it otherwise might be
advantageous to do so. Likewise, the writer of a secured OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option also might find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
The Fund understands the position of the staff of the Securities and
Exchange Commission ("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
8
<PAGE>
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" 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 their 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.
9
<PAGE>
ZERO AND DEFERRED COUPON DEBT SECURITIES
The Multi-Sector and Seneca Mid-Cap Series may invest in debt obligations
that do not make any interest payments for a specified period of time prior to
maturity ("deferred coupon" obligations) or until maturity ("zero coupon"
obligations). Because deferred and zero coupon bonds do not make interest
payments for a certain period of time, they are purchased by the Series at a
deep discount and their value fluctuates more in response to interest rate
changes than does the value of debt obligations that make current interest
payments. The degree of fluctuation with interest rate changes is greater when
the deferred period is longer. Therefore, there is a risk that the value of the
Series' shares may decline more as a result of an increase in interest rates
than would be the case if the Series did not invest in deferred or zero coupon
bonds.
REAL ESTATE INVESTMENT TRUSTS
As described in the Prospectus, the Real Estate Series intends under normal
conditions to invest in real estate investment trusts ("REITs"). REITs pool
investors' funds for investment primarily in income-producing commercial real
estate or real estate related loans. A REIT is not taxed on income distributed
to shareholders if it complies with several requirements relating to its
organization, ownership, assets and income, and a requirement that it distribute
to its shareholders at least 95% of its taxable income (other than net capital
gains) for each taxable year.
REITs generally can be classified as follows:
--Equity REITs, which invest the majority of their assets directly in real
property and derive their income primarily from rents. Equity REITs can
also realize capital gains by selling properties that have appreciated in
value.
--Mortgage REITs, which invest the majority of their assets in real estate
mortgages and derive their income primarily from interest payments.
--Hybrid REITs, which combine the characteristics of both equity REITs and
mortgage REITs.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments. A shareholder in the Real Estate Series should realize that by
investing in REITs indirectly through the Series, he will bear not only his
proportionate share of the expenses of the Series but also, indirectly, similar
expenses of underlying REITs.
DEBT SECURITIES
Up to 25% of the Real Estate Series total assets may be invested in debt
securities (which include for purposes of this investment policy convertible
debt securities which PRS believes have attractive equity characteristics). The
Real Estate Series may invest in debt securities rated BBB or better by S&P or
Baa or better by 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 Multi-Sector, International and Allocation Series may invest up to 50%,
10% and 5%, respectively, of total net assets in noninvestment 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. A more detailed description of the
risks associated with High Yield-High Risk Securities appears under
"Multi-Sector Series - Risk Factors" in the Prospectus.
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
10
<PAGE>
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 where the principal securities trading market is an emerging
market country; (ii) companies organized under the laws of, and with a principal
office in, an emerging market country; or (iii) companies whose principal
activities are located in emerging market countries.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities of many issuers in emerging
markets may be less liquid and more volatile than securities of comparable
domestic issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Series is uninvested and
no return is earned thereon. The inability of the Series to make intended
security purchases due to settlement problems could cause the Series to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the
Series due to subsequent declines in value of the portfolio securities or, if
the Series has entered into a contract to sell the security, in possible
liability to the purchaser. Securities prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership or prohibitions of repatriation of
assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt burdens
or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings difficult
or impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Series could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Series of any restrictions on investments. Investments in certain foreign
emerging market debt obligations may be restricted or controlled to varying
degrees. These restrictions or controls may at times preclude investment in
certain foreign emerging market debt obligations and increase the expenses of
the Series.
Additional Risk Factors. As a result of its investments in foreign
securities, the Series may receive interest or dividend payments, or the
proceeds of the sale or redemption of such securities, in the foreign currencies
in which such securities are denominated. In that event, the Series may convert
such currencies into dollars at the then current exchange rate. Under certain
circumstances, however, such as where the Adviser believes that the applicable
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the NYSE rate will improve, the Series
may hold such currencies for an indefinite period of time.
In addition, the Series may be required to receive delivery of the foreign
currency underlying forward foreign currency contracts into which it has
entered. This could occur, for example, if an option written by the Fund is
exercised or the Fund is unable to close out a forward contract. The Series may
hold foreign currency in anticipation of purchasing foreign securities. The
Series also may elect to take delivery of the currencies underlying options or
forward contracts if, in the judgment of the Adviser, it is in the best interest
of the Series to do so. In such instances as well, the Series may convert the
foreign currencies to dollars at the then current exchange rate, or may hold
such currencies for an indefinite period of time.
While the holding of currencies will permit the Series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Series
to risk of loss if such rates move in a direction adverse to the Series'
position. Such losses could reduce any profits or increase any losses sustained
by the Series from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. In addition, the holding
of currencies could adversely affect the Series' profit or loss on currency
options or forward contracts, as well as its hedging strategies.
WHEN-ISSUED SECURITIES
The Enhanced Index and Seneca Mid-Cap Series may purchase securities on a
when-issued basis. New issues of certain securities are offered on a when-issued
basis, that is, delivery and payment for the securities normally takes place 15
to 45 days or more after the date of the commitment to purchase. The payment
obligation and the interest rate, if any, that will be received on the
securities are each fixed at the time the buyer enters into the commitment. The
Series will generally make a commitment to purchase such securities with the
intention of actually acquiring the securities. However, the Series may sell
these securities before the settlement date if it is deemed advisable as a
matter of investment strategy. When the Series purchases securities
11
<PAGE>
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 are subject to changes in market
value. Therefore, to the extent the Series remains substantially fully invested
at the same time that they have purchased securities on a when-issued basis,
there will be greater fluctuations in the net asset values than if the Series
merely set aside cash to pay for when-issued securities. In addition, there will
be a greater potential for the realization of capital gains. When the time comes
to pay for when-issued securities, the Series will meet its obligations from
then available cash flow, the sales of securities or, although it would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the payment obligation). Lastly,
investing in when-issued securities includes the risk that the securities may
never be issued, in which event the Series may incur expenses associated with
unwinding such transactions.
INDUSTRY CLASSIFICATIONS
For the purposes of establishing industry classifications for the Theme
Series, the Adviser utilizes the William O'Neil & Co., Inc. Industry Group
Index. The William O'Neil & Co., Inc. Industry Group Index is presently
comprised of 197 industry classifications. Classifications are determined based
on the following broad sectors: Basic Material, Energy, Capital Equipment,
Technology, Consumer Cyclical, Retail, Consumer Staple, Health Care,
Transportation, Financial and Utilities. Sectors are then divided into industry
groups based upon income sources and other economically relevant criteria as
determined by O'Neil & Co., Inc.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's fundamental policies as they affect any Series cannot be changed
without the approval of a vote of a majority of the outstanding shares of such
Series, which is the lesser of (i) 67% or more of the voting securities of such
Series present at a meeting if the holders of more than 50% of the outstanding
voting securities of such Series are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. A proposed
change in fundamental policy or investment objective will be deemed to have been
effectively acted upon by any Series if a majority of the outstanding voting
securities of that Series votes for the approval of the proposal as provided
above, notwithstanding (1) that such matter has not been approved by a majority
of the outstanding securities of any other Series affected by such matter and
(2) that such matter has not been approved by a majority of the outstanding
voting securities of the Fund.
The following investment restrictions are fundamental policies of the Fund
with respect to all Series and may not be changed except as described above. The
Fund may not:
(1) Purchase real estate or any interest therein, except through the
purchase of corporate or certain government securities (including
securities secured by a mortgage or a leasehold interest or other
interest in real estate). A security issued by a real estate or
mortgage investment trust is not treated as an interest in real estate.
The Real Estate Series may, however, invest in mortgage-backed
securities.
(2) Make loans other than loans of securities secured by cash or cash
equivalents for the full value of the securities; any interest earned
from securities lending will inure to the benefit of the Series which
holds such securities. However, the purchase of debt securities which
are ordinarily purchased by financial institutions are not considered
the loaning of money.
(3) Invest in commodities or in commodity contracts or in options provided,
however, that it may write covered call option contracts; and provided
further, that the Allocation, Balanced, Value, Growth & Income and
Seneca Mid-Cap Series may enter into financial futures contracts to
purchase and sell debt obligations and may buy call and put options on
securities and stock market indexes; and provided further, that the
International and Asia Series may purchase call and put options on
securities, engage in financial futures contracts and related options
transactions, write secured put options, and enter into foreign
currency and foreign currency options transactions.
(4) Engage in the underwriting of securities of other issuers, except to
the extent any Series may be deemed an underwriter in selling as part
of an offering registered under the Securities Act of 1933 securities
which it has acquired. The International and Asia Series will buy and
sell securities outside the United States that are not registered with
the SEC or marketable in the United States.
(5) Borrow money, except as a temporary measure where such borrowing would
not exceed 25% of the market value of total assets at the time each
such borrowing is made. However, the Fund may borrow money for any
general purpose from a bank provided such borrowing does not exceed 10%
of the net asset value of the Fund, not considering any such borrowings
as liabilities. The Allocation, International and Asia Series may
borrow money to the extent of financial futures transactions and
reverse repurchase agreements, provided that such borrowings are
limited to 33-1/3% of the value of the total assets of the Series.
(6) Invest in illiquid securities in an amount greater than 15% of the net
asset value of any Series' portfolio at the time any such investment
is made.
(7) Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of purchases or sales of securities, or to
effect a short sale of any security. (The deposit of "maintenance
margin" in connection with financial futures contracts is not
considered the purchase of a security on margin.)
(8) Invest for the purpose of exercising control over or management of any
company.
(9) Unless received as a dividend or as a result of an offer of exchange
approved by the SEC or of a plan of
12
<PAGE>
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.
(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, Enhanced Index, Nifty Fifty, Seneca
Mid-Cap, Growth & Income, Value and Schafer Mid-Cap Series) are set forth under
"Financial Highlights" in the Prospectus.
BALANCED SERIES
In the fiscal years ended December 31, 1996 and December 31, 1997, the
turnover rates for the equity portion of the Balanced Series were 288% and 226%,
respectively. The turnover rates for the fixed income securities were 117% and
114%, respectively, for the same periods.
ALLOCATION SERIES
In the fiscal years ended December 31, 1996 and December 31, 1997, the
turnover rates for the equity portion of the Allocation Series were 280% and
378%, respectively. The turnover rates for the fixed income securities were 253%
and 318%, respectively, for the same periods.
MANAGEMENT OF THE FUND
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. Unless otherwise noted,
the address of each executive officer and Trustee is 56 Prospect Street,
Hartford, Connecticut 06115. The Trustees and executive officers are listed
below.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Robert Chesek (63) Trustee Trustee/Director (1981-present) and Chairman (1989-1994), Phoenix
49 Old Post Road Funds. 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 (68) Trustee Chairman, Metropolitan Transportation Authority (1992-present).
9 Rittenhouse Road Trustee/Director, Consolidated Edison Company of New York, Inc.
Bronxville, NY 10708 (1970-present), Pace University (1978-present), Atlantic Mutual
Insurance Company (1974-present), HRE Properties (1989-present),
Greater New York Councils, Boy Scouts of America (1985-present), Union
Pacific Corp. (1978-present), Blackrock Freddie Mac Mortgage Securities
Fund (Advisory Director)(1990-present), Centennial Insurance Company
(1974-present), Josiah Macy, Jr., Foundation (1975-present), The Harlem
Youth Development Foundation (1987-present), Accuhealth (1994-present),
Trism, Inc. (1994-present), Realty Foundation of New York
(1972-present), New York Housing Partnership Development Corp.
(Chairman)(1981-present) and Fund Directions (Advisory Director)
(1993-present). Director/Trustee, Phoenix Funds (1993-present).
Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director, Duff & Phelps
Utilities Tax-Free Income Inc. and Duff & Phelps Utility and Corporate
Bond Trust Inc. (1995-present). Member, Audit Committee of the City of
New York (1981-1996). Advisory Director, Blackrock Fannie Mae Mortgage
Securities Fund (1989-1996). Member (1990-1995), Chairman (1992-1995),
Financial Accounting Standards Advisory Council. Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Harry Dalzell-Payne (68) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee,
330 East 39th Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Apartment 29G Mutual Funds (1996-present). Director, Duff & Phelps Utilities Tax-Free
New York, NY 10016 Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Director, Farragut Mortgage Co., Inc. (1991-1994).
Director/Trustee, the National Affiliated Investment Companies
(1983-1993). Formerly a Major General of the British Army.
*Francis E. Jeffries (67) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee,
6585 Nicholas Blvd. Phoenix-Aberdeen Series Inc. and Phoenix Duff & Phelps Institutional
Apt. 1601 Mutual Funds (1996-present). Director, Duff & Phelps Utilities Income
Naples, FL 33963 Inc. (1987-present), Duff & Phelps Utilities Tax-Free Income Inc.
(1991-present) and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993-present). Director, The Empire District Electric Company
(1984-present). Director (1989-1997), Chairman of the Board
(1993-1997), President (1989-1993) and Chief Executive Officer
(1989-1995), Phoenix Duff & Phelps Corporation.
Leroy Keith, Jr. (59) Trustee Chairman and Chief Executive Officer, Carson Products Company
Chairman and Chief (1995-present). Director/Trustee, Phoenix Funds (1980-present).
Executive Officer Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Carson Product Company Institutional Mutual Funds (1996-present). Director, Equifax Corp.
64 Ross Road (1991-present) and Keystone International Fund, Inc. (1989-present).
Savannah, GA 30750 Trustee, Keystone Liquid Trust, Keystone Tax Exempt Trust, Keystone
Tax Free Fund, Master Reserves Tax Free Trust, and Master Reserves
Trust. President, Morehouse College (1987-1994). Chairman and Chief
Executive Officer, Keith Ventures (1992-1994). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
*Philip R. McLoughlin (51) Trustee and President Chairman (1997-present), Director (1995-present), Vice Chairman
(1995-1997) and Chief Executive Officer (1995-present), Phoenix Duff &
Phelps Corporation. Director (1994-present) and Executive Vice
President, Investments (1988-present), Phoenix Home Life Mutual
Insurance Company. Director/Trustee and President, Phoenix Funds
(1989-present). Trustee and President, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income Inc. (1995-present)
and Duff & Phelps Utility and Corporate Bond Trust Inc. (1995-present).
Director (1983-present) and Chairman (1995-present), Phoenix Investment
Counsel, Inc. Director (1984-present) and President (1990-present),
Phoenix Equity Planning Corporation. Director (1993-present), Chairman
(1993-present) and Chief Executive Officer (1993-1995), National
Securities & Research Corporation. Director, Phoenix Realty Group, Inc.
(1994-present), Phoenix Realty Advisors, Inc. (1987-present), Phoenix
Realty Investors, Inc. (1994-present), Phoenix Realty Securities, Inc.
(1994-present), PXRE Corporation (Delaware) (1985-present), and World
Trust Fund (1991-present). Director and Executive Vice President,
Phoenix Life and Annuity Company (1996-present). Director and Executive
Vice President, PHL Variable Insurance Company (1995-present).
Director, Phoenix Charter Oak Trust Company (1996-present). Director
and Vice President, PM Holdings, Inc. (1985-present). Director and
President, Phoenix Securities Group, Inc. (1993-1995). Director
(1992-present) and President (1992-1994), W.S. Griffith & Co., Inc.
Director (1992-present) and President (1992-1994), Townsend Financial
Advisers, Inc. Director/Trustee, the National Affiliated Investment
Companies (until 1993).
**Everett L. Morris (69) Trustee Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present). Trustee, Duff & Phelps
Colts Neck, NJ 07722 Mutual Funds (1994-present). Trustee, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income Inc. (1991-present)
and Duff & Phelps Utility and Corporate Bond Trust Inc. (1993-present).
Director, Public Service Enterprise Group, Incorporated (1986-1993).
President and Chief Operating Officer, Enterprise Diversified Holdings,
Incorporated (1989-1993).
*James M. Oates (51) Trustee Chairman, IBEX Capital Markets LLC (1997-present). Managing Director,
Managing Director Wydown Group (1994-present). Director, Phoenix Duff & Phelps
The Wydown Group Corporation (1995-present). Director/Trustee, Phoenix Funds
IBEX Capital Markets LLC (1987-present). Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
60 State Street & Phelps Institutional Mutual Funds (1996-present). Director, AIB
Suite 950 Govett Funds (1991-present), Blue Cross and Blue Shield of New
Boston, MA 02109 Hampshire (1994-present), Investors Financial Service Corporation
(1995-present), Investors Bank & Trust Corporation (1995-present),
Plymouth Rubber Co. (1995-present), Stifel Financial (1996-present) and
Command Systems, Inc. (1998-present). Vice Chairman, Massachusetts
Housing Partnership (1992-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 (56) Trustee Director (1986-present), President (1993-present) and Executive Vice
Phoenix Duff & Phelps President (1992-1993), Phoenix Duff & Phelps Corporation.
Corporation Director/Trustee, Phoenix Funds (1995-present). Trustee,
55 East Monroe Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Suite 3600 Mutual Funds (1996-present). President and Chief Executive Officer,
Chicago, IL 60603 Duff & Phelps Utilities Tax-Free Income Inc. (1995-present), Duff &
Phelps Utilities Income Inc. (1994-present) and Duff & Phelps Utility
and Corporate Bond Trust Inc. (1995-present).
**Herbert Roth, Jr. (69) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee,
134 Lake Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
P. O. Box 909 Mutual Funds (1996-present). Director, Boston Edison Company
Sherborn, MA 01770 (1978-present), Phoenix Home Life Mutual Insurance Company
(1972-present), Landauer, Inc. (medical services) (1970-present), Tech
Ops./Sevcon, Inc. (electronic controllers) (1987-present), and Mark IV
Industries (diversified manufacturer) (1985-present). Director, Key
Energy Group (oil rig service) (1988-1994). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Richard E. Segerson (52) 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 Trustee/Director, Phoenix Funds (1995-present). Trustee,
731 Lake Avenue Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Greenwich, CT 06830 Mutual Funds (1996-present). Director, UST Inc. (1995-present), HPSC
Inc. (1995-present), Compuware (1996-present) and Burroughs Wellcome
Fund (1996-present). Visiting Professor, University of Virginia
(1997-present). Director, Duty Free International (1997). Chairman,
Dresing, Lierman, Weicker (1995-1996). Governor of the State of
Connecticut (1991-1995).
Michael E. Haylon (40) Executive Director and Executive Vice President--Investments, Phoenix Duff &
Vice President Phelps Corporation (1995-present). Executive Vice President, Phoenix
Funds (1993-present) and Phoenix-Aberdeen Series Fund (1996-present).
Executive Vice President (1997-present), Vice President (1996-1997),
Phoenix Duff & Phelps Institutional Mutual Funds. Director
(1994-present), President (1995-present, Executive Vice President
(1994-1995), Vice President (1991-1994), Phoenix Investment Counsel,
Inc. Director (1994-present), President (1996-present), Executive Vice
President (1994-1996), Vice President (1993-1994), National Securities
& Research Corporation. Director, Phoenix Equity Planning Corporation
(1995-present). Senior Vice President, Securities Investment, Phoenix
Home Life Mutual Insurance Company (1993-1995). Various other positions
with Phoenix Home Life Mutual Insurance Company (1990-1993).
</TABLE>
- ---------------
* Trustees identified with an asterisk are considered to be "interested
persons" of the Fund within the meaning of the definition set forth in
Section 2(a)(19) of the Investment Company Act of 1940.
** Pursuant to the retirement Policy of the Phoenix Funds, Messrs. Morris and
Roth will retire from the Board of Trustees effective January 1, 1999.
16
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Roger Engemann (56) Senior Vice President President, Roger Engemann & Associates (1992-present). President and a
600 North Rosemead Boulevard Director, Pasadena Capital Corporation. Senior Vice President, The
Pasadena, CA 91107 Phoenix Edge Series Fund and Phoenix Series Fund (1998-present).
Managing Director, Equities, Phoenix Investment Counsel, Inc.
(1998-present).
Ronald K. Jacks (30) Senior Vice President Portfolio Manager, Seneca Capital Management, LLC (1996-present).
909 Montgomery Street Portfolio Manager, GMG/Seneca Capital Management, LLC (1990-present).
San Francisco, CA 94133 Senior Vice President, The Phoenix Edge Series Fund and Phoenix
Strategic Equity Series Fund (1998-present). Managing Director,
Equities, National Securities & Research Corporation (1998-present).
Trustee, Seneca Funds (1996-1997).
William J. Newman (59) Senior Vice President Executive Vice President (1995-present) and Chief Investment Strategist
(1996-present). Phoenix Investment Counsel, Inc. Executive Vice
President and Chief Investment Strategist (1996-present), Senior Vice
President (1995-1996), National Securities & Research Corporation.
Senior Vice President, Phoenix Strategic Equity Series Fund
(1996-present), The Phoenix Edge Series Fund (1995-present), Phoenix
Multi-Portfolio Fund (1995-present). Phoenix Income and Growth Fund
(1996-present), Phoenix Series Fund (1996-present), Phoenix Strategic
Allocation Fund, Inc. (1996-present), Phoenix Worldwide Opportunities
Fund (1996-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present) and Phoenix-Aberdeen Series Fund (1996-present). Senior
Vice President, Phoenix Equity Planning Corporation (1995-1996). Vice
President, Common Stock and Chief Investment Strategist, Phoenix Home
Life Mutual Insurance Company (April 1995-November 1995). Chief
Investment Strategist, Kidder, Peabody Co., Inc. (1993-1994). Managing
Director, Equities, Bankers Trust Company (1991-1993).
Gail P. Seneca (42) Senior Vice President President, Chief Executive and Chief Investment Officer, Seneca Capital
909 Montgomery Street Management, LLC (1996-present). Chief Executive and Investment Officer,
San Francisco, CA 94133 and a managing general partner, GMG/Seneca Capital Management, LLC
(1989-present). President and a Trustee, Seneca Funds (1996-present).
Senior Vice President, The Phoenix Edge Series Fund (1998-present).
John S. Tilson (53) Senior Vice President Executive Vice President, Portfolio Manager and Securities Analyst,
600 North Rosemead Boulevard Roger Engemann & Associates (1983-present). An officer and a Director
Pasadena, CA 91107 of Pasadena Capital Corporation. Senior Vice President, The Phoenix
Edge Series Fund (1998-present).
James D. Wehr (40) Senior Vice President Managing Director, Fixed Income (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Managing Director, Fixed
Income (1996-present), Vice President (1993-1996), National Securities
& Research Corporation. Senior Vice President, Phoenix Multi-Portfolio
Fund, Phoenix Series Fund, The Phoenix Edge Series Fund, Phoenix
California Tax Exempt Bonds, Inc., Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Sector Fixed Income Fund, Inc., Phoenix
Multi-Sector Short Term Bond Fund, Phoenix Income and Growth Fund and
Phoenix Strategic Allocation Fund (1997-present). Senior Vice President
and Chief Investment Officer, Duff & Phelps Utilities Tax-Free Income
Inc. (1997-present). Vice President, Phoenix Multi-Portfolio Fund
(1988-1997), Phoenix Series Fund (1990-1997), The Phoenix Edge Series
Fund (1991-1997), Phoenix California Tax Exempt Bonds, Inc. (1993-1997)
and Phoenix Duff & Phelps Institutional Mutual Funds (1996-1997).
Managing Director, Public Fixed Income, Phoenix Home Life Insurance
Company (1991-1995). Various positions with Phoenix Home Life Mutual
Insurance Company (1981-1991).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Hugh Young (39) Senior Senior Vice President, Phoenix-Aberdeen Series Fund and The Phoenix
Aberdeen Asset Managers LTD Vice President Edge Series Fund (1996-present). Director, Phoenix-Aberdeen
88A Circular Road International Advisors, LLC. Far East Investment Director, Aberdeen
Singapore 049439 Asset Management Asia Limited (1988-present). Managing Director,
Aberdeen Asset Management Asia Limited (1992-present). Director,
Abtrust Asian Smaller Companies Investment Trust plc (1995-present),
Abtrust New Dawn Investment Trust plc (1989-present), Abtrust Emerging
Asia Investment Trust Limited (1990-present), JF Philippine Fund Inc.
and Apollo Tiger.
David L. Albrycht (36) Vice President Managing Director, Fixed Income (1996-present) and Vice President
(1995-1996), Phoenix Investment Counsel, Inc. Managing Director, Fixed
Income (1996-present) and Investment Officer (1994-1996), National
Securities & Securities Research Corporation. Vice President, Phoenix
Multi-Portfolio Fund (1993-present), Phoenix Multi-Sector Short Term
Bond Fund (1993-present), Phoenix Multi-Sector Fixed Income Fund, Inc.
(1994-present). The Phoenix Edge Series Fund (1997-present) and Phoenix
Series Fund (1997-present). Portfolio Manager, Phoenix Home Life Mutual
Insurance Company (1995-1996).
Christian C. Bertelsen (55) Vice President Managing Director, Value Equities, Phoenix Investment Counsel, Inc.
(1997-present). Vice President, The Phoenix Edge Series Fund
(1998-present), Phoenix Investment Trust 97 (1997-present). Senior Vice
President and Chief Investment Officer, Zurich Kemper (1996-1997). Vice
President and Portfolio Manager, Zurich Kemper Small Cap Fund and
Zurich Kemper Contrarian Fund (1996-1997). Senior Vice President, Eagle
Asset Management (1993-1996). Vice President and Portfolio Manager,
Heritage Value Fund and Golden Select Variable Annuity Value Trust
(1995-1996). Senior Vice President, Colonial Equity Management, Inc.
(1986-1993). Vice President and Portfolio Manager, The Colonial Fund
(1986-1993). Assistant Vice President and Coportfolio Manager, Colonial
Small Stock Fund (1990-1993)and Colonial Utilities Fund (1991-1993).
Assistant Vice President, Colonial Growth Shares (1991-1993).
Mary E. Canning (41) Vice President Managing Director, Equities (1996-present) and Investment Strategist
(1996-1998), Vice President (1991-1996), Phoenix Investment Counsel,
Inc. Vice President, The Phoenix Edge Series Fund (1987-present) and
Phoenix Strategic Allocation Fund, Inc. (1996-present). Managing
Director and Investment Strategist, National Securities & Research
Corporation (1996-1998). Vice President, Phoenix Series Fund
(1987-1997). Associate Portfolio Manager, Common Stock, Phoenix Home
Life Mutual Insurance Company (1989-1995).
Steven L. Colton (39) Vice President Managing Director, Value Equities, Phoenix Investment Counsel, Inc.
(1997-present). Managing Director, Value Equities, National Securities
& Research Corporation (1998-present). Vice President, The Phoenix Edge
Series Fund (1997-present), Phoenix Series Fund (1997-present), Phoenix
Equity Series Fund (1997-present), and Phoenix Income and Growth Fund
(1998-present). Vice President/Senior Portfolio Manager, American
Century Investment Management (1987-1997). Portfolio Manager, American
Century/Benham Income and Growth Fund (1990-1997), American
Century/Benham Equity Growth Fund (1991-1996) and American
Century/Benham Utilities Income Fund (1993-1997).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Timothy Devlin (34) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment Company
J.P. Morgan Investment and Morgan Guaranty Trust Company of NY (1996-present). Vice President,
Management Inc. The Phoenix Edge Series Fund (1997-present). First Vice President and
522 Fifth Avenue Portfolio Manager, Mitchell Hutchins Asset Management, Inc.
New York, NY 10036 (1987-1996).
John D. Kattar (42) Vice President Managing Director, Equities, Phoenix Investment Counsel, Inc.
(1997-present). Vice President, The Phoenix Edge Series Fund
(1997-present), Phoenix Series Fund (1997-present), Phoenix-Aberdeen
Series Fund (1997-present) and Phoenix Duff & Phelps Institutional
Mutual Funds (1998-present). Director (1989-1997), Senior Vice
President (1993-1996), Baring Asset Management Company, Inc. Director,
Baring Mutual Fund Management (Luxembourg) (1995-1997).
William E. Keen III (34) Vice President Assistant Vice President (1996-present), Director of Mutual Fund
100 Bright Meadow Blvd. Compliance (1995-1996), Phoenix Equity Planning Corporation. Vice
P.O. Box 2200 President, Phoenix Funds, Phoenix-Aberdeen Series Fund and Phoenix Duff
Enfield, CT 06083-2200 & Phelps Institutional Mutual Funds (1996-present). Assistant Vice
President, US Affinity Investments L.P. (1994-1995). Treasurer and
Secretary, US Affinity Funds (1994-1995). Manager, Fund Administration,
SEI Corporation (1991-1994).
David Lui (38) Vice President Managing Director, Equities (1998-present), Portfolio Manager, Equities
(1996-1998), Phoenix Investment Counsel, Inc. and National Securities &
Research Corporation. 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).
William R. Moyer (53) Vice President Senior Vice President and Chief Financial Officer, Phoenix Duff &
100 Bright Meadow Blvd. Phelps Corporation (1995-present). Director (1998-present), Senior Vice
P.O. Box 2200 President, Finance (1990-present), Chief Financial Officer
Enfield, CT 06083-2200 (1996-present), and Treasurer (1994-1996 and 1998-present), Phoenix
Equity Planning Corporation. Director (1998-present), Senior Vice
President (1990-present), Chief Financial Officer (1996-present) and
Treasurer (1994-present), Phoenix Investment Counsel, Inc. Director
(1998-present), Senior Vice President, Finance (1993-present), Chief
Financial Officer (1996-present), and Treasurer (1994-present),
National Securities & Research Corporation. Senior Vice President and
Chief Financial Officer, Duff & Phelps Investment Management Co.
(1996-present). Vice President, Phoenix Funds (1990-present),
Phoenix-Duff & Phelps Institutional Mutual Funds (1996-present),
Phoenix-Aberdeen Series Fund (1996-present). Senior Vice President and
Chief Financial Officer, W. S. Griffith & Co., Inc. (1992-1995) and
Townsend Financial Advisers, Inc. (1993-1995). Vice President,
Investment Products Finance, Phoenix Home Life Mutual Insurance Company
(1990-1995). Vice President, the National Affiliated Investment
Companies (until 1993).
Leonard J. Saltiel (44) Vice President Managing Director, Operations and Service (1996-present), Senior Vice
President (1994-1996), Phoenix Equity Planning Corporation. Vice
President, Phoenix Funds (1994-present), Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present) and Phoenix-Aberdeen Series
Fund (1996-present). Vice President, National Securities & Research
Corporation (1994-1998). Vice President, Investment Operations, Phoenix
Home Life Mutual Insurance Company (1994-1995). Various positions with
Home Life Insurance Company and Phoenix Home Life Mutual Insurance
Company (1987-1994).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Julie L. Sapia (41) Vice President Director, Money Market Trading (1998-present), Head Money Market Trader
(1997-1998), 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).
Michael Schatt (51) Vice President Managing Director, Phoenix Duff & Phelps Corporation (1994-present).
55 East Monroe Street Senior Vice President, Duff & Phelps Investment Management Co.
Suite 3600 (1997-present). Vice President, Phoenix Realty Securities, Inc.
Chicago, IL 60603 (1997-present). Vice President, Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Portfolio Fund and The Phoenix Edge Series
Fund (1997-present). Director, Real Estate Advisory Practice, Coopers &
Lybrand, LLC (1990-1994).
Pierre G. Trinque (42) Vice President Managing Director, Large Cap Growth Team (1997-present), Managing
Director, Director of Equity Research (1996-1997), Senior Research
Analyst, Equities (1996) and Associate Portfolio Manager, Institutional
Funds (1992-1995), Phoenix Investment Counsel, Inc. Vice President, The
Phoenix Edge Series Fund and Phoenix Series Fund President
(1997-present).
James C. Wiess (37) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment Management
J.P. Morgan Investment Inc. and Morgan Guaranty Trust Company of New York (1992-present). Vice
Management Inc. President, The Phoenix Edge Series Fund (8/97-present).
522 Fifth Avenue
New York, NY 10036
Nancy G. Curtiss (45) Treasurer Treasurer (1996-present), Vice President, Fund Accounting (1994-1996),
Phoenix Equity Planning Corporation. Treasurer, Phoenix Funds
(1994-present), Phoenix-Aberdeen Series Fund (1996-present) and Phoenix
Duff & Phelps Institutional Mutual Funds (1996-present). Second Vice
President and Treasurer, Fund Accounting, Phoenix Home Life Mutual
Insurance Company (1994-1995). Various positions with Phoenix Home Life
Mutual Insurance Company (1987-1994).
G. Jeffrey Bohne (50) Secretary Vice President and General Manager, Phoenix Home Life Mutual Insurance
101 Munson Street Co. (1993-present). Vice President, Mutual Fund Customer Service
Greenfield, MA 01301 (1996-present), Vice President, Transfer Agency Operations (1993-1996),
Phoenix Equity Planning Corporation. Secretary and/or Clerk, Phoenix
Funds (1993-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present) and Phoenix-Aberdeen Series Fund (1996-present). Vice
President, Home Life of New York Insurance Company (1984-1992).
</TABLE>
- ---------------
No person listed in the foregoing table has any immediate family relationship
with any other person listed in the table.
At December 31, 1997, 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,
1997, the Trustees received an aggregate of $186,063 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 their affiliates currently receives
a retainer at the annual rate of $40,000 and $2,500 per joint meeting of the
Boards. Each Trustee who serves on the Audit Committee receives a retainer at
the annual rate of $2,000 and $2,000 per joint Audit Committee meeting attended.
The current members of the Audit Committee are Messrs. Conway, Roth, Segerson
and Weicker. Each Trustee who serves on the Executive Committee and who is not
an interested person of the Fund receives a retainer at the annual rate of
$1,000 and $1,000 per joint Executive Committee meeting attended. The current
members of the Executive Committee are Messrs. Conway, Dalzell-Payne,
McLoughlin, Morris, Oates and Roth. The function of the Executive Committee is
to serve as a contract review, compliance review and performance review delegate
of the full Board of Trustees. The foregoing fees do not include the
reimbursement of expenses incurred in connection with meeting attendance.
Trustee costs are allocated equally to each of the Series of the Funds within
the Fund complex. Officers and employees of the Adviser who are "interested
persons" are compensated by the Adviser and receive no compensation from the
Fund.
20
<PAGE>
For the Fund's fiscal year ended December 31, 1997, 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 (13 FUNDS)
NAME FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
---- --------- ------------- ---------- ----------------
<S> <C> <C>
Robert Chesek $13,900 $57,750
E. Virgil Conway $18,090 $74,500
Harry Dalzell-Payne $15,825 $65,250
Francis E. Jeffries $13,500* None for None for $56,250
Leroy Keith, Jr. $13,900 any Trustee any Trustee $57,750
Philip R. McLoughlin $0 $0
Everett L. Morris $15,425* $64,500
James M. Oates $15,425 $63,750
Calvin J. Pedersen $0 $0
Herbert Roth, Jr. $18,770* $76,250
Richard E. Segerson $15,940 $66,000
Lowell P. Weicker, Jr. $15,188 $62,500
</TABLE>
* This compensation (and the earnings thereon) is deferred pursuant to the
Directors' Deferred Compensation Plan. At December 31, 1997, the total amount
of deferred compensation (including interest and other accumulation earned on
the original amounts deferred) accrued for Messrs. Jeffries, Morris and Roth
was $60,161.00, $126,891.00 and $137,672.00, 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"), DPIM 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, 1997, Phoenix had $18.5 billion
consolidated assets. PHL Variable writes variable annuities, and at December 31,
1997 had assets of $428 million. PLAC writes variable universal life insurance
policies and at December 31, 1997 had assets of $11.8 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 its affiliates. 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 ("JPM & Co."), 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. JPM
& Co., through J.P. Morgan and its other investment management subsidiaries, had
approximately $255 billion in assets under management as of December 31, 1997.
Roger Engemann & Associates ("Engemann") serves as subadviser to the Nifty
Fifty Series. Engemann is a wholly owned subsidiary of Pasadena Capital
Corporation, which in turn is a wholly owned subsidiary of PD&P. Engemann has
been engaged in the investment management business since 1969, and provides
investment counseling services to retirement plans, colleges, corporations,
trusts and individuals. Engemann also serves as investment adviser to the
Phoenix-Engemann Funds. As of December 31, 1997, Engemann had approximately $6.2
billion in assets under management.
Seneca Capital Management, LLC serves as subadviser to the Seneca Mid-Cap
Series. PD&P owns a majority interest in Seneca; the balance is owned by certain
of its employees, including Gail Seneca, one of the portfolio management team
leaders, and the former limited partners of GMG/Seneca Capital Management, LLC.
Seneca (including its predecessor, GMG/Seneca Capital Management LP) has been an
investment adviser since 1989, managing equity and fixed-income
21
<PAGE>
securities portfolios primarily for institutions and individuals. As of December
31, 1997, Seneca had approximately $4.4 billion in assets under management.
Schafer Capital Management, Inc. ("Schafer"), serves as subadviser to the
Schafer Mid-Cap Series. Schafer's principal place of business is located at 101
Carnegie Center, Suite 107, Princeton, New Jersey. Schafer has been engaged in
the investment management business since 1981, specializing in long-term
investing in the equity markets. As of December 31, 1997, Schafer had
approximately $1.7 billion in assets under management.
The offices of Duff & Phelps Investment Management Co. ("DPIM") are located
at 55 East Monroe Street, Suite 3600, Chicago, Illinois 60603. DPIM also serves
as investment adviser to the Core Equity Fund of Phoenix Equity Series Fund, the
Enhanced Reserves, Core Equity and Real Estate Equity Securities Portfolio of
Phoenix Duff & Phelps Institutional Mutual Funds, the Real Estate Securities
Portfolio of Phoenix Multi-Portfolio Fund and three closed-end funds: Duff &
Phelps Utilities Income Inc., Duff & Phelps Utilities Tax-Free Income Inc. and
Duff & Phelps Utility and Corporate Bond Trust Inc. The investment adviser at
inception of the Real Estate Series was Phoenix Realty Securities, Inc. ("PRS"
or "Adviser") PRS is a wholly-owned indirect subsidiary of Phoenix Home Life. On
March 2, 1998, DPIM purchased the management rights for the Series from PRS and
PRS's contract was assigned to DPIM. As of December 31, 1997, DPIM had
approximately $13 billion in assets under management.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc., a 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 One Financial
Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. PAIA also
serves as investment adviser to Phoenix-Aberdeen Series Fund. While many of the
officers and directors of the PAIA have extensive experience as investment
professionals, due to its recent formation, PAIA has no prior operating history.
Aberdeen Fund Managers, Inc. also serves as subadviser for the Asia Series and
Phoenix-Aberdeen Series Fund.
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 December 31, 1997, Aberdeen Asset Management, and its advisory
subsidiaries, had approximately $19 billion in assets under management.
Philip R. McLoughlin, President and Trustee of the Trust, is a director and
officer of PIC. Michael E. Haylon, an officer of the Trust, is a director and
officer of PIC and also an officer of DPIM. William R. Moyer, an officer of the
Trust, is a director and officer of PIC and also an officer of DPIM. David L.
Albrycht, Curtiss O. Barrows, Christian C. Bertelson, Mary E. Canning, Steven L.
Colton, J. Roger Engemann, John D. Kattar, William E. Keen, III, David Lui,
James E. Mair, William J. Newman, Julie L. Sapia, Thomas N. Steenburg, John S.
Tilson, Pierre G. Trinque and James D. Wehr, officers of the Trust, are officers
of PIC. Michael Schatt and Thomas N. Steenburg, officers of the Trust, are also
officers of DPIM. Hugh Young, an officer of the Trust, is a director and officer
of PAIA.
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, Enhanced Index and Seneca Mid-Cap Series) pays a portion or all of
its total operating expenses other than the management fee, up to .15% of its
total average net assets. The International, Real Estate, Theme, Asia, Enhanced
Index and Seneca Mid-Cap Series pay total operating expenses other than the
management fee up to .40%, .25%, .25%, .25%, .10%, and .25%, respectively, of
its total average net assets. Expenses above these limits are paid by the
Advisers, Phoenix, PHL Variable or PLAC.
The Agreements also provide that the Advisers will reimburse the Fund for
the amount, if any, by which the total operating expenses (including the
Adviser's compensation, but excluding interest, taxes, brokerage fees and
commissions and extraordinary expenses) for any fiscal year exceed the level
of expenses which the Fund is permitted to bear under the most restrictive
expense limitation.
To the extent that any expenses are paid by the Fund, they will be paid by
the Series incurring them or, in the case of general expenses, may be charged
among the Series in relation to the benefits received by the shareholders, as
determined by the financial agent under the supervision of the Board of
Trustees. Such expenses shall include, but shall not be limited to, all expenses
(other than those specifically referred to as being borne by the Advisers,
Phoenix, PHL Variable or PLAC) incurred in the operation of the Fund and any
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Trustees, expenses of Trustees' and shareholders'
meetings including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of repurchase and
redemption of shares, certain expenses of issue and sale of shares, association
membership dues, charges of custodians, transfer agents, dividend disbursing
agents and financial agents, bookkeeping, auditing and legal expenses. The Fund,
Phoenix, PHL Variable or PLAC also will pay the fees and bear the expense of
registering and maintaining the registration of the Fund and its shares with the
SEC and the expense of preparing and mailing prospectuses and reports to
shareholders.
The Investment Advisory Agreements provide that the Advisers shall not be
liable to the Fund or to any shareholder of the Fund for any error of judgment
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.
22
<PAGE>
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:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market... .40% .35% .30%
Multi-Sector... .50% .45% .40%
Balanced....... .55% .50% .45%
Allocation..... .60% .55% .50%
Growth......... .70% .65% .60%
International.. .75% .70% .65%
Theme.......... .75% .70% .65%
Nifty Fifty.... .90% .80% .70%
Growth & Income .70% .65% .60%
Value.......... .70% .65% .60%
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
SERIES
- ------
Enhanced Index.. .45%
Seneca Mid-Cap.. .80%
Schafer Mid-Cap. 1.05%
DUFF & PHELPS INVESTMENT MANAGEMENT CO.
---------------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia............ 1.00%
The amounts payable to the Advisers shall be based upon the average of the
values of the net assets of the Fund as of the close of business each day. There
can be no assurance that the Fund will reach a net asset level high enough to
realize a reduction in the rate of the advisory fee.
The Investment Advisory Agreements continue in force from year to year for
all Series, provided that, with respect to each Series, the applicable agreement
must be approved at least annually by the Trustees or by vote of a majority of
the outstanding voting securities of that Series. In addition, and in either
event, the terms of the agreements and any renewal thereof must be approved by
the vote of a majority of Trustees who are not parties to the agreement or
interested persons (as that term is defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreements will terminate automatically if assigned
and may be terminated at any time, without payment of any penalty, either by the
Fund or by the Advisers, on sixty (60) days written notice.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
In effecting portfolio transactions for the Fund, the Advisers and
Subadvisers, adhere to the Fund's policy of seeking best execution and price,
determined as described below, except to the extent it is permitted to pay
higher brokerage commissions for "brokerage and research services" as defined
herein. The Advisers may cause the Fund to pay a broker an amount of commission
for effecting a securities transaction in excess of the amount of commission
which another broker or dealer would have charged for effecting the transaction,
if the Advisers determine in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker. As provided in Section 28(e) of the Securities Exchange
Act of 1934, "brokerage and research services" include giving advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities; furnishing analyses and reports
concerning issuers, industries, economic factors and trends, portfolio strategy
and the performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Brokerage and research services provided by brokers to the Fund or to the
Advisers are considered to be in addition to and not in lieu of services
required to be performed by the Advisers under their contracts with the Fund
under their contracts with the Advisers and may benefit both the Fund and other
clients of the Advisers. Conversely, brokerage and research services provided by
brokers to other clients of the Advisers may benefit the Fund.
If the securities in which a particular Series of the Fund invests are
traded primarily in the over-the-counter market, where possible the Series will
deal directly with the dealers who make a market in the securities involved
unless better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account. On occasion, securities may be
purchased directly from the issuer. Bonds and money market instruments are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
the availability of the broker to stand ready to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by the Advisers in
determining the overall reasonableness of brokerage commissions paid by the
Fund.
For the fiscal years ended December 31, 1995, 1996 and 1997 brokerage
commissions paid by the Fund on portfolio transactions totaled $5,452,277,
$6,749,696 and $10,220,704, 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, 1997 included
brokerage commissions of $7,954,637 on portfolio transactions aggregating
$7,414,959,794 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
23
<PAGE>
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 NYSE on days when the NYSE is open for trading. The
NYSE will be closed on the following observed national holidays: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Since the Fund
does not price securities on weekends or United States national holidays, the
net asset value of a Series' foreign assets may be significantly affected on
days when the investor has no access to the Fund. The net asset value per share
of a Series is determined by adding the values of all securities and other
assets of the Series, subtracting liabilities and dividing by the total number
of outstanding shares of the Series. Assets and liabilities are determined in
accordance with generally accepted accounting principles and applicable rules
and regulations of the SEC.
A security that is listed or traded on more than one exchange is valued at
the quotation on the NYSE determined to be the primary exchange for such
security by the Trustees or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place for any Series which invests
in foreign securities contemporaneously with the determination of the prices of
the majority of the portfolio securities of such Series. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair value considerations by the Trustees or their
delegates. If at any time a Series has investments where market quotations are
not readily available, such investments are valued at the fair value thereof as
determined in good faith by the Trustees although the actual calculations may be
made by persons acting pursuant to the direction of the Trustees.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
Shares of the Fund are not available to the public directly. Although shares
of the Fund are owned by the Accounts, Contract Owners and Policyowners do have
voting rights with respect to those shares, as described in the Prospectus under
"Shares of Beneficial Interest." You may invest in the Fund by buying a Variable
Accumulation Annuity Contract or a Variable Universal Life Insurance Policy from
Phoenix, PHL Variable or PLAC and directing the allocation of the net purchase
payment(s) to the Subaccounts corresponding to the Series of the Fund. Phoenix,
PHL Variable and PLAC will, in turn, invest payments in shares of the Fund as
the investor directs at net asset value next determined with no sales load.
SALES CHARGE AND SURRENDER CHARGES
The Fund does not assess any sales charge, either when it sells or when it
redeems securities. The sales charges which may be assessed under the Contracts
or Policies are described in the accompanying prospectus, as are other charges.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem any shares presented by the shareholder Accounts for
redemption. The Account's policies on when and whether to buy or redeem Fund
shares are described in the accompanying prospectus.
24
<PAGE>
At the discretion of the Trustees, the Fund may, to the extent consistent
with state and Federal law, make payment for shares of a particular Series
repurchased or redeemed in whole or in part in securities or other assets of
such Series taken at current values. Should payment be made in securities, the
shareholder Accounts may incur brokerage costs in converting such securities to
cash.
The right of redemption may be suspended or the payment date postponed for
more than seven days only for any period during which trading on the NYSE is
closed for other than customary weekend and holiday closings, or when trading on
the NYSE is restricted, as determined by the SEC, for any period when an
emergency (as defined by rules of the Commission) exists, or during any period
when the Commission has, by order, permitted such 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 the Multi-Sector, Money Market, Growth, Strategic
Allocation, Balanced and Strategic Theme Series are held by The Chase Manhattan
Bank, N.A. under the terms of a custodian agreement. The address for The Chase
Manhattan Bank, N.A., is 1 Chase Manhattan Plaza, Floor 13B, New York, NY 10081.
The securities and cash of the International and Asia Series are held by Brown
Brothers Harriman & Co. under the terms of a custodian agreement. The address
for Brown Brothers Harriman & Co. is 40 Water Street, Boston, Massachusetts
02109, Attention: Manager, Securities Department. The securities and cash of the
Real Estate, Growth & Income, Value, Engemann Nifty Fifty, Seneca Mid-Cap,
Schafer Mid-Cap and Enhanced Index Series are held by State Street Bank and
Trust Company, located at 1 Heritage Drive, P2N, North Quincy, Massachusetts
02171. The Fund permits the Custodian to deposit some or all of its securities
in central depository systems as allowed by Federal law. The use of foreign
custodians and foreign central depositories has been authorized by the Board of
Trustees of the Fund if certain conditions are met.
FOREIGN CUSTODIAN
- --------------------------------------------------------------------------------
The Fund may use a foreign custodian in connection with its purchases of
foreign securities and may maintain cash and cash equivalents in the care of a
foreign custodian. The amount of cash or cash equivalents maintained in the care
of eligible foreign custodians will be limited to an amount reasonably necessary
to effect the Fund's foreign securities transactions. The use of a foreign
custodian involves considerations which are not ordinarily associated with
domestic custodians. These considerations include the possibility of
expropriations, restricted access to books and records of the foreign custodian,
inability to recover assets that are lost while under the control of the foreign
custodian, and the impact of political, social or diplomatic developments.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Fund's financial statements are audited by Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts 02110, independent accountants for the
Fund. The independent accountants also provide other accounting and tax-related
services as requested by the Fund from time to time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and the notes thereto relating to the Fund and the
report of Price Waterhouse LLP with respect thereto for the fiscal year ended
December 31, 1997 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 Semiannual 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, 1997 is included in this SAI.
25
<PAGE>
ANNUAL REPORT
DECEMBER 31,1997
THE PHOENIX EDGE SERIES FUND
26
<PAGE>
Table of Contents
Page
-----
Phoenix Money Market Series ....................... 28
Phoenix Growth Series ............................. 33
Phoenix Multi-Sector Fixed Income Series .......... 38
Phoenix Strategic Allocation Series ............... 44
Phoenix International Series ...................... 51
Phoenix Balanced Series ........................... 58
Phoenix Real Estate Securities Series ............. 65
Phoenix Strategic Theme Series .................... 69
Phoenix Aberdeen New Asia Series .................. 74
Phoenix Research Enhanced Index Series ............ 79
Notes to Financial Statements ..................... 87
- --------------------------------------------------------------------------------
Not FDIC Insured No Bank Guarantee May Lose Value
- --------------------------------------------------------------------------------
27
<PAGE>
MONEY MARKET SERIES
INVESTOR PROFILE
Phoenix Money Market Series is designed for conservative investors who want
competitive money market yields with minimal risk to principal.
INVESTMENT REVIEW
Phoenix Money Market Series continued to perform well during this 12-month
reporting period. As of December 31, 1997, the seven-day current yield was 5.14%
compared with the 5.05% IBC Money Fund Average as reported in IBC's Money Fund
Report. Current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven days preceding the date of
calculation by the average daily net asset value per share for the same period
multiplied by 365.
Money markets were quite volatile over the last year. Fourth-quarter GDP
rose 4.3%, showing strength in the employment and wages components. Continued
strength into the first quarter of 1997 and growing concerns over inflation
prompted the Federal Reserve to preemptively raise rates from 5.25% to 5.50%.
In the months that followed the tightening, economic data continued to show
pockets of strength. Concerns over the strength of the economy and fears of
rekindled inflation increased cash flows in the short end of the market.
However, moderate growth with well-behaved inflation kept the Federal Reserve on
hold indefinitely.
The summer months were marked by continued mixed economic data. Warnings
from the Federal Reserve referencing an over enthusiastic stock market and signs
of rising inflation rumbled through the markets. Short-term interest rates were
very volatile at this time, and by early fall there was a definitive feeling in
the markets of another rate increase. Subsequently, unexpected turmoil in the
Asian markets caused unstable markets globally, most likely keeping the Fed on
hold indefinitely.
Uncertainty as to how the Asian turmoil would impact the domestic markets
prevailed through year-end. Normal year-end pressures offered attractive buying
opportunities to extend the Fund's average maturity to 52 days.
Throughout most of the year, average maturity was held relatively neutral.
Our strategy has been to manage the Fund's average maturity as opposed to
predicting rates. The volatility in the world markets has proven this strategy
to be effective. We continued to emphasize high-quality commercial paper and
variable-rate securities to enhance yield. The Fund's average credit quality
remains A1/P1.
OUTLOOK
For the near future, we anticipate slower U.S. economic growth due to the
recent shakeup in the world markets. Growth is expected to decelerate with
inflation remaining subdued. However, if inflation fears are rekindled, the Fed
is likely to be diligent in reacting by raising rates.
We will continue to emphasize credit quality, focusing on higher yielding
issues, such as commercial paper and variable-rate securities. Given the
uncertainty in the market, we will be monitoring any movement in interest rates
or shifts in yield spreads to identify attractive trading opportunities.
MONTHLY YIELD COMPARISON
[TABULAR REPRESENTATION OF LINE CHART]
IBC Money Fund Report* Money Market Series
1/31/97 4.77% 4.96%
2/28/97 4.75% 4.89%
3/31/97 4.75% 4.93%
4/30/97 4.85% 4.91%
5/31/97 4.91% 5.26%
6/30/97 4.95% 5.13%
7/31/97 4.94% 5.13%
8/31/97 4.94% 4.82%
9/30/97 4.93% 5.12%
10/31/97 4.92% 5.04%
11/30/97 4.97% 5.10%
12/31/97 5.05% 5.18%
The above graph covers the period from January 1, 1997 to December 31, 1997. 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 insured 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 First Tier Money Market Funds as reported by IBC's
Money Fund Report.
28
<PAGE>
MONEY MARKET SERIES
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
FACE
VALUE INTEREST MATURITY
(000) DESCRIPTION RATE DATE VALUE
- ---------- ------------------------------- ---------- --------- -------------
FEDERAL AGENCY SECURITIES--9.2%
<S> <C> <C> <C> <C>
$ 2,000 FHLB ........................ 5.79% 1/21/98 $ 2,000,000
3,000 FHLB ........................ 5.78 1/28/98 3,000,000
2,000 FHLB ........................ 5.95 2/12/98 2,000,000
173 FNMA ........................ 5.75 2/20/98 171,618
2,000 FHLB ........................ 6.00 3/30/98 2,000,000
2,500 SLMA ........................ 6.00 6/30/98 2,500,000
-----------
TOTAL FEDERAL AGENCY SECURITIES ..................................... 11,671,618
-----------
RESET
DATE
-------
FEDERAL AGENCY SECURITIES--VARIABLE (b)--15.2%
3,500 FFCB (final maturity 4/1/99) 5.53 1/1/98 3,500,000
521 SBA (final maturity 1/25/21) 6.00 1/1/98 520,095
519 SBA (final maturity 5/25/21) 6.00 1/1/98 518,760
2,000 SBA (final maturity 10/25/22) 6.00 1/1/98 1,997,517
2,000 FNMA (final maturity 11/9/98) 5.93 1/6/98 1,999,504
1,500 SLMA (final maturity 11/10/98) 5.62 1/6/98 1,499,322
1,000 SLMA (final maturity 2/22/99) 5.63 1/6/98 1,000,000
2,000 FHLMC (final maturity 6/22/98) 5.75 1/20/98 1,999,535
4,500 FFCB (final maturity 7/24/00) 5.79 1/26/98 4,501,299
1,650 FNMA (final maturity 12/14/98) 5.51 3/14/98 1,649,141
-----------
TOTAL FEDERAL AGENCY SECURITIES--VARIABLE ........................... 19,185,173
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S
RATING MATURITY
DESCRIPTION (Unaudited) DATE
---------------------------------------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER--67.7%
2,880 Koch Industries, Inc. ........................ A-1+ 6.70 1/2/98 2,879,464
2,000 AlliedSignal, Inc. ........................... A-1 6.00 1/5/98 1,998,667
1,500 Donnelley (R.R.) & Sons Co. .................. A-1 6.45 1/5/98 1,498,925
1,500 CXC, Inc. .................................... A-1+ 5.97 1/9/98 1,498,010
2,630 Potomac Electric Power Co. ................... A-1 6.10 1/9/98 2,626,435
440 Receivables Capital Corp. .................... A-1+ 5.90 1/9/98 439,423
890 Receivables Capital Corp. .................... A-1+ 6.01 1/9/98 888,811
256 Enterprise Funding Corp. ..................... A-1+ 5.70 1/12/98 255,554
2,500 Greenwich Funding Corp. ...................... A-1+ 5.75 1/13/98 2,495,208
500 Preferred Receivables Funding Corp. .......... A-1 5.65 1/13/98 499,058
630 Preferred Receivables Funding Corp. .......... A-1 5.97 1/14/98 628,642
2,200 Deutsche Bank Financial, Inc. ................ A-1+ 5.64 1/15/98 2,200,000
545 Koch Industries, Inc. ........................ A-1+ 5.90 1/15/98 543,750
1,290 Receivables Capital Corp. .................... A-1+ 5.90 1/16/98 1,286,829
710 International Lease Finance Corp. ............ A-1 5.55 1/20/98 707,920
550 Corporate Asset Funding Co., Inc ............. A-1+ 6.00 1/21/98 548,167
2,300 Enterprise Funding Corp. ..................... A-1+ 5.73 1/23/98 2,291,946
1,100 Pitney Bowes Credit Corp. .................... A-1+ 5.53 1/23/98 1,096,283
2,000 CXC, Inc. .................................... A-1+ 5.70 1/26/98 1,992,083
2,085 Receivables Capital Corp. .................... A-1+ 5.83 1/26/98 2,076,559
2,400 CXC, Inc. .................................... A-1+ 5.57 1/27/98 2,390,345
2,500 Goldman Sachs & Co. .......................... A-1+ 5.85 1/30/98 2,488,219
1,500 Merrill Lynch & Co., Inc. .................... A-1+ 5.58 1/30/98 1,493,258
1,410 Donnelley (R.R.) & Sons Co. .................. A-1 5.70 2/3/98 1,402,633
1,655 Corporate Asset Funding Co., Inc. ............ A-1+ 5.90 2/4/98 1,645,778
2,500 Corporate Asset Funding Co., Inc. ............ A-1+ 5.61 2/5/98 2,486,365
2,000 Private Export Funding Corp. ................. A-1+ 5.73 2/6/98 1,988,540
1,195 Greenwich Funding Corp. ...................... A-1+ 5.82 2/12/98 1,186,886
2,000 Preferred Receivables Funding Corp. .......... A-1 5.70 2/12/98 1,986,700
1,000 Preferred Receivables Funding Corp. .......... A-1 5.83 2/12/98 993,198
2,000 Corporate Receivables Corp. .................. A-1 5.70 2/13/98 1,986,383
2,500 Corporate Receivables Corp. .................. A-1 5.55 2/18/98 2,481,500
2,500 General Re Corp. ............................. A-1+ 5.77 2/20/98 2,479,965
1,426 Receivables Capital Corp. .................... A-1+ 5.80 2/20/98 1,414,513
2,000 Preferred Receivables Funding Corp. .......... A-1 5.56 2/23/98 1,983,629
2,265 Greenwich Funding Corp. ...................... A-1+ 5.72 2/25/98 2,245,206
2,000 Enterprise Funding Corp. ..................... A-1+ 5.69 2/27/98 1,981,982
400 AT&T Corp. ................................... A-1+ 5.73 3/4/98 396,053
850 Du Pont (E.I.) de Nemours & Co. .............. A-1+ 5.57 3/6/98 841,583
1,600 Corporate Receivables Corp. .................. A-1 5.75 3/10/98 1,582,622
</TABLE>
See Notes to Financial Statements
29
<PAGE>
MONEY MARKET SERIES
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING INTEREST MATURITY
(000) DESCRIPTION (Unaudited) RATE DATE VALUE
- ---------- -------------------------------------------------- ------------- ---------- --------- --------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER--continued
$ 1,700 Beta Finance, Inc. ............................... A-1+ 5.58% 3/12/98 $ 1,681,555
1,335 General Re Corp. ................................. A-1+ 5.73 3/13/98 1,319,913
1,050 Merrill Lynch & Co., Inc. ........................ A-1+ 5.73 3/13/98 1,038,134
2,250 Asset Securitization Cooperative Corp. ........... A-1+ 5.75 3/16/98 2,223,406
1,380 Asset Securitization Cooperative Corp. ........... A-1+ 5.75 3/17/98 1,363,469
2,500 General Re Corp. ................................. A-1+ 5.75 3/20/98 2,468,854
2,500 Merrill Lynch & Co., Inc. ........................ A-1+ 5.57 3/25/98 2,467,895
2,500 General Electric Capital Corp. ................... A-1+ 5.54 3/30/98 2,466,145
1,750 Enterprise Funding Corp. ......................... A-1+ 5.75 3/31/98 1,725,123
2,390 General Electric Capital Corp. ................... A-1+ 5.65 4/23/98 2,347,989
2,765 Beta Finance, Inc. ............................... A-1+ 5.60 4/29/98 2,714,247
--------------
TOTAL COMMERCIAL PAPER .................................................................................. 85,723,822
--------------
MEDIUM-TERM NOTES--4.7%
1,500 Associates Corporation of North America .......... AA- 5.51 7/20/98 1,497,105
1,500 Associates Corporation of North America .......... AA- 6.38 8/15/98 1,504,039
2,000 Associates Corporation of North America .......... AA- 6.50 9/9/98 2,008,400
1,000 Pitney Bowes Credit Corp. ........................ AA 6.31 9/23/98 1,003,614
--------------
TOTAL MEDIUM-TERM NOTES ................................................................................. 6,013,158
--------------
TOTAL INVESTMENTS--96.8%
(Identified cost $122,593,771) ......................................................................... 122,593,771(a)
Cash and receivables, less liabilities--3.2% ........................................................... 4,012,923
--------------
NET ASSETS--100.0% ...................................................................................... $ 126,606,694
==============
</TABLE>
(a) Federal Income Tax Information: At December 31, 1997, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rates
currently in effect.
See Notes to Financial Statements
30
<PAGE>
MONEY MARKET SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $122,593,771) ........................ $ 122,593,771
Cash ................................................................................. 61,267
Receivables
Fund shares sold .................................................................... 3,444,264
Interest ............................................................................ 601,187
-------------
Total assets ....................................................................... 126,700,489
-------------
Liabilities
Payables
Investment advisory fee ............................................................. 42,079
Financial agent fee ................................................................. 6,312
Trustees' fee ....................................................................... 4,656
Accrued expenses .................................................................... 40,748
-------------
Total liabilities .................................................................. 93,795
-------------
Net Assets ........................................................................... $ 126,606,694
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .................................... $ 126,606,691
Undistributed net investment income ................................................. 3
-------------
Net Assets ........................................................................... $ 126,606,694
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization ..... 12,660,669
=============
Net asset value and offering price per share ......................................... $ 10.00
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
Investment Income
Interest ................................................... $6,936,028
----------
Total investment income .................................... 6,936,028
----------
Expenses
Investment advisory fee ..................................... 494,051
Financial agent fee ......................................... 74,108
Printing .................................................... 29,280
Custodian ................................................... 26,300
Professional ................................................ 23,353
Trustees .................................................... 20,780
Miscellaneous ............................................... 6,627
----------
Total expenses ............................................. 674,499
----------
Net investment income ........................................ 6,261,529
----------
Net increase in net assets resulting from operations ......... $6,261,529
==========
See Notes to Financial Statements
31
<PAGE>
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income .............................................................. $ 6,261,529 $ 5,274,565
-------------- --------------
Net increase in net assets resulting from operations ............................... 6,261,529 5,274,565
-------------- --------------
From Distributions to Shareholders
Net investment income .............................................................. (6,261,529) (5,303,654)
-------------- --------------
Decrease in net assets from distributions to shareholders .......................... (6,261,529) (5,303,654)
-------------- --------------
From Share Transactions
Proceeds from sales of shares (35,987,251 and 31,500,976 shares, respectively) ..... 359,872,496 315,009,761
Net asset value of shares issued from reinvestment of distributions
(626,153 and 530,365 shares, respectively) ........................................ 6,261,528 5,303,654
Cost of shares repurchased (37,088,873 and 29,186,637 shares, respectively) ........ (370,888,736) (291,866,357)
-------------- --------------
Increase (decrease) in net assets from share transactions .......................... (4,754,712) 28,447,058
-------------- --------------
Net increase (decrease) in net assets .............................................. (4,754,712) 28,417,969
Net Assets
Beginning of period ................................................................ 131,361,406 102,943,437
-------------- --------------
End of period (including undistributed net investment income of $3 and
$3, respectively) ................................................................. $ 126,606,694 $ 131,361,406
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993
------------ ------------ ---------------- ---------------- ----------------
<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 0.50 0.56 0.38(1) 0.28(1)
------- ------- -------- ----------- -----------
Total from investment operations ............. 0.50 0.50 0.56 0.38 0.28
------- ------- -------- ----------- -----------
Less distributions
Dividends from net investment income ......... (0.50) (0.50) (0.56) (0.38) (0.28)
-------- -------- -------- ----------- -----------
Total distributions ......................... (0.50) (0.50) (0.56) (0.38) (0.28)
-------- -------- -------- ----------- -----------
Net asset value, end of period ................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== =========== ===========
Total return ................................... 4.99% 4.98% 5.55% 3.77% 2.80%
Ratios/supplemental data:
Net assets, end of period (thousands) .......... $126,607 $131,361 $102,943 $ 94,586 $ 72,946
Ratio to average net assets of:
Operating expenses ............................ 0.55% 0.55% 0.53%(2) 0.55% 0.55%
Net investment income ......................... 5.07% 4.89% 5.57% 3.85% 2.84%
</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
32
<PAGE>
GROWTH SERIES
INVESTOR PROFILE
Phoenix Growth Series is designed for investors seeking long-term capital
appreciation.
INVESTMENT REVIEW
For the 12-month period ended December 31, 1997, Phoenix Growth Series
earned 21.07% compared with 33.38% for the S&P 500 Index. All performance
figures assume reinvestment of dividends and exclude the effect of sales
charges.
Despite increased volatility in the fourth quarter, 1997 was another good
year for U.S. investors. In fact, the Dow Jones Industrial Average ended the
year at more than 10 times its 1982 low. Overseas, however, the picture was not
as bright: high jobless rates continued in Europe, turmoil continues in the
Middle East and Latin America is recovering slowly. The surprise was the
collapse of many markets in the Asia-Pacific region. While it will be some time
before we see the real impact of the Asian problems on the earnings of domestic
and global companies, the U.S. market reacted to the uncertainty with a violent
rotation to defensive issues. The strongest sectors in the fourth quarter were
communication services, utilities and consumer staples--slow but steady growers.
During this latest reporting cycle, the Fund benefited from an overweighted
position in the health-care sector and strong stock selection in the basic
materials group. Negative contributors to performance included the relative
underperformance of some of our consumer cyclical and technology holdings as
well as our limited exposure to the communication services area.
OUTLOOK
While our long-term outlook remains constructive, there are more reasons
than ever to maintain a cautious investment posture. On the positive side, the
economy continues to grow at a healthy, sustainable pace; inflation remains
benign; and the overall outlook for corporate earnings is still upbeat. On the
other hand, analysts' estimates for 1998 earnings are probably too high, and we
believe that the frequency of earnings disappointments will increase.
Our stock selection continues to focus on firms that possess above-average
earnings growth potential, superior management and global opportunities outside
Asia. We expect interest rates to continue to trend down and would not be
surprised if the Fed actually cut rates during the year, which would partially
offset the negative impact of slightly slower earnings growth on equity prices.
While the Asian "meltdown" introduces a new element of uncertainty in the
outlook for the financial markets, we do not believe the real impact will be
great. Health-care, financial services and technology continue to be the sectors
in which we have the greatest confidence for exceptional long-term growth.
[TABULAR REPRESENTATION OF LINE CHART]
S&P 500 Stock Index* Growth Series
12/31/87 $10,000 $10,000
12/31/88 11,650 10,384
12/31/89 15,312 14,128
12/31/90 14,823 14,705
12/31/91 19,351 21,133
12/31/92 20,839 23,308
12/31/93 22,923 27,898
12/31/94 23,266 28,310
12/31/95 31,937 37,043
12/31/96 39,362 41,703
12/31/97 52,500 50,491
Average Annual Total Returns for Periods Ending 12/31/97
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Series 21.07% 16.72% 17.57%
- -------------------------------------------------------------------------------
S&P 500 Stock Index* 33.38% 20.30% 18.04%
- -------------------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/87.
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.
33
<PAGE>
GROWTH SERIES
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ----------------
<S> <C> <C>
COMMON STOCKS--90.3%
Banks (Major Regional)--6.6%
AmSouth Bancorporation ........................ 134,200 $ 7,288,737
Banc One Corp. ................................ 430,100 23,359,806
BankBoston Corp. .............................. 259,700 24,395,569
Compass Bankshares, Inc. ...................... 103,900 4,545,625
Mellon Bank Corp. ............................. 258,200 15,653,375
NationsBank Corp. ............................. 246,300 14,978,119
Southtrust Corp. .............................. 132,400 8,399,125
-------------
98,620,356
-------------
Banks (Money Center)--2.8%
BankAmerica Corp. ............................. 386,900 28,243,700
Citicorp ...................................... 113,100 14,300,081
-------------
42,543,781
-------------
Biotechnology--0.6%
Centocor, Inc. (b) ............................ 255,700 8,502,025
-------------
Broadcasting (Television, Radio, & Cable)--0.7%
Chancellor Media Corp. (b) .................... 141,200 10,537,050
-------------
Chemicals (Specialty)--0.7%
Solutia, Inc. (b) ............................. 377,740 10,080,936
-------------
Communications Equipment--2.7%
Ciena Corp. (b) ............................... 386,600 23,630,925
Lucent Technologies, Inc. ..................... 215,300 17,197,088
-------------
40,828,013
-------------
Computers (Hardware)--5.0%
International Business Machines Corp. ......... 724,500 75,755,531
-------------
Computers (Networking)--0.7%
Cisco Systems, Inc. (b) ....................... 195,750 10,913,062
-------------
Computers (Peripherals)--0.5%
EMC Corp. (b) ................................. 280,100 7,685,244
-------------
Computers (Software & Services)--6.1%
Adaptec, Inc. (b) ............................. 622,300 23,102,888
BMC Software, Inc. (b) ........................ 514,200 33,744,375
Compuware Corp. (b) ........................... 744,900 23,836,800
Edwards (J.D.) & Co. (b) ...................... 268,400 7,917,800
Sterling Commerce, Inc. (b) ................... 1 38
Yahoo!, Inc. (b) .............................. 56,500 3,912,625
-------------
92,514,526
-------------
Distributors (Food & Health)--1.5%
Cardinal Health, Inc. ......................... 301,500 22,650,187
-------------
Electrical Equipment--2.1%
General Electric Co. .......................... 434,500 31,881,437
-------------
Electronics (Instrumentation)--0.4%
Linear Technology Corp. ....................... 111,500 6,425,188
-------------
Electronics (Semiconductors)--2.4%
National Semiconductor Corp. (b) .............. 845,900 21,940,531
Texas Instruments, Inc. ....................... 304,800 13,716,000
-------------
35,656,531
-------------
Entertainment--1.6%
Tele-Comm Liberty Media Group (b) ............. 662,000 23,997,500
-------------
Financial (Diversified)--1.0%
American Express Co. .......................... 166,300 14,842,275
-------------
Health Care (Diversified)--3.3%
Bristol-Myers Squibb Co. ...................... 249,100 23,571,088
Warner-Lambert Co. ............................ 216,500 26,846,000
-------------
50,417,088
-------------
Health Care (Drugs-Major Pharmaceuticals)--5.3%
Lilly (Eli) & Co. ............................. 174,700 12,163,488
Pfizer, Inc. .................................. 719,700 53,662,631
Watson Pharmaceuticals, Inc. (b) .............. 449,600 14,583,900
-------------
80,410,019
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ----------------
<S> <C> <C>
Health Care (Hospital Management)--1.6%
HBO & Co. ..................................... 509,100 $ 24,436,800
-------------
Health Care (Long Term Care)--1.0%
HEALTHSOUTH Corp. (b) ......................... 568,300 15,770,325
-------------
Health Care (Medical Products & Supplies)--2.7%
Guidant Corp. ................................. 382,100 23,785,725
Medtronic, Inc. ............................... 335,200 17,535,150
-------------
41,320,875
-------------
Household Furn. & Appliances--1.0%
Sunbeam Corp., Inc. ........................... 371,200 15,636,800
-------------
Household Products (Non-Durables)--1.1%
Colgate-Palmolive Co. ......................... 230,800 16,963,800
-------------
Insurance (Life/Health)--0.6%
UNUM Corp. .................................... 153,800 8,362,875
-------------
Insurance (Multi-Line)--2.0%
Reliastar Financial Corp. ..................... 49,100 2,022,306
Travelers Group, Inc. ......................... 514,800 27,734,850
-------------
29,757,156
-------------
Insurance (Property-Casualty)--1.5%
Allstate Corp. ................................ 245,300 22,291,637
-------------
Investment Banking/Brokerage--0.5%
Merrill Lynch & Co., Inc. ..................... 101,900 7,432,331
-------------
Machinery (Diversified)--1.1%
Deere & Co. ................................... 278,700 16,251,694
-------------
Manufacturing (Diversified)--2.8%
Tyco International Ltd. ....................... 932,400 42,016,275
-------------
Oil (Domestic Integrated)--1.8%
Tosco Corp. ................................... 711,600 26,907,375
-------------
Oil & Gas (Drilling & Equipment)--8.0%
BJ Services Co. (b) ........................... 205,700 14,797,544
Cooper Cameron Corp. (b) ...................... 97,400 5,941,400
Diamond Offshore Drilling, Inc. ............... 298,800 14,379,750
Halliburton Co. ............................... 502,000 26,072,625
Nabors Industries, Inc. (b) ................... 86,400 2,716,200
Noble Drilling Corp. (b) ...................... 207,700 6,360,812
Rowan Companies, Inc. (b) ..................... 187,400 5,715,700
Schlumberger Ltd. ............................. 367,200 29,559,600
Transocean Offshore, Inc. ..................... 315,200 15,188,700
-------------
120,732,331
-------------
Oil & Gas (Refining & Marketing)--0.6%
Santa Fe International Corp. .................. 203,800 8,292,113
-------------
Personal Care--2.2%
Gillette Co. .................................. 329,700 33,114,244
-------------
Retail (Building Supplies)--1.7%
Home Depot, Inc. .............................. 434,350 25,572,356
-------------
Retail (Drug Stores)--3.5%
CVS Corp. ..................................... 404,200 25,894,063
Rite Aid Corp. ................................ 458,400 26,902,350
-------------
52,796,413
-------------
Retail (Food Chains)--2.2%
Safeway, Inc. (b) ............................. 512,400 32,409,300
-------------
Retail (General Merchandise)--1.8%
Borders Group, Inc. (b) ....................... 341,900 10,705,744
Staples, Inc. (b) ............................. 566,300 15,714,825
-------------
26,420,569
-------------
Telecommunications (Cellular/Wireless)--2.6%
AirTouch Communications, Inc. (b) ............. 947,300 39,372,156
-------------
Telecommunications (Long Distance)--3.3%
AT&T Corp. .................................... 799,200 48,951,000
-------------
Tobacco--2.7%
Philip Morris Companies, Inc. ................. 898,300 40,704,219
-------------
TOTAL COMMON STOCKS
(Identified cost $1,236,119,905) .................................. 1,359,773,393
-------------
</TABLE>
See Notes to Financial Statements
34
<PAGE>
GROWTH SERIES
SHARES VALUE
---------- ----------------
FOREIGN COMMON STOCKS--6.2%
Computers (Software & Services)--0.2%
Baan Company NV (Netherlands) (b) .......... 103,000 $ 3,399,000
--------------
Health Care (Drugs-Major Pharmaceuticals)--1.5%
SmithKline Beecham PLC Sponsored ADR
(United Kingdom) ......................... 447,300 23,007,994
--------------
Health Care (Medical Products & Supplies)--0.5%
Elan PLC Sponsored ADR (Ireland) (b) ....... 151,400 7,749,787
--------------
Household Furn. & Appliances--2.6%
Philips Electronics NV ADR NY Registered
Shares (Netherlands) ..................... 638,600 38,635,300
--------------
Oil (International Integrated)--1.4%
Elf Aquitane SA Sponsored ADR (France) ..... 358,300 21,005,338
--------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $92,672,524)......................... 93,797,419
--------------
TOTAL LONG-TERM INVESTMENTS--96.5%
(Identified cost $1,328,792,429)...................... 1,453,570,812
--------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- ---------
SHORT-TERM OBLIGATIONS--3.0%
Commercial Paper--2.7%
Sara Lee Corp. 6.05%, 1/7/98 ........... A-1+ $3,275 3,271,698
Greenwich Funding Corp. 5.91%,
1/9/98 ............................... A-1+ 315 314,586
Kimberly-Clark Corp. 6.15%, 1/9/98 ..... A-1+ 5,000 4,993,167
Exxon Imperial U.S., Inc. 5.82%,
1/13/98 .............................. A-1+ 2,530 2,525,092
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------- --------- -----------------
<S> <C> <C> <C>
Commercial Paper--continued
General Electric Capital Corp. 5.82%,
1/14/98 ........................... A-1+ $1,500 $ 1,496,847
Receivables Capital Corp. 5.90%,
1/16/98 ........................... A-1+ 2,935 2,927,785
Coca-Cola Co. 5.75%, 1/21/98 ........ A-1+ 935 932,013
Corporate Asset Funding Co., Inc. 6%,
1/21/98 ........................... A-1+ 3,160 3,149,467
CXC, Inc. 5.77%, 1/26/98 ............ A-1+ 3,000 2,987,979
Receivables Capital Corp. 5.83%,
1/26/98 ........................... A-1+ 2,415 2,405,223
CXC, Inc. 5.57%, 1/27/98 ............ A-1+ 1,190 1,185,006
Corporate Asset Funding Co., Inc.
5.61%, 2/5/98 ..................... A-1+ 3,000 2,983,375
Private Export Funding Corp. 5.65%,
2/6/98 ............................ A-1+ 3,000 2,983,050
Corporate Receivables Corp. 5.73%,
3/10/98 ........................... A-1 3,000 2,967,720
Beta Finance, Inc. 5.60%, 4/29/98 ... A-1+ 5,835 5,727,869
----------------
40,850,877
----------------
Federal Agency Securities--0.3%
FHLB 5.75%, 1/2/98 .................. 4,275 4,274,318
----------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $45,125,500) .............................. 45,125,195
----------------
TOTAL INVESTMENTS--99.5%
(Identified cost $1,373,917,929) ........................... 1,498,696,007(a)
Cash and receivables, less liabilities--0.5% ............... 6,871,846
----------------
NET ASSETS--100.0% .......................................... $ 1,505,567,853
================
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $172,636,916 and gross
depreciation of $48,406,472 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$1,374,465,563.
(b) Non-income producing.
See Notes to Financial Statements
35
<PAGE>
GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Investment securities at value (Identified cost $1,373,917,929) ..................... $1,498,696,007
Cash ................................................................................ 89,997
Receivables
Investment securities sold ......................................................... 12,501,983
Dividends and interest ............................................................. 1,683,668
-------------
Total assets ...................................................................... 1,512,971,655
-------------
Liabilities
Payables
Investment securities purchased .................................................... 5,593,650
Fund shares repurchased ............................................................ 532,726
Investment advisory fee ............................................................ 781,841
Financial agent fee ................................................................ 74,999
Trustees' fee ...................................................................... 3,397
Accrued expenses ................................................................... 417,189
-------------
Total liabilities ................................................................. 7,403,802
-------------
Net Assets .......................................................................... $1,505,567,853
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................... $1,330,807,064
Undistributed net investment income ................................................ 875,361
Accumulated net realized gain ...................................................... 49,107,350
Net unrealized appreciation ........................................................ 124,778,078
--------------
Net Assets .......................................................................... $1,505,567,853
==============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization .... 78,569,011
==============
Net asset value and offering price per share ........................................ $ 19.16
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Dividends .......................................................... $ 13,104,144
Interest ........................................................... 5,907,309
------------
Total investment income ........................................... 19,011,453
------------
Expenses
Investment advisory fee ............................................ 8,659,012
Financial agent fee ................................................ 828,401
Custodian .......................................................... 280,398
Printing ........................................................... 264,371
Professional ....................................................... 62,614
Trustees ........................................................... 20,578
Miscellaneous ...................................................... 74,969
------------
Total expenses .................................................... 10,190,343
------------
Net investment income ............................................... 8,821,110
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities .................................... 208,524,851
Net realized loss on foreign currency transactions ................. (19,655)
Net change in unrealized appreciation (depreciation) on investments 44,027,962
------------
Net gain on investments ............................................. 252,533,158
------------
Net increase in net assets resulting from operations ................ $261,354,268
============
</TABLE>
See Notes to Financial Statements
36
<PAGE>
GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
From Operations
<S> <C> <C>
Net investment income .............................................................. $ 8,821,110 $ 11,543,617
Net realized gain .................................................................. 208,505,196 151,631,180
Net change in unrealized appreciation (depreciation) ............................... 44,027,962 (28,811,458)
-------------- --------------
Net increase in net assets resulting from operations ............................... 261,354,268 134,363,339
-------------- --------------
From Distributions to Shareholders
Net investment income .............................................................. (8,665,448) (10,973,300)
Net realized gains ................................................................. (236,146,906) (82,322,855)
-------------- --------------
Decrease in net assets from distributions to shareholders .......................... (244,812,354) (93,296,155)
-------------- --------------
From Share Transactions
Proceeds from sales of shares (12,502,677 and 16,369,935 shares, respectively) ..... 253,355,592 309,035,692
Net asset value of shares issued from reinvestment of distributions
(12,750,840 and 4,853,881 shares, respectively) ................................... 244,812,354 93,296,155
Cost of shares repurchased (12,075,426 and 10,173,971 shares, respectively) ........ (244,536,540) (193,393,445)
-------------- --------------
Increase in net assets from share transactions ..................................... 253,631,406 208,938,402
-------------- --------------
Net increase in net assets ......................................................... 270,173,320 250,005,586
Net Assets
Beginning of period ................................................................ 1,235,394,533 985,388,947
-------------- --------------
End of period (including undistributed net investment income of $875,361 and
$739,354, respectively) ........................................................... $1,505,567,853 $1,235,394,533
============== ==============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
Year Ended December 31,
1997 1996
-------------- --------------
Net asset value, beginning of period .......... $ 18.89 $ 18.13
Income from investment operations
Net investment income ........................ 0.13 0.19
Net realized and unrealized gain ............. 3.70 2.10
------- --------
Total from investment operations ............ 3.83 2.29
------- ---------
Less distributions
Dividends from net investment income ......... (0.13) (0.18)
Dividends from net realized gains ............ (3.43) (1.35)
-------- --------
Total distributions ......................... (3.56) (1.53)
-------- --------
Change in net asset value ..................... 0.27 0.76
-------- --------
Net asset value, end of period ................ $ 19.16 $ 18.89
======== ========
Total return .................................. 21.07% 12.58%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $1,505,568 $1,235,395
Ratio to average net assets of:
Operating expenses ........................... 0.74% 0.72%
Net investment income ........................ 0.64% 1.03%
Portfolio turnover rate ....................... 284% 167%
Average commission rate paid(4) ............... $ 0.0496 $ 0.0455
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------- ---------------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period .......... $ 15.69 $ 16.59 $ 15.01
Income from investment operations
Net investment income ........................ 0.20 0.23(1)(3) 0.16(3)
Net realized and unrealized gain ............. 4.60 0.02 2.77
------- -------- --------
Total from investment operations ............ 4.80 0.25 2.93
------- -------- --------
Less distributions
Dividends from net investment income ......... (0.17) (0.23) (0.15)
Dividends from net realized gains ............ (2.19) (0.92) (1.20)
-------- --------- ---------
Total distributions ......................... (2.36) (1.15) (1.35)
-------- -------- --------
Change in net asset value ..................... 2.44 (0.90) 1.58
------- -------- --------
Net asset value, end of period ............... $ 18.13 $ 15.69 $ 16.59
======== ========= =========
Total return .................................. 30.85% 1.48% 19.69%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $985,389 $616,221 $446,368
Ratio to average net assets of:
Operating expenses ........................... 0.75%(2) 0.80% 0.79%
Net investment income ........................ 1.12% 1.38% 0.97%
Portfolio turnover rate ....................... 173% 185% 185%
Average commission rate paid(4) ............... 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
37
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
INVESTOR PROFILE
Phoenix Multi-Sector Fixed Income Series is designed for moderate risk
investors seeking a broadly diversified bond fund.
INVESTMENT REVIEW
Phoenix Multi-Sector Fixed Income Series continued to provide investors
with above-average returns. For the 12 months ended December 31, 1997, the Fund
earned 10.93% compared with a return of 9.65% for the Lehman Brothers Aggregate
Bond Index. All performance figures assume reinvestment of dividends and exclude
the effect of sales charges.
The Fund's overweighting in non-traditional sectors, such as non-Agency
mortgage-backed securities and taxable municipals, contributed positively to
performance as did our very small exposure to Asia and Latin America. Earlier in
the year, we had reduced our holdings in traditional emerging markets, shifting
our emphasis to global high-yield issuers domiciled in Europe.
OUTLOOK
Given our outlook for moderate growth and benign inflation in the U.S., our
emphasis will be on higher-rated credits within the non-traditional sectors,
such as non-Agency mortgage-backed securities and taxable municipal issues. We
will also continue to take advantage of undervalued global high-yield credits,
focusing on issuers domiciled in Europe as their economy continues to
strengthen.
We will maintain a duration that is neutral to our benchmark. As of
December 31, the Portfolio's duration was 5.8 years.
[TABULAR REPRESENTATION OF LINE CHART]
Lehman Brothers Multi-Sector Fixed
Aggregate Bond Index* Income Series
12/31/87 $10,000 $10,000
12/31/88 10,789 11,042
12/31/89 12,357 11,944
12/31/90 13,464 12,571
12/31/91 15,619 15,012
12/31/92 16,774 16,517
12/31/93 18,410 19,143
12/31/94 17,873 18,096
12/31/95 21,176 22,355
12/31/96 21,945 25,131
12/31/97 24,063 27,878
<TABLE>
<CAPTION>
Average Annual Total Returns for Periods Ending 12/31/97
1 Year 5 Years 10 Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income Series 10.93% 11.04% 10.80%
- -------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index* 9.65% 7.48% 9.18%
- -------------------------------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/87.
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.
38
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
U.S. GOVERNMENT AND AGENCY SECURITIES--11.9%
<S> <C> <C> <C>
U.S. Treasury Bonds--3.8%
U.S. Treasury Strip P.O., 0%, 2/15/19 ..... Aaa $ 5,000 $ 1,408,400
U.S. Treasury Strip P.O., (TIGER) 0%,
5/15/25 ................................. Aaa 24,000 5,906,640
------------
7,315,040
------------
U.S. Treasury Notes--5.4%
U.S. Treasury Notes 6.125%, 8/15/07 ....... Aaa 10,000 10,278,120
------------
Agency Mortgage-Backed Securities--0.9%
GNMA 8%, '06 .............................. Aaa 172 180,105
GNMA 6.50%, '23-26 ........................ Aaa 1,482 1,470,737
------------
1,650,842
------------
Agency Non-Mortgage-Backed Securities--1.8%
Overseas Private Investment Corp.
6.58%, 12/15/01 ......................... NR 3,500 3,560,200
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $21,567,025) ........................................ 22,804,202
------------
MUNICIPAL BONDS--9.3%
California--2.4%
California State Department Water
System Series S 5%, 12/1/29 ............. Aa 1,850 1,798,700
Orange County Pension A Taxable
7.67%, 9/1/09 ........................... Aaa 2,500 2,762,275
------------
4,560,975
------------
Colorado--1.1%
Denver City and County School District
Taxable 6.76%, 12/15/07 ................. Aaa 2,000 2,063,580
------------
Florida--1.1%
Palm Beach Waste Revenue Project B
Taxable 10.50%, 1/1/11 (e) .............. NR 1,500 840,000
University of Miami Exchangeable
Revenue Series A Taxable 7.65%,
4/1/20 .................................. Aaa 1,290 1,361,608
------------
2,201,608
------------
Illinois--1.6%
Illinois Educational Facilities Authority
Revenue--Loyola University Series A
Taxable 7.84%, 7/1/24 ................... Aaa 2,800 3,038,168
------------
Massachusetts--1.1%
Massachusetts Turnpike Authority
Metropolitan Highway System
Revenue 5%, 1/1/27 ...................... Aaa 2,125 2,065,245
------------
New Hampshire--0.8%
New Hampshire Higher Educational &
Health Facilities Authority Revenue
5.125%, 6/1/28 .......................... Aaa 1,650 1,619,145
------------
Virginia--0.4%
Newport News Taxable Series B 7.05%,
1/15/25 ................................. Aa 750 756,682
------------
Washington--0.8%
Washington State Series E Taxable 5%,
7/1/22 .................................. Aa 1,545 1,519,461
------------
TOTAL MUNICIPAL BONDS
(Identified cost $17,581,981) ........................................ 17,824,864
------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
<S> <C> <C> <C>
NON-CONVERTIBLE BONDS--52.1%
Asset-Backed Securities--6.1%
BankAmerica Manufacturing Housing
Contract 97-1, B1 6.94%, 6/10/21 ........ Baa $ 1,500 $ 1,493,437
Continental Airlines 97-2D 7.522%,
6/30/01 ................................. Ba 2,600 2,618,434
Green Tree Financial Corp. 94-1, B2
7.85%, 4/15/19 .......................... Baa 3,000 3,082,969
Green Tree Financial Corp. 97-4, M1
7.22%, 2/15/29 .......................... Aa 2,500 2,546,875
Team Fleet Financing Corp. 96-1, B
144A 7.10%, 12/15/02 (b) ................ BBB(c) 1,975 1,987,344
------------
11,729,059
------------
Automobiles--1.3%
Titan Tire Loan Participation Private
Placement 7%, 2/11/00 ................... NR 2,500 2,437,500
------------
Banks--1.3%
BNP U.S. Funding LLC 7.738%, 144A
12/5/07 (b)(d) .......................... A 2,500 2,524,250
------------
Broadcasting (Television, Radio,& Cable)--3.2%
Cablevision Systems Corp. 7.875%,
12/15/07 ................................ Ba 975 997,903
Fox Kids Worldwide 144A 0%, 11/1/07
(b)(d) .................................. B 5,000 2,975,000
Poland Communications, Inc. Series B
9.875%, 11/1/03 ......................... B 2,200 2,213,750
------------
6,186,653
------------
Computers (Software & Services)--1.3%
Verio, Inc. Unit 144A 13.50%,
6/15/04 (b) ............................. NR 2,000 2,400,000
------------
Engineering & Construction--0.5%
Neenah Corp. Series B 11.125%, 5/1/07 ..... B 800 880,000
------------
Entertainment, Leisure & Gaming--1.7%
Boyd Gaming Corp. 9.50%,7/15/07 ........... BB-(c) 1,000 1,052,500
Station Casinos, Inc. 10.125%, 3/15/06 B 2,000 2,110,000
------------
3,162,500
------------
Gaming, Lottery, & Parimutuel Cos.--0.6%
Mashantucket Pequot 144A 6.91%,
9/1/12 (b) .............................. Aaa 1,100 1,154,241
------------
Health Care (Drugs--Major Pharmaceuticals)--1.5%
Schein Pharmaceutical, Inc. 144A
8.938%, 12/15/04 (b)(d) ................. B 3,000 2,932,500
------------
Non-Agency Mortgage-Backed Securities--21.0%
BTC Mortgage Investors Trust 97-S1, D
144A 6.95%, 12/31/09 (b) ................ BBB(c) 1,750 1,747,266
CS First Boston Mortgage Securities
Corp. 97-1R, 1M4 144A 7.364%,
2/28/22 (b) ............................. Baa 2,798 2,772,292
CS First Boston Mortgage Securities
Corp. 97-SPCE, D 144A 7.33%,
4/20/08 (b) ............................. BBB(c) 1,800 1,802,250
DLJ Mortgage Acceptance Corp. 97-
CF2, B2 144A 7.14%, 11/15/08 (b) ........ Baa 2,200 2,194,500
FDIC REMIC Trust 96-C1, 1D 7.25%,
5/25/26 ................................. Baa 1,500 1,508,437
First Chicago/Lennar Trust 97-CHL1, D
144A 8.10%, 5/29/08 (b) ................. BB(c) 2,000 2,000,000
</TABLE>
See Notes to Financial Statements
39
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
<S> <C> <C> <C>
Non-Agency Mortgage-Backed Securities--continued
General Electric Mortgage Services, Inc.
96-8, 2A5 7.50%, 5/25/26 ............... AAA(c) $ 986 $ 1,012,486
General Growth Properties Series 1, D2
144A 6.992%, 11/15/07 (b) .............. Baa 2,000 2,010,625
Prudential Home Mortgage Securities
96-A, B1 144A 7.958%, 5/28/26 (b) ...... NR 2,000 1,885,937
Residential Asset Securitization Trust
96-A4, A13 7.50%, 9/25/26 .............. AAA(c) 1,000 1,037,031
Residential Asset Securitization Trust
96-A8, A1 8%, 12/25/26 ................. AAA(c) 1,321 1,339,117
Resolution Trust Corp. 92-C8, D
8.835%, 12/25/23 ....................... Baa 1,818 1,841,737
Resolution Trust Corp. 95-1, M2 7.50%,
10/25/28 ............................... Aa 1,642 1,666,581
Resolution Trust Corp. 95-2, C1 7.45%,
5/25/29 ................................ Baa 1,360 1,383,910
Resolution Trust Corp. 95-2, M1 7.15%,
5/25/29 ................................ Aa 1,417 1,440,732
Resolution Trust Corp. 95-C2, C 7%,
5/25/27 ................................ A 1,777 1,784,399
Ryland Mortgage Securities Corp. III
92-A, 1A 8.27%, 3/29/30 ................ A-(c) 839 852,083
Securitized Asset Sales, Inc. 95-6, B3
144A 7%, 12/25/10 (b) .................. NR 1,337 1,263,933
Securitized Asset Sales, Inc. 95-A, M
7.53%, 3/25/24 ......................... Aa 1,795 1,843,718
Structured Asset Securities Corp.
93-C1, B 6.60%, 10/25/24 ............... A+(c) 2,250 2,205,000
Structured Asset Securities Corp.
95-C1, D 7.375%, 9/25/24 ............... BBB(c) 2,000 2,007,812
Structured Asset Securities Corp.
95-C4, D 7%, 6/25/26 ................... BBB(c) 1,900 1,880,406
Structured Asset Securities Corp.
96-C3, C 144A 7.375%, 6/25/30 (b) ...... BBB(c) 1,150 1,161,141
Wilshire Funding Corp. 97-WFC1, M3
7.25%, 8/25/27 ......................... Baa 1,588 1,547,044
------------
40,188,437
------------
Oil & Gas (Exploration & Production)--7.4%
Benton Oil & Gas Co. 11.625%,
5/1/03 ................................. B 1,000 1,107,500
Benton Oil & Gas Co. 144A 9.375%,
11/1/07 (b) ............................ B 1,500 1,541,250
Forcenergy, Inc. 8.50%, 2/15/07 .......... B 4,500 4,556,250
Lomak Petroleum, Inc. 8.75%, 1/15/07 ..... B 1,750 1,785,000
Ocean Energy, Inc. 8.875%, 7/15/07 ....... B 3,000 3,210,000
Snyder Oil Corp. 8.75%, 6/15/07 .......... B 2,000 2,030,000
------------
14,230,000
------------
Publishing--0.9%
Hollinger International Publishing, Inc.
9.25%, 3/15/07 ......................... B 650 685,750
ITT Publimedia 144A 9.375%,
9/15/07 (b) ............................ B 1,000 1,055,000
------------
1,740,750
------------
Services (Commercial & Consumer)--0.0%
ARA Services, Inc. 10.625%, 8/1/00 ....... Baa 54 58,455
------------
Telecommunications (Cellular/Wireless)--1.3%
Orion Network Systems 0%,
1/15/07 (d) ............................ B 1,000 730,000
Sprint Spectrum L.P. 0%, 8/15/06 (d) ..... B 2,325 1,819,312
------------
2,549,312
------------
</TABLE>
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
<S> <C> <C> <C>
Telephone--1.8%
Call-Net Enterprises 0%, 12/1/04 (d) ..... B $2,000 $ 1,830,000
Teleport Communications 0%, 7/1/07 (d) B 2,000 1,640,000
------------
3,470,000
------------
Textiles (Apparel)--2.2%
Westpoint Stevens, Inc. 9.375%,
12/15/05 ............................... B 4,000 4,200,000
------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $97,761,653) ....................................... 99,843,657
------------
FOREIGN GOVERNMENT SECURITIES--3.4%
Croatia--0.9%
Croatia Series A 6.625%, 7/31/10 (d) ..... Baa 1,000 880,000
Croatia Series B 6.625%, 7/31/06 (d) ..... Baa 944 862,687
------------
1,742,687
------------
Dominican Republic--0.2%
Dominican Republic PDI Bearer
6.688%, 8/30/09 (d) .................... B+(c) 495 416,420
------------
Poland--1.8%
Poland PDI Bearer 4%, 10/27/14 (d) ....... Baa 4,000 3,465,000
------------
Russia--0.4%
Russia Principal Loan 6.719%,
12/15/20 (d) ........................... NR 1,300 807,625
------------
Slovenia--0.1%
Republic of Slovenia Series 1, 6.813%,
12/27/06 (d) ........................... A(c) 125 125,618
Republic of Slovenia Series 2, 6.375%,
12/27/06 (d) ........................... A(c) 27 26,084
------------
151,702
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $6,515,891)......................................... 6,583,434
------------
FOREIGN NON-CONVERTIBLE BONDS--15.4%
Argentina--0.9%
Bridas Corp. Yankee Sr. Notes 12.50%,
11/15/99 ............................... Ba 1,600 1,712,000
------------
Bahamas--0.6%
Sun International Hotels 9%, 3/15/07 ..... Ba 1,000 1,035,000
------------
Bermuda--1.2%
AES China Generating Co. Yankee
10.125%, 12/15/06 ...................... Ba 2,336 2,277,600
------------
Brazil--3.2%
Copel Series RegS 9.75%, 5/2/05 .......... NR 3,000 2,891,250
RBS Participacoes SA 144A 11%,
4/1/07 (b) ............................. BB-(c) 2,500 2,331,250
Tevecap SA 12.625%, 11/26/04 ............. NR 1,000 940,000
------------
6,162,500
------------
Chile--1.0%
Compania Sud Americana de Vapores
SA 7.375%, 12/8/03 ..................... BBB(c) 2,000 1,987,500
------------
Germany--0.8%
Kablemedia Holding 0%, 8/1/06 (d) ........ B 2,000 1,467,500
------------
Greece--1.0%
Fage Dairy Industries SA 9%, 2/1/07 ...... B 2,000 1,947,500
------------
Mexico--2.8%
Coca-Cola Femsa 8.95%, 11/1/06 ........... Ba 2,000 2,090,000
Copamex Industries SA Series B
11.375%, 4/30/04 ....................... NR 3,000 3,315,000
------------
5,405,000
------------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(Unaudited) (000) VALUE
------------- --------- ------------------
<S> <C> <C> <C>
Netherlands--2.2%
PTC International Finance BV 144A 0%,
7/1/07 (b)(d) ......................... B+(c) $6,500 $ 4,257,500
------------
United Kingdom--1.1%
Diamond Cable Co. 0%, 2/15/07 (d) ....... B 3,000 2,055,000
------------
Venezuela--0.6%
CanTV Finance Ltd. VNT 9.25%, 2/1/04..... Ba 1,200 1,209,000
------------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $29,218,116) .................................. 29,516,100
------------
CONVERTIBLE BONDS--1.9%
Leisure Time (Products)--0.7%
Comcast Corp. Cv. 1.125%, 4/15/07 ....... Ba 2,000 1,322,500
------------
Oil & Gas (Drilling & Equipment)--1.2%
Loews Corp. Cv. 3.125%, 9/15/07 ......... A+(c) 2,400 2,400,000
------------
TOTAL CONVERTIBLE BONDS
(Identified cost $3,570,522) ................................... 3,722,500
------------
FOREIGN CONVERTIBLE BONDS--3.3%
Canada--0.7%
Petersburg Long Cv. 144A 9%,
6/1/06 (b) ............................ NR 1,266 1,310,310(f)
------------
Russia--2.6%
Lukinter Finance BV Cv. Series RegS
3.50%, 5/6/02 ......................... Ba 3,450 4,916,250
------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $5,997,225) ................................... 6,226,560
------------
</TABLE>
SHARES VALUE
-------- --------------
PREFERRED STOCKS--0.6%
Paper & Forest Products--0.6%
SD Warren Co. Series B Pfd. PIK 14% ... 30,000 $ 1,086,699
-----------
TOTAL PREFERRED STOCKS
(Identified cost $607,500) ...................... 1,086,699
-----------
WARRANTS--0.0%
Orion Network Systems, Inc. Warrants (e) 1,000 17,500
-----------
TOTAL WARRANTS
(Identified cost $0) ............................ 17,500
-----------
TOTAL LONG-TERM INVESTMENTS--97.9%
(Identified cost $182,819,913)................... 187,625,516
-----------
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- ---------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--0.6%
Commercial Paper--0.6%
Koch Industries, Inc. 6.70%, 1/2/98 ......... A-1+ $1,190 1,189,779
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,189,779) ...................................... 1,189,779
--------------
TOTAL INVESTMENTS--98.5%
(Identified cost $184,009,692) .................................... 188,815,295(a)
Cash and receivables, less liabilities--1.5% ...................... 2,811,289
--------------
NET ASSETS--100.0% .................................................. $ 191,626,584
==============
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $7,014,714 and gross
depreciation of $2,213,334 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$184,013,915.
(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,
1997, these securities amounted to a value of $41,574,032 or 21.7% of net
assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps. (d) Variable or step
coupon security; interest rate shown reflects the rate
currently in effect.
(e) Non-income producing.
(f) Security valued at fair value as determined in good faith by or under the
direction of the Trustees.
See Notes to Financial Statements
41
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $184,009,692) ........................ $ 188,815,295
Cash ................................................................................. 54,548
Receivables
Investment securities sold .......................................................... 210,814
Fund shares sold .................................................................... 109,422
Interest and dividends .............................................................. 2,939,659
-------------
Total assets ....................................................................... 192,129,738
-------------
Liabilities
Payables
Investment securities purchased ..................................................... 329,585
Investment advisory fee ............................................................. 74,771
Financial agent fee ................................................................. 9,509
Trustees' fee ....................................................................... 4,039
Accrued expenses .................................................................... 85,250
-------------
Total liabilities .................................................................. 503,154
-------------
Net Assets ........................................................................... $ 191,626,584
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .................................... $ 185,251,314
Undistributed net investment income ................................................. 336,142
Accumulated net realized gain ....................................................... 1,233,525
Net unrealized appreciation ......................................................... 4,805,603
-------------
Net Assets ........................................................................... $ 191,626,584
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization ..... 18,455,613
=============
Net asset value and offering price per share ......................................... $ 10.38
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Interest ................................................................ $12,558,252
Dividends ............................................................... 155,626
-----------
Total investment income ................................................ 12,713,878
-----------
Expenses
Investment advisory fee ................................................. 804,838
Financial agent fee ..................................................... 96,581
Printing ................................................................ 62,515
Custodian ............................................................... 44,188
Professional ............................................................ 25,583
Trustees ................................................................ 20,833
Miscellaneous ........................................................... 5,016
-----------
Total expenses ......................................................... 1,059,554
Less expenses borne by investment adviser .............................. (13,265)
-----------
Net expenses ........................................................... 1,046,289
-----------
Net investment income .................................................... 11,667,589
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ......................................... 4,679,819
Net realized gain on foreign currency transactions ...................... 15,586
Net change in unrealized appreciation (depreciation) on investments ..... 390,571
-----------
Net gain on investments .................................................. 5,085,976
-----------
Net increase in net assets resulting from operations ..................... $16,753,565
===========
</TABLE>
See Notes to Financial Statements
42
<PAGE>
MULTI-SECT0R FIXED INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income ....................................................... $ 11,667,589 $ 9,460,659
Net realized gain ........................................................... 4,695,405 7,367,063
Net change in unrealized appreciation (depreciation) ........................ 390,571 (2,309,914)
------------- -------------
Net increase in net assets resulting from operations ........................ 16,753,565 14,517,808
------------- -------------
From Distributions to Shareholders
Net investment income ....................................................... (11,945,923) (9,238,947)
Net realized gains .......................................................... (4,694,394) (4,270,844)
------------- -------------
Decrease in net assets from distributions to shareholders ................... (16,640,317) (13,509,791)
------------- -------------
From Share Transactions
Proceeds from sales of shares (8,085,010 and 6,711,402 shares, respectively) 84,607,552 69,891,527
Net asset value of shares issued from reinvestment of distributions
(1,609,511 and 1,316,308 shares, respectively) ............................. 16,640,317 13,509,791
Cost of shares repurchased (5,265,201 and 4,670,077 shares, respectively) ... (54,778,943) (48,410,465)
------------- -------------
Increase in net assets from share transactions .............................. 46,468,926 34,990,853
------------- -------------
Net increase in net assets .................................................. 46,582,174 35,998,870
Net Assets
Beginning of period ......................................................... 145,044,410 109,045,540
------------- -------------
End of period (including undistributed net investment income of $336,142 and
$426,754, respectively) .................................................... $ 191,626,584 $ 145,044,410
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Net asset value, beginning of period ............. $10.34 $10.22
Income from investment operations
Net investment income ........................... 0.75(1) 0.79(1)
Net realized and unrealized gain (loss) ......... 0.34 0.43
---------- ----------
Total from investment operations ............... 1.09 1.22
---------- ----------
Less distributions
Dividends from net investment income ............ (0.77) (0.78)
Dividends from net realized gains ............... (0.28) (0.32)
---------- ----------
Total distributions ............................ (1.05) (1.10)
---------- ----------
Change in net asset value ........................ 0.04 0.12
---------- ----------
Net asset value, end of period ................... $10.38 $10.34
========== ==========
Total return ..................................... 10.93% 12.42%
Ratios/supplemental data:
Net assets, end of period (thousands) ............ $191,627 $145,044
Ratio to average net assets of:
Operating expenses .............................. 0.65% 0.65%
Net investment income ........................... 7.25% 7.80%
Portfolio turnover rate .......................... 151% 191%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............. $8.98 $10.27 $9.58
Income from investment operations
Net investment income ........................... 0.83(1)(2) 0.72(1)(2) 0.66(1)(2)
Net realized and unrealized gain (loss) ......... 1.22 (1.28) 0.84
----------- --------- --------
Total from investment operations ............... 2.05 (0.56) 1.50
----------- --------- --------
Less distributions
Dividends from net investment income ............ (0.81) (0.73) (0.66)
Dividends from net realized gains ............... -- -- (0.15)
----------- --------- --------
Total distributions ............................ (0.81) (0.73) (0.81)
----------- --------- --------
Change in net asset value ........................ 1.24 (1.29) 0.69
----------- --------- --------
Net asset value, end of period ................... $10.22 $8.98 $10.27
=========== ========= ========
Total return ..................................... 23.54% (5.47)% 15.90%
Ratios/supplemental data:
Net assets, end of period (thousands) ............ $109,046 $74,686 $79,393
Ratio to average net assets of:
Operating expenses .............................. 0.65%(3) 0.66% 0.65%
Net investment income ........................... 8.55% 7.62% 6.71%
Portfolio turnover rate .......................... 147% 181% 169%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007, $0.006 and $0.005 per share, respectively.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
43
<PAGE>
STRATEGIC ALLOCATION SERIES
INVESTOR PROFILE
Phoenix Strategic Allocation Series is designed for investors seeking
capital appreciation with less volatility than an all-equity fund.
INVESTMENT REVIEW
Phoenix Strategic Allocation Series posted a strong gain of 20.73% for the
12 months ended December 31, 1997. Over the same period, the average return of a
peer group of 529 variable annuity funds was 18.42% according to Lipper
Analytical Services, Inc. All performance figures assume reinvestment of
dividends and exclude the effect of sales charges.
Despite increased volatility in the fourth quarter, 1997 was another good
year for U.S. investors. In fact, the Dow Jones Industrial Average ended the
year at more than 10 times its 1982 low. Overseas, however, the picture was not
as bright: high jobless rates continued in Europe, turmoil continues in the
Middle East and Latin America is recovering slowly. The surprise was the
collapse of many markets in the Asia-Pacific region. While it will be some time
before we see the real impact of the Asian problems on the earnings of domestic
and global companies, the U.S. market reacted to the uncertainty with a violent
rotation to defensive issues. The strongest sectors in the fourth quarter were
communication services, utilities and consumer staples--slow but steady growers.
During this latest reporting period, the Fund benefited from an
overweighted position in the health-care sector, strong stock selection in the
financial services group and excellent relative performance from the
fixed-income segment of the portfolio. Negative contributors to performance
included the relative underperformance of some of our consumer staples and
technology holdings as well as our underweighted position in the communication
services area.
OUTLOOK
While our long-term outlook remains constructive, there are more reasons
than ever to maintain a cautious investment posture. On the positive side, the
economy continues to grow at a healthy, sustainable pace; inflation remains
benign; and the overall outlook for corporate earnings is still upbeat. On the
other hand, analysts' estimates for 1998 earnings are probably too high, and we
believe that the frequency of earnings disappointments will increase.
Our stock selection continues to focus on firms that possess above-average
earnings growth potential, superior management and global opportunities outside
Asia. We expect interest rates to continue to trend down and would not be
surprised if the Fed actually cut rates during the year, which would partially
offset the negative impact of slightly slower earnings growth on equity prices.
While the Asian "meltdown" introduces a new element of uncertainty in the
outlook for the financial markets, we do not believe at this time the real
impact will be great. Health-care, financial services and technology continue to
be the sectors in which we have the greatest confidence for exceptional
long-term growth.
44
<PAGE>
STRATEGIC ALLOCATION SERIES
[TABULAR REPRESENTATION OF LINE CHART]
Strategic S&P 500 Lipper Analytical Services
Allocation Series Stock Index* Flexible Portfolio Index**
12/31/87 $10,000 $10,000 $10,000
12/31/88 10,233 11,650 10,869
12/31/89 12,257 15,312 12,744
12/31/90 12,962 14,823 12,863
12/31/91 16,751 19,351 16,334
12/31/92 18,539 20,839 17,260
12/31/93 20,583 22,923 19,460
12/31/94 20,285 23,226 18,941
12/31/95 23,981 31,937 23,409
12/31/96 26,151 39,362 26,698
12/31/97 31,571 52,500 31,713
<TABLE>
<CAPTION>
Average Annual Total Returns for Periods Ending 12/31/97
1 Year 5 Years 10 Years
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Allocation Series 20.73% 11.24% 12.18%
-------------------------------------------------------------------------------------------------
Lipper Analytical Services Flexible Portfolio Index** 18.77% 12.93% 12.22%
-------------------------------------------------------------------------------------------------
Lipper Analytical Services Variable Annuities Flexible
Portfolio Fund*** 18.42% 11.96% 12.34%
------------------------------------------------------------------------------------------------
S&P 500 Stock Index* 33.38% 20.30% 18.04%
------------------------------------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/87.
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 S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
**The Lipper Analytical Services Flexible Portfolio Index is an average of the
largest mutual funds within the flexible portfolio category.
***The Lipper Analytical Services Variable Annuities Flexible Portfolio Fund
Category is an average composed of 529 funds; the 5 and 10 year returns are
decided 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, 1997
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--6.7%
U.S. Treasury Notes--6.3%
U.S. Treasury Notes 5.625%, 10/31/99 .... AAA $ 2,100 $ 2,097,375
U.S. Treasury Notes 5.75%, 11/15/00 ..... AAA 4,950 4,959,281
U.S. Treasury Notes 5.75%, 11/30/02 ..... AAA 3,180 3,182,980
U.S. Treasury Notes 6.625%, 5/15/07 ..... AAA 16,000 16,940,000
------------
27,179,636
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- ---------------
<S> <C> <C> <C>
Agency Mortgage-Backed Securities--0.4%
FNMA 6.85%, 5/17/20 ..................... AAA $1,500 $ 1,538,906
------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $27,606,721)........................................... 28,718,542
------------
MUNICIPAL BONDS--2.9%
California--1.4%
California State Department Water
System Series S 5%, 12/1/29 ........... AA 415 403,492
</TABLE>
See Notes to Financial Statements
45
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- --------------
<S> <C> <C> <C>
California--continued
Kern County Pension Obligation Taxable
7.26%, 8/15/14 ............................. AAA $ 1,500 $ 1,593,510
Long Beach Pension Obligation Taxable
6.87%, 9/1/06 .............................. AAA 840 873,911
Los Angeles County Public Works
5.125%, 12/1/29 ............................ AAA 630 618,962
San Bernardino County Pension
Obligation Revenue Taxable 6.87%,
8/1/08 ..................................... AAA 410 426,142
San Bernardino County Pension
Obligation Revenue Taxable 6.94%,
8/1/09 ..................................... AAA 1,110 1,161,171
Ventura County Pension Obligation
Taxable 6.54%, 11/1/05 ..................... AAA 975 993,954
-----------
6,071,142
-----------
Florida--1.1%
Florida State Department of
Transportation Series A 5%, 7/1/27 ......... AA+ 500 486,575
Miami Beach Special Obligation Taxable
8.60%, 9/1/21 .............................. AAA 3,210 3,625,599
University of Miami Exchangeable
Revenue Series A Taxable 7.65%,
4/1/20 ..................................... AAA 540 569,975
-----------
4,682,149
-----------
Massachusetts--0.1%
Massachusetts State Water Authority
5%, 8/1/24 ................................. AAA 500 485,740
-----------
Texas--0.1%
Houston Water & Sewer Refunding, Jr.
Lien, Series D 5%, 12/1/25 ................. AAA 630 616,184
-----------
Washington--0.2%
Washington State Series E Taxable 5%,
7/1/22 ..................................... AA+ 630 619,586
-----------
TOTAL MUNICIPAL BONDS
(Identified cost $12,080,691)............................................ 12,474,801
-----------
NON-CONVERTIBLE BONDS--4.5%
Asset-Backed Securities--1.5%
AESOP Funding II LLC 97-1, A2 144A
6.40%, 10/20/03 (d) ........................ AAA 2,000 2,016,250
Capita Equipment Receivables Trust
97-1, B 6.45%, 8/15/02 ..................... A+ 720 721,125
Chase Credit Card Master Trust 97-2, A
6.30%, 4/15/03 ............................. AAA 2,000 2,014,766
Fleetwood Credit Corp. 96-B, A 6.90%,
3/15/12 .................................... AAA 728 734,143
Green Tree Financial Corp. 96-2, M1
7.60%, 4/15/27 ............................. AA- 1,075 1,121,359
-----------
6,607,643
-----------
Non-Agency Mortgage-Backed Securities--2.9%
CS First Boston Mortgage Securities Corp.
95-AE, B 7.182%, 11/25/27 .................. AA- 1,350 1,359,281
First Union Lehman Bros. 97-C1, B
7.43%, 4/18/29 ............................. Aa(c) 850 890,109
G.E. Capital Mortgage Services, Inc.
96-8, M 7.25%, 5/25/26 ..................... AA 246 248,333
Lehman Large Loan 97-LL1, B 6.95%,
3/12/07 .................................... AA 645 660,621
Nationslink Funding Corp. 96-1, B
7.69%, 12/20/05 ............................ AA 450 478,547
Residential Asset Securitization Trust
96-A8, A1 8%, 12/25/26 ..................... AAA 660 669,558
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- ----------- --------------
<S> <C> <C> <C>
Non-Agency Mortgage-Backed Securities--continued
Residential Funding Mortgage Securities
I 96-S1, A11 7.10%, 1/25/26 ................ AAA $ 1,500 $ 1,518,281
Residential Funding Mortgage Securities
I 96-S4, M1 7.25%, 2/25/26 ................. AA 981 993,277
Resolution Trust Corp. 93-C1, B 8.75%,
5/25/24 .................................... Aa(c) 736 735,985
Resolution Trust Corp. 95-2, M1 7.15%,
5/25/29 .................................... Aa(c) 1,204 1,224,622
Securitized Asset Sales, Inc. 93-J, 2B
6.807%, 11/28/23 ........................... A(c) 973 956,467
Structured Asset Securities Corp.
93-C1, B 6.60%, 10/25/24 ................... A+ 1,150 1,127,093
Structured Asset Securities Corp.
95-C4, B 7%, 6/25/26 ....................... AA 1,650 1,664,953
-----------
12,527,127
-----------
Paper & Forest Products--0.1%
Buckeye Cellulose Corp. 9.25%, 9/15/08 ....... BB- 350 370,125
-----------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $19,188,398)............................................. 19,504,895
-----------
FOREIGN GOVERNMENT SECURITIES--3.0%
Argentina--0.2%
Republic of Argentina Bearer FRB
6.688%, 3/31/05 (e) ........................ BB 1,046 935,220
-----------
Brazil--0.3%
Republic of Brazil NMB-L 6.75%,
4/15/09 (e) ................................ BB- 1,235 998,034
-----------
Bulgaria--0.1%
Republic of Bulgaria FLIRB Series A
Bearer Euro 2.25%, 7/28/12 (e) ............. B(c) 810 493,088
-----------
Colombia--0.2%
Republic of Colombia Yankee 7.25%,
2/23/04 .................................... BBB- 1,000 943,750
-----------
Croatia--0.1%
Croatia Series A 6.625%, 7/31/10 (e) ......... BBB- 550 484,000
-----------
Ecuador--0.2%
Ecuador Bearer PDI Euro, PIK interest
capitalization 6.688%, 2/27/15 (e) ......... B(c) 1,329 881,783
-----------
Mexico--0.4%
United Mexican States Global Bond
11.50%, 5/15/26 ............................ BB 1,395 1,650,634
-----------
Panama--0.2%
Republic of Panama 8.875%, 9/30/27 ........... BB+ 1,050 988,050
-----------
Peru--0.2%
Peru PDI 4%, 3/7/17 (e) ...................... BB 1,320 867,900
-----------
Poland--0.3%
Poland PDI Bearer 4%, 10/27/14 (e) ........... BBB- 1,475 1,277,719
-----------
Russia--0.5%
Russia Interest Notes Series US 144A
6.719%, 12/15/15 (d) (e) ................... NR 3,015 2,140,650
-----------
Venezuela--0.3%
Republic of Venezuela 9.25%, 9/15/27 ......... B+ 1,110 992,756
-----------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $12,132,368)............................................. 12,653,584
-----------
FOREIGN NON-CONVERTIBLE BONDS--0.2%
Chile--0.2%
Compania Sud Americana de Vapores
SA 7.375%, 12/8/03 ......................... BBB 140 139,125
Petropower I Funding Trust 144A
7.36%, 2/15/14 (d) ......................... BBB 500 506,420
</TABLE>
See Notes to Financial Statements
46
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
VALUE
--------------
<S> <C> <C>
TOTAL FOREIGN CONVERTIBLE BONDS $ 645,545
(Identified cost $637,268) --------------
SHARES
---------
COMMON STOCKS--68.0%
Banks (Major Regional)--5.9%
AmSouth Bancorporation ........................ 44,000 2,389,750
Banc One Corp. ................................ 81,300 4,415,606
BankBoston Corp. .............................. 54,400 5,110,200
Compass Bankshares, Inc. ...................... 33,500 1,465,625
Mellon Bank Corp. ............................. 54,900 3,328,312
NationsBank Corp. ............................. 48,300 2,937,244
Southtrust Corp. .............................. 30,000 1,903,125
Washington Mutual, Inc. ....................... 61,100 3,898,944
---------
25,448,806
----------
Banks (Money Center)--1.6%
BankAmerica Corp. ............................. 79,000 5,767,000
Citicorp ...................................... 9,800 1,239,087
----------
7,006,087
----------
Biotechnology--0.2%
Centocor, Inc. (b) ............................ 23,900 794,675
----------
Broadcasting (Television, Radio, & Cable)--0.7%
Chancellor Media Corp. (b) .................... 40,800 3,044,700
----------
Chemicals (Specialty)--0.4%
Solutia, Inc. (b) ............................. 56,900 1,518,519
----------
Communications Equipment--2.7%
Ciena Corp. (b) ............................... 101,100 6,179,737
Lucent Technologies, Inc. ..................... 66,500 5,311,688
-----------
11,491,425
-----------
Computers (Hardware)--4.1%
International Business Machines Corp. ......... 167,200 17,482,850
-----------
Computers (Networking)--0.9%
Cisco Systems, Inc. (b) ....................... 66,750 3,721,313
-----------
Computers (Peripherals)--0.4%
EMC Corp. (b) ................................. 60,900 1,670,944
-----------
Computers (Software & Services)--4.6%
Adaptec, Inc. (b) ............................. 107,900 4,005,788
BMC Software, Inc. (b) ........................ 110,300 7,238,437
Compuware Corp. (b) ........................... 170,500 5,456,000
Edwards (J.D.) & Co. (b) ...................... 76,800 2,265,600
Yahoo!, Inc. (b) .............................. 9,300 644,025
-----------
19,609,850
-----------
Distributors (Food & Health)--0.8%
Cardinal Health, Inc. ......................... 45,000 3,380,625
-----------
Electrical Equipment--2.0%
General Electric Co. .......................... 116,700 8,562,862
-----------
Electronics (Instrumentation)--0.3%
Linear Technology Corp. ....................... 26,000 1,498,250
-----------
Electronics (Semiconductors)--1.6%
National Semiconductor Corp. (b) .............. 143,600 3,724,625
Texas Instruments, Inc. ....................... 68,600 3,087,000
-----------
6,811,625
-----------
Entertainment--1.1%
Tele-Comm Liberty Media Group (b) ............. 127,000 4,603,750
-----------
Financial (Diversified)--0.9%
American Express Co. .......................... 42,600 3,802,050
-----------
SHARES VALUE
---------- --------------
Health Care (Diversified)--2.3%
Bristol-Myers Squibb Co. ................. 42,400 $ 4,012,100
Warner-Lambert Co. ....................... 46,400 5,753,600
-----------
9,765,700
-----------
Health Care (Drugs-Major Pharmaceuticals)--3.3%
Lilly (Eli) & Co. ........................ 39,600 2,757,150
Pfizer, Inc. ............................. 135,100 10,073,394
Watson Pharmaceuticals, Inc. (b) ......... 43,600 1,414,275
-----------
14,244,819
-----------
Health Care (Hospital Management)--1.2%
HBO & Co. ................................ 111,600 5,356,800
-----------
Health Care (Long Term Care)--0.6%
HEALTHSOUTH Corp. (b) .................... 93,600 2,597,400
-----------
Health Care (Medical Products & Supplies)--2.4%
Guidant Corp. ............................ 86,200 5,365,950
Medtronic, Inc. .......................... 91,000 4,760,437
-----------
10,126,387
-----------
Household Furn. & Appliances--0.8%
Sunbeam Corp., Inc. ...................... 84,300 3,551,138
-----------
Household Products (Non-Durables)--0.8%
Colgate-Palmolive Co. .................... 46,300 3,403,050
-----------
Insurance (Life/Health)--0.6%
UNUM Corp. ............................... 49,800 2,707,875
-----------
Insurance (Multi-Line)--1.4%
Reliastar Financial Corp. ................ 10,700 440,706
Travelers Group, Inc. .................... 101,500 5,468,312
-----------
5,909,018
-----------
Insurance (Property-Casualty)--1.0%
Allstate Corp. ........................... 45,200 4,107,550
-----------
Investment Banking/Brokerage--0.5%
Merrill Lynch & Co., Inc. ................ 30,700 2,239,181
-----------
Machinery (Diversified)--0.6%
Deere & Co. .............................. 47,800 2,787,338
-----------
Manufacturing (Diversified)--2.1%
Tyco International Ltd. .................. 201,100 9,062,069
-----------
Oil (Domestic Integrated)--1.3%
Tosco Corp. .............................. 147,600 5,581,125
-----------
Oil & Gas (Drilling & Equipment)--6.1%
BJ Services Co. (b) ...................... 43,800 3,150,862
Cooper Cameron Corp. (b) ................. 22,300 1,360,300
Diamond Offshore Drilling, Inc. .......... 63,600 3,060,750
Halliburton Co. .......................... 110,700 5,749,481
Nabors Industries, Inc. (b) .............. 21,000 660,188
Noble Drilling Corp. (b) ................. 50,000 1,531,250
Rowan Companies, Inc. (b) ................ 42,500 1,296,250
Schlumberger Ltd. ........................ 78,100 6,287,050
Transocean Offshore, Inc. ................ 67,000 3,228,562
-----------
26,324,693
-----------
Oil & Gas (Refining & Marketing)--0.4%
Santa Fe International Corp. ............. 41,200 1,676,325
-----------
Personal Care--1.6%
Gillette Co. ............................. 68,600 6,890,013
-----------
Retail (Building Supplies)--1.2%
Home Depot, Inc. ......................... 90,800 5,345,850
-----------
Retail (Drug Stores)--2.8%
CVS Corp. ................................ 92,200 5,906,563
Rite Aid Corp. ........................... 101,000 5,927,437
-----------
11,834,000
-----------
</TABLE>
See Notes to Financial Statements
47
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- --------------
<S> <C> <C>
Retail (Food Chains)--1.6%
Safeway, Inc. (b) ................................. 106,400 $ 6,729,800
------------
Retail (General Merchandise)--1.2%
Borders Group, Inc. (b) ........................... 98,300 3,078,019
Staples, Inc. (b) ................................. 74,800 2,075,700
------------
5,153,719
------------
Telecommunications (Cellular/Wireless)--2.0%
AirTouch Communications, Inc. (b) ................. 208,100 8,649,156
------------
Telecommunications (Long Distance)--1.6%
AT&T Corp. ........................................ 108,600 6,651,750
------------
Tobacco--2.4%
Philip Morris Companies, Inc. ..................... 230,400 10,440,000
------------
TOTAL COMMON STOCKS
(Identified cost $270,878,402) .............................. 291,583,087
------------
FOREIGN COMMON STOCKS--4.2%
Computers (Software & Services)--0.2%
Baan Company NV (Netherlands) (b) ................. 23,500 775,500
------------
Health Care (Drugs--Major Pharmaceuticals)--1.3%
SmithKline Beecham PLC Sponsored ADR (United
Kingdom) ........................................ 107,200 5,514,100
------------
Health Care (Medical Products & Supplies)--0.4%
Elan PLC Sponsored ADR (Ireland) (b) .............. 33,300 1,704,544
------------
Household Furn. & Appliances--1.3%
Philips Electronics NV ADR NY Registered Shares
(Netherlands) ................................... 96,500 5,838,250
------------
Oil (International Integrated)--1.0%
Elf Aquitane SA Sponsored ADR (France) ............ 74,300 4,355,838
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $20,374,337) ............................... 18,188,232
------------
TOTAL LONG-TERM INVESTMENTS--89.5%
(Identified cost $362,898,185) .............................. 383,768,686
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------- ---------- ------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--9.0%
Commercial Paper--8.3%
Kimberly-Clark Corp. 5.95%, 1/6/98 ........... A-1+ $ 2,500 $ 2,497,934
Exxon Imperial U.S., Inc. 6%, 1/7/98 ......... A-1+ 3,575 3,571,425
Greenwich Funding Corp. 5.91%,
1/9/98 ..................................... A-1+ 2,040 2,037,321
BellSouth Telecommunications, Inc.
5.95%, 1/12/98 ............................. A-1+ 3,100 3,094,364
Exxon Imperial U.S., Inc. 5.82%,
1/13/98 .................................... A-1+ 3,125 3,118,938
Receivables Capital Corp. 6.10%,
1/16/98 .................................... A-1+ 2,625 2,618,328
Coca-Cola Co. 5.75%, 1/21/98 ................. A-1+ 700 697,764
Receivables Capital Corp. 6.15%,
1/23/98 .................................... A-1+ 3,655 3,641,263
Greenwich Funding Corp. 5.65%,
1/26/98 .................................... A-1+ 3,165 3,152,414
Goldman Sachs & Co. 5.85%, 1/30/98 ........... A-1+ 1,715 1,706,918
Corporate Asset Funding Co. 5.61%,
2/5/98 ..................................... A-1+ 1,500 1,491,687
Procter & Gamble Co. 5.63%, 2/11/98 .......... A-1+ 3,000 2,980,764
Preferred Receivables Funding Corp.
5.53%, 2/23/98 ............................. A-1 110 109,073
General Re Corp. 5.75%, 3/20/98 .............. A-1+ 3,000 2,962,939
CXC, Inc. 5.75%, 3/23/98 ..................... A-1+ 2,000 1,974,580
--------------
35,655,712
--------------
Federal Agency Securities--0.7%
FHLMC 5.63%, 2/18/98 ..................................... 3,068 3,044,970
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $38,700,243)......................................... 38,700,682
--------------
TOTAL INVESTMENTS--98.5%
(Identified cost $401,598,428)........................................ 422,469,368(a)
Cash and receivables, less liabilities--1.5% ........................ 6,532,748
--------------
NET ASSETS--100.0% .................................................... $ 429,002,116
==============
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $32,052,551 and gross
depreciation of $11,596,384 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$402,013,201.
(b) Non-income producing.
(c) As rated by Moody's, Fitch or Duff & Phelps.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1997, these securities amounted to a value of $4,663,320 or 1.1% of net
assets.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
48
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $401,598,428) ........................ $422,469,368
Cash ................................................................................. 2,671,147
Receivables
Investment securities sold .......................................................... 8,005,713
Interest and dividends .............................................................. 1,211,407
Fund shares sold .................................................................... 66,797
-------------
Total assets ....................................................................... 434,424,432
-------------
Liabilities
Payables
Investment securities purchased ..................................................... 5,036,512
Investment advisory fee ............................................................. 207,000
Financial agent fee ................................................................. 21,424
Trustees' fee ....................................................................... 4,203
Accrued expenses .................................................................... 153,177
-------------
Total liabilities .................................................................. 5,422,316
-------------
Net Assets ........................................................................... $429,002,116
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .................................... $392,783,577
Undistributed net investment income ................................................. 32,496
Accumulated net realized gain ....................................................... 15,315,103
Net unrealized appreciation ......................................................... 20,870,940
-------------
Net Assets ........................................................................... $429,002,116
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization ..... 30,382,459
=============
Net asset value and offering price per share ......................................... $14.12
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Interest ................................................................ $ 8,529,705
Dividends ............................................................... 2,774,712
-----------
Total investment income ................................................ 11,304,417
-----------
Expenses
Investment advisory fee ................................................. 2,344,369
Financial agent fee ..................................................... 242,113
Printing ................................................................ 106,007
Custodian ............................................................... 91,588
Professional ............................................................ 27,532
Trustees ................................................................ 20,780
Miscellaneous ........................................................... 29,418
-----------
Total expenses ......................................................... 2,861,807
-----------
Net investment income .................................................... 8,442,610
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ......................................... 63,866,811
Net realized loss on written options .................................... (233,706)
Net realized gain on foreign currency transactions ...................... 5,916
Net change in unrealized appreciation (depreciation) on investments ..... 3,449,569
-----------
Net gain on investments .................................................. 67,088,590
-----------
Net increase in net assets resulting from operations ..................... $75,531,200
===========
</TABLE>
See Notes to Financial Statements
49
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income ............................................................ $ 8,442,610 $ 8,315,276
Net realized gain ................................................................ 63,639,021 25,851,907
Net change in unrealized appreciation (depreciation) ............................. 3,449,569 (2,475,007)
------------- -------------
Net increase in net assets resulting from operations ............................. 75,531,200 31,692,176
------------- -------------
From Distributions to Shareholders
Net investment income ............................................................ (8,832,503) (7,996,685)
Net realized gains ............................................................... (52,948,379) (23,234,158)
------------- -------------
Decrease in net assets from distributions to shareholders ........................ (61,780,882) (31,230,843)
------------- -------------
From Share Transactions
Proceeds from sales of shares (3,408,140 and 4,387,120 shares, respectively) ..... 50,911,029 61,269,234
Net asset value of shares issued from reinvestment of distributions
(4,363,884 and 2,254,196 shares, respectively) .................................. 61,780,882 31,230,843
Cost of shares repurchased (4,807,163 and 5,175,253 shares, respectively) ........ (71,683,788) (72,555,884)
------------- -------------
Increase in net assets from share transactions ................................... 41,008,123 19,944,193
------------- -------------
Net increase in net assets ....................................................... 54,758,441 20,405,526
Net Assets
Beginning of period .............................................................. 374,243,675 353,838,149
------------- -------------
End of period (including undistributed net investment income of $32,496
and $414,865, respectively) ..................................................... $429,002,116 $374,243,675
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
Year Ended December 31,
1997 1996
------------ ------------
Net asset value, beginning of period ............. $13.65 $13.63
Income from investment operations
Net investment income ........................... 0.32 0.32
Net realized and unrealized gain (loss) ......... 2.46 0.91
-------- --------
Total from investment operations ............... 2.78 1.23
-------- --------
Less distributions
Dividends from net investment income ............ (0.33) (0.31)
Dividends from net realized gains ............... (1.98) (0.90)
--------- ---------
Total distributions ............................ (2.31) (1.21)
--------- ---------
Change in net asset value ........................ 0.47 0.02
--------- ---------
Net asset value, end of period ................... $14.12 $13.65
========= =========
Total return ..................................... 20.73% 9.05%
Ratios/supplemental data:
Net assets, end of period (thousands) ............ $429,002 $ 374,244
Ratio to average net assets of:
Operating expenses .............................. 0.71% 0.70%
Net investment income ........................... 2.09% 2.26%
Portfolio turnover rate .......................... 368% 287%
Average commission rate paid(4) .................. $0.0547 $ 0.0530
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------- ---------------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............. $12.68 $13.71 $12.86
Income from investment operations
Net investment income ........................... 0.45 0.36(1)(3) 0.23(3)
Net realized and unrealized gain (loss) ......... 1.84 (0.56) 1.17
--------- -------------- ------------
Total from investment operations ............... 2.29 (0.20) 1.40
--------- -------------- ------------
Less distributions
Dividends from net investment income ............ (0.45) (0.37) (0.23)
Dividends from net realized gains ............... (0.89) (0.46) (0.32)
--------- -------------- ------------
Total distributions ............................ (1.34) (0.83) (0.55)
--------- -------------- ------------
Change in net asset value ........................ 0.95 (1.03) 0.85
--------- -------------- ------------
Net asset value, end of period ................... $13.63 $12.68 $13.71
========= ============== ============
Total return ..................................... 18.22% (1.45)% 11.02%
Ratios/supplemental data:
Net assets, end of period (thousands) ............ $353,838 $289,083 $256,011
Ratio to average net assets of:
Operating expenses .............................. 0.67%(2) 0.74% 0.74%
Net investment income ........................... 3.28% 2.71% 1.82%
Portfolio turnover rate .......................... 170% 220% 269%
Average commission rate paid(4) .................. 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
50
<PAGE>
INTERNATIONAL SERIES
INVESTOR PROFILE
Phoenix International Series is designed for long-term investors seeking
potentially higher returns and greater diversification. Investors should note
that foreign investments pose added risks, such as currency fluctuation, less
public information and political and economic uncertainty.
INVESTMENT REVIEW
The Fund returned 12.04% for the year ended December 31, 1997 compared with
1.78% for the MSCI EAFE Index and 5.44% for the Lipper International average for
421 funds. The Fund ranked in the 17th percentile of its mutual fund peer group
for the year according to Lipper Analytics, Inc. and in the variable annuity
peer group category, the Fund ranked in the 12th, 19th, and 11th percentiles for
the one-, three- and five-year periods, respectively. All performance figures
are stated in U.S. dollars, assume reinvestment of dividends and exclude the
effect of sales charges. The MSCI total return figures are net of foreign
withholding taxes.
The Fund benefited from its overweighted positions in Europe and Latin
America as well as currency hedges in the first part of the year. Performance
was also helped by our small exposure to Japan and almost none to the rest of
Asia.
Within the EAFE Index, there was great divergence in returns among regions.
Europe produced the best regional performance, gaining 23.80% when measured in
U.S. dollars and 37.97% in local currency. Within Europe, Denmark, Germany,
Italy, the Netherlands, Spain and Switzerland all gained more than 40%, with
Portugal (which recently joined the core MSCI Europe Index) up an impressive
74.72% in local terms. France was up 30.08%, and the UK rose 27.54% in local
currencies.
Dragging down the EAFE index this year was the Far East region. Japan
declined 23.67%; Hong Kong fell 23.29%; Malaysia dropped 68.26%. The entire
region will continue to suffer from a lack of confidence until the extent of the
bad debt problem is realized, and policies to reform the structural imbalances
of the banking systems are put into place.
Latin America, as well as some of the emerging markets of Europe and the
Middle East, were the success stories of the past 12 months. The Fund's
above-average exposure to Latin America has been additive to performance with
the exception of November when turmoil in Asia spilled over into South America.
OUTLOOK
We expect continued economic recovery in Europe, coupled with relatively
low interest rates, to be helpful to stock markets in the months ahead. The
longer-term trends of growth in the service sector, the application of
technology and growth in financial services will continue to be well represented
in the Fund.
In Latin America, privatization and structural reform will help the
telecommunications and electric utilities industries to become more efficient,
and to meet future competition. We remain optimistic as to the long-term
prospects for the region, particularly Brazil.
In Japan, there are hopes for further fiscal stimulus later in the year,
but major tax reform does not seem imminent. We expect to maintain minimal
exposure until we see signs of change. In Asia, we need to see governments
enacting changes in the law to make a cleaner, clearer financial system in order
to have confidence that the existing problems are being resolved. When clear
action starts to be taken, the markets will have a basis upon which to rebuild
confidence in the region.
51
<PAGE>
INTERNATIONAL SERIES
[TABULAR REPRESENTATION OF LINE CHART]
MSCI EAFE
International Series MSCI EAFE Index* excluding Japan
5/1/90 $10,000 $10,000 $10,000
12/31/90 9,190 9,618 10,014
12/31/91 10,997 10,785 11,608
12/31/92 9,589 9,472 11,270
12/31/93 13,274 12,556 15,498
12/31/94 13,278 13,533 15,379
12/31/95 14,552 15,049 18,541
12/31/96 17,265 15,960 22,514
12/31/97 19,344 16,243 25,891
Average Annual Total Returns for Periods Ending 12/31/97
From
Inception
5/1/90 to
1 Year 5 Years 12/31/97
----------------------------------------------------------------------------
International Series 12.04% 15.07% 8.98%
----------------------------------------------------------------------------
MSCI EAFE Index* 1.78% 11.39% 6.53%
----------------------------------------------------------------------------
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. Total return figures are net of foreign withholding taxes.
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, 1997
SHARES VALUE
------- -----
FOREIGN COMMON STOCKS--95.8%
Argentina--1.9%
Banco de Galicia y Buenos Aires SA de C.V.
Sponsored ADR (Banks) ........................ 69,000 $1,776,750
Telefonica de Argentina SA Sponsored ADR
(Utility--Telephone) ......................... 52,650 1,961,213
----------
3,737,963
----------
Australia--0.6%
Westpac Banking Corporation Ltd. (Banks) ....... 176,000 1,125,703
----------
Brazil--1.1%
Telebras Sponsored ADR (Utility--Telephone)..... 17,900 2,084,231
----------
Canada--3.5%
Bank of Montreal (Banks) ....................... 49,200 2,178,071
Northern Telecom Ltd. (Communications
Equipment) ................................... 52,400 4,655,947
----------
6,834,018
----------
Finland--1.2%
Raision Tehtaat Oy (Foods) ..................... 19,700 2,340,673
----------
France--9.9%
Alcatel Alsthom (Communications
Equipment) ................................... 26,100 3,319,010
Axa-UAP (Insurance (Multi-Line)) ............... 33,369 2,583,188
SHARES VALUE
------ --------
France--continued
Banque Nationale de Paris (Banks) .............. 44,000 $2,339,772
Coflexip SA (Oil & Gas (Drilling &
Equipment)) .................................. 13,800 1,525,483
GrandVision (Retail) ........................... 23,200 954,872
Rhone-Poulenc (Healthcare (Diversified)) ....... 43,800 1,962,911
Societe Generale (Banks) ....................... 14,200 1,935,570
Total SA (Oil (Integrated)) .................... 42,500 4,627,398
----------
19,248,204
----------
Germany--4.2%
Adidas AG (Textiles (Apparel)) ................. 20,350 2,677,870
Deutsche Lufthansa AG Registered Shares
(Airlines) ................................... 152,150 2,919,452
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance (Reinsurance)) ................. 6,600 2,488,765
----------
8,086,087
----------
Hong Kong--0.0%
Henderson China Holding Ltd. (Real Estate) ..... 828 663
----------
Hungary--0.7%
Matav Rt. Sponsored ADR (Utility--
Telephone) (b) ............................... 50,200 1,305,200
----------
Ireland--0.5%
Elan Corp. PLC Sponsored ADR (Health Care
(Diversified)) (b) ........................... 19,315 988,687
----------
See Notes to Financial Statements
52
<PAGE>
INTERNATIONAL SERIES
SHARES VALUE
------- ---------
Italy--7.2%
Banca Fideuram SPA (Financial (Diversified))....... 249,900 $ 1,094,728
Ericsson SPA (Communications Equipment) ........... 42,000 1,833,941
Istituto Mobiliare Italiano SPA (Banks) ........... 179,100 2,127,323
La Fondiaria Assicurazioni (Insurance
(Multi-Line)) (b) ............................... 221,700 1,191,264
Mediolanum SPA (Financial (Diversified)) .......... 84,000 1,582,130
Telecom Italia Mobile RNC
(Telecommunications (Cellular/
Wireless))(b) ................................... 406,000 1,155,082
Telecom Italia Mobile SPA
(Telecommunications (Cellular/Wireless)) ........ 600,000 2,770,933
Telecom Italia SPA (Utility--Telephone) ........... 356,000 2,275,344
-----------
14,030,745
-----------
Japan--1.0%
Credit Saison Co. Ltd. (Consumer Credit) .......... 22,700 562,171
Nintendo Co. Ltd. (Leisure Time (Products)) ....... 9,000 886,011
Sankyo Co. Ltd. (Health Care (Drugs--Major
Pharmaceuticals)) ............................... 18,000 408,395
-----------
1,856,577
-----------
Mexico--5.3%
Cemex SA de C.V. (Building Materials) (b) ......... 185,000 982,163
Coca-Cola Femsa SA Sponsored ADR
(Beverages (Non-Alcoholic)) (c) ................. 36,600 2,122,800
Grupo Financiero Bancomer SA de C.V.
(Banks) (b) ..................................... 1,560,000 1,013,967
Grupo Televisa SA Sponsored GDR
(Publishing, Broadcasting & Printing) (b) ....... 76,100 2,944,118
Telefonos de Mexico SA Sponsored ADR
(Utility--Telephone) ............................ 56,700 3,178,744
-----------
10,241,792
-----------
Netherlands--9.3%
Benckiser NV Class B (Cosmetics &
Soaps) (b) ...................................... 28,000 1,158,840
Getronics NV (Computers (Software &
Services)) ...................................... 85,500 2,724,596
IHC Caland NV (Oil & Gas (Drilling &
Equipment)) ..................................... 37,700 1,956,413
ING Groep NV (Financial (Diversified)) ............ 68,000 2,864,641
Oce NV (Office Equipment & Supplies) .............. 15,300 1,667,966
VNU-Verenigde Bezit (Publishing) .................. 131,800 3,718,903
Vendex International NV (Retail (General
Merchandise)) ................................... 72,800 4,018,508
-----------
18,109,867
-----------
Norway--0.6%
Smedvig ASA A Shares (Oil Service) ................ 56,200 1,189,241
-----------
Poland--0.5%
Amica Wronki SA (Manufacturing (Consumer
Durables)) (b) .................................. 58,700 999,177
----------
Portugal--3.0%
Brisa-Auto Estradas de Portugal SA (Utility--
Toll Road) (b) .................................. 4,400 157,792
Portugal Telecom SA (Utility--Telephone) .......... 58,400 2,712,816
Telecel-Comunicacoes Pessoais SA
(Telecommunications(Cellular/Wireless)) (b) ..... 26,700 2,847,990
-----------
5,718,598
-----------
Spain--4.7%
Banco Santander SA (Banks) ........................ 73,600 2,457,914
Dragados & Construcciones SA
(Construction) .................................. 47,500 1,011,299
SHARES VALUE
-------- ----------
Tabacalera SA (Tobacco) ........................... 33,000 $ 2,673,942
Telefonica de Espana (Utility--Telephone) ......... 107,300 3,062,387
-----------
9,205,542
-----------
Sweden--0.5%
Biora AB (Health Care (Medical Products &
Supplies)) (b) .................................. 50,000 516,744
Biora AB Sponsored ADR (Health Care
(Medical Products & Supplies)) (b) .............. 19,000 394,250
-----------
910,994
-----------
Switzerland--13.4%
Ares-Serono Group Bearer Shares (Health
Care (Diversified)) ............................. 1,890 3,123,003
Ciba Specialty Chemicals AG Registered
Shares (Chemicals (Specialty)) (b) .............. 20,500 2,445,663
Credit Suisse Group Registered Shares
(Financial (Diversified)) ....................... 21,400 3,316,010
Novartis AG Registered Shares (Health Care
(Drugs--Major Pharmaceuticals)) ................. 4,010 6,516,078
Roche Holding AG (Health Care (Diversified))....... 210 2,088,481
Schweizerische Lebensversicherungs
(Insurance (Life/Health)) ....................... 4,550 3,578,231
Zurich Versicherungs-Gesellschaft Registered
Shares (Financial (Diversified)) ................ 10,510 5,015,399
-----------
26,082,865
-----------
United Kingdom--26.7%
British Aerospace PLC (Aerospace/Defense) ......... 155,500 4,454,920
British Petroleum Co. PLC (Oil (Integrated)) ...... 245,500 3,233,878
British Petroleum Co. PLC Sponsored ADR
(Oil (Integrated)) .............................. 9,000 717,188
Compass Group PLC (Services (Catering)) ........... 194,000 2,375,119
GKN PLC (Engineering) ............................. 117,000 2,400,839
Glaxo Wellcome PLC (Health Care) (Drugs--
Major Pharmaceuticals)) ......................... 90,580 2,143,394
Granada Group PLC (Leisure Time
(Products)) ..................................... 80,000 1,233,503
Kingfisher PLC (Retail (General
Merchandise)) ................................... 66,800 932,144
Legal & General Group PLC (Insurance (Life)) 370,000 3,196,478
Lloyds TSB Group PLC (Financial
(Diversified)) .................................. 471,600 6,099,681
Misys PLC (Computers (Software &
Services)) ...................................... 54,200 1,632,154
Next PLC (Retail (General Merchandise)) ........... 337,000 3,837,486
Norwich Union PLC (Insurance
(Life/Health)) (b) .............................. 190,000 1,167,764
Rentokil Initial PLC (Business Services) .......... 544,000 2,408,030
Shell Transport & Trading Co. PLC (Oil
(Integrated)) ................................... 459,000 3,334,680
Siebe PLC (Electrical Equipment) .................. 120,000 2,251,111
SmithKline Beecham PLC (Health Care
(Drugs--Major Pharmaceuticals)) ................. 201,220 2,071,139
Stagecoach Holdings PLC (Transportation) .......... 142,700 1,970,138
Vodafone Group PLC (Telecommunications
(Cellular/Wireless)) ............................ 368,200 2,687,127
WPP Group PLC (Services (Advertising/
Marketing)) ..................................... 421,500 1,869,249
Williams PLC (Manufacturing (Fire Safety/
Security Products)) ............................. 324,100 1,791,963
-----------
51,807,985
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $156,761,584) ................................ 185,904,812
-----------
See Notes to Financial Statements
53
<PAGE>
INTERNATIONAL SERIES
SHARES VALUE
-------- --------------
PREFERRED STOCKS--2.8%
Germany
SAP AG-Vorzug Pfd. (Computers (Software &
Services)) ............................. 16,800 $ 5,498,776
------------
TOTAL PREFERRED STOCKS
(Identified cost $4,087,384) ...................... 5,498,776
------------
WARRANTS--0.2%
France
Rhone-Poulenc Warrant (Health Care
(Diversified)) (b) ..................... 90,300 310,717
------------
TOTAL WARRANTS
(Identified cost $296,963) ........................ 310,717
------------
TOTAL LONG-TERM INVESTMENTS--98.8%
(Identified cost $161,145,931)..................... 191,714,305
------------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------- --------- --------------
SHORT-TERM OBLIGATIONS--1.0%
Commercial Paper--0.5%
Enterprise Funding Corp.
5.73%, 2/25/98 ................. A-1+ $1,000 $ 991,326
------------
Federal Agency Securities--0.5%
Federal Home Loan Banks 5.80%,
1/2/98 ......................... 1,065 1,064,828
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,056,074)............................ 2,056,154
------------
TOTAL INVESTMENTS--99.8%
(Identified cost $163,202,005) ......................... 193,770,459(a)
Cash and receivables, less liabilities--0.2% ........... 338,016
------------
NET ASSETS--100.0% ....................................... $194,108,475
============
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $32,223,415 and gross
depreciation of $3,242,545 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$164,789,589.
(b) Non-income producing.
(c) All or a portion segregated as collateral.
See Notes to Financial Statements
54
<PAGE>
INTERNATIONAL SERIES
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of
Total Long-Term Investments
(Unaudited)
Aerospace/Defense ..................................... 2.3%
Airlines .............................................. 1.5
Banks ................................................. 7.8
Beverages (Non-Alcoholic) ............................. 1.1
Building Materials .................................... 0.5
Business Services ..................................... 1.3
Chemicals (Specialty) ................................. 1.3
Communications Equipment .............................. 5.1
Computers (Software & Services) ....................... 5.1
Construction .......................................... 0.5
Consumer Credit ....................................... 0.3
Cosmetics & Soaps ..................................... 0.6
Electrical Equipment .................................. 1.2
Engineering ........................................... 1.3
Financial (Diversified) ............................... 10.4
Foods ................................................. 1.2
Health Care (Diversified) ............................. 4.4
Health Care (Drugs--Major Pharmaceuticals) ............ 5.8
Health Care (Medical Products & Supplies) ............. 0.5
Insurance (Life) ...................................... 1.7
Insurance (Life/Health) ............................... 2.5
Insurance (Multi-Line) ................................ 2.0
Insurance (Reinsurance) ............................... 1.3
Leisure Time (Products) ............................... 1.1
Manufacturing (Consumer Durables) ..................... 0.5
Manufacturing (Fire Safety/Security Products) ......... 0.9
Office Equipment & Supplies ........................... 0.9
Oil (Integrated) ...................................... 6.2
Oil Service ........................................... 0.6
Oil & Gas (Drilling & Equipment) ...................... 1.8
Publishing ............................................ 2.0
Publishing, Broadcasting & Printing ................... 1.5
Real Estate............................................ 0.0
Retail ................................................ 0.5
Retail (General Merchandise) .......................... 4.6
Services (Catering) ................................... 1.2
Services (Advertising/Marketing) ...................... 1.0
Telecommunications(Cellular/Wireless) ................. 4.9
Textiles (Apparel) .................................... 1.4
Tobacco ............................................... 1.4
Transportation ........................................ 1.0
Utility--Telephone .................................... 8.7
Utility--Toll Road .................................... 0.1
-----
100.0%
=====
See Notes to Financial Statements
55
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $163,202,005) ..................... $193,770,459
Foreign currency at value (Identified cost $2,639) ................................ 7,130
Cash .............................................................................. 3,017
Receivables
Dividends and interest ........................................................... 103,367
Investment securities sold ....................................................... 234,223
Tax reclaim ...................................................................... 69,611
Net unrealized appreciation on forward currency contracts ........................ 398,807
------------
Total assets .................................................................... 194,586,614
------------
Liabilities
Payables
Investment securities purchased .................................................. 5,981
Fund shares repurchased .......................................................... 126,217
Custodian fee .................................................................... 128,949
Investment advisory fee .......................................................... 121,142
Financial agent fee .............................................................. 9,241
Trustees' fee .................................................................... 2,158
Accrued expenses ................................................................. 84,451
------------
Total liabilities ............................................................... 478,139
------------
Net Assets ........................................................................ $194,108,475
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................. $163,223,980
Accumulated net investment loss .................................................. (1,443,875)
Accumulated net realized gain .................................................... 1,363,801
Net unrealized appreciation ...................................................... 30,964,569
------------
Net Assets ........................................................................ $194,108,475
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization .. 13,356,879
============
Net asset value and offering price per share ...................................... $14.53
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Dividends .............................................................................. $ 2,488,729
Interest ............................................................................... 1,051,955
Foreign taxes withheld ................................................................. (233,017)
------------
Total investment income ............................................................... 3,307,667
------------
Expenses
Investment advisory fee ................................................................ 1,434,773
Financial agent fee .................................................................... 114,782
Custodian .............................................................................. 239,772
Printing ............................................................................... 65,961
Professional ........................................................................... 30,539
Trustees ............................................................................... 20,478
Miscellaneous .......................................................................... 28,902
------------
Total expenses ........................................................................ 1,935,207
------------
Net investment income ................................................................... 1,372,460
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ........................................................ 16,403,468
Net realized loss on foreign currency transactions ..................................... (2,521,930)
Net change in unrealized appreciation (depreciation) on investments .................... 6,575,085
Net change in unrealized appreciation (depreciation) on foreign currency and
foreign currency transactions ------------
(676,642)
Net gain on investments ................................................................. 19,779,981
------------
Net increase in net assets resulting from operations .................................... $ 21,152,441
============
</TABLE>
See Notes to Financial Statements
56
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income ................................................................ $ 1,372,460 $ 1,238,905
Net realized gain .................................................................... 13,881,538 12,048,984
Net change in unrealized appreciation (depreciation) ................................. 5,898,443 13,071,593
------------- -------------
Net increase in net assets resulting from operations ................................. 21,152,441 26,359,482
------------- -------------
From Distributions to Shareholders
Net investment income ................................................................ (2,638,818) (2,156,537)
Net realized gains ................................................................... (18,496,435) (3,811,548)
In excess of net investment income ................................................... -- (272,380)
In excess of accumulated net realized gains .......................................... (204,295) --
------------- -------------
Decrease in net assets from distributions to shareholders ............................ (21,339,548) (6,240,465)
------------- -------------
From Share Transactions
Proceeds from sales of shares (3,308,827 and 3,516,722 shares, respectively) ......... 50,646,953 48,544,295
Net asset value of shares issued from reinvestment of distributions (1,433,541 and 435,075
shares, respectively) ............................................................... 21,339,548 6,240,465
Cost of shares repurchased (3,280,469 and 2,645,302 shares, respectively) ............ (50,358,574) (36,690,696)
------------- -------------
Increase in net assets from share transactions ....................................... 21,627,927 18,094,064
------------- -------------
Net increase in net assets ........................................................... 21,440,820 38,213,081
Net Assets
Beginning of period .................................................................. 172,667,655 134,454,574
------------- -------------
End of period (including accumulated net investment loss and undistributed net
investment income of ($1,443,875) and $1,390,579, respectively) ...................... $ 194,108,475 $ 172,667,655
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding through the indicated period)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---------------- ------------
<S> <C> <C>
Net asset value, beginning of period ............. $14.52 $12.70
Income from investment operations
Net investment income ........................... 0.12(3) 0.11(3)
Net realized and unrealized gain (loss) ......... 1.61 2.25
-------- ---------
Total from investment operations ............... 1.73 2.36
-------- ---------
Less distributions
Dividends from net investment income ............ (0.22) (0.19)
Dividends from net realized gains ............... (1.50) (0.33)
In excess of net investment income .............. -- (0.02)
-------- ---------
Total distributions ............................ (1.72) (0.54)
-------- ---------
Change in net asset value ........................ 0.01 1.82
-------- ---------
Net asset value, end of period ................... $14.53 $14.52
========= ==========
Total return ..................................... 12.04% 18.65%
Ratio/supplemental data:
Net assets, end of period (thousands) ............ $194,108 $172,668
Ratio to average of net assets of:
Operating expenses .............................. 1.01% 1.04%
Net investment income ........................... 0.72% 0.80%
Portfolio turnover rate .......................... 184% 142%
Average commission rate paid(2) .................. $0.0181 $0.0213
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------- ---------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period ............. $11.85 $12.21 $8.82
Income from investment operations
Net investment income ........................... 0.12(3) 0.08(3) 0.07(1)(3)
Net realized and unrealized gain (loss) ......... 1.02 (0.07) 3.32
---------- ---------- --------
Total from investment operations ............... 1.14 0.01 3.39
---------- ---------- --------
Less distributions
Dividends from net investment income ............ (0.04) (0.03) --
Dividends from net realized gains ............... (0.25) (0.34) --
In excess of net investment income .............. -- -- --
---------- ------------ --------
Total distributions ............................ (0.29) (0.37) --
---------- ------------ --------
Change in net asset value ........................ 0.85 (0.36) 3.39
---------- ---------- --------
Net asset value, end of period ................... $12.70 $11.85 $12.21
========== ========== ========
Total return ..................................... 9.59% 0.03% 38.44%
Ratio/supplemental data:
Net assets, end of period (thousands) ............ $134,455 $134,627 $61,242
Ratio to average of net assets of:
Operating expenses .............................. 1.07% 1.10% 1.15%
Net investment income ........................... 0.95% 0.64% 0.49%
Portfolio turnover rate .......................... 249% 172% 193%
Average commission rate paid(2) .................. 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
57
<PAGE>
BALANCED SERIES
INVESTOR PROFILE
Phoenix Balanced Series is designed for investors seeking long-term capital
and current income from a balanced investment in stocks, bonds and cash.
INVESTMENT REVIEW
For the 12 months ended December 31, 1997, the Fund and its benchmark
returned 17.93% and 21.95%, respectively. All performance figures assume
reinvestment of dividends and exclude the effect of sales charges.
Despite increased volatility in the fourth quarter, 1997 was another good
year for U.S. investors. In fact, the Dow Jones Industrial Average ended the
year at more than 10 times its 1982 low. Overseas, however, the picture was not
as bright: high jobless rates continued in Europe, turmoil continues in the
Middle East and Latin America is recovering slowly. The surprise was the
collapse of many markets in the Asia-Pacific region. While it will be some time
before we see the real impact of the Asian problems on the earnings of domestic
and global companies, the U.S. market reacted to the uncertainty with a violent
rotation to defensive issues. The strongest sectors in the fourth quarter were
communication services, utilities and consumer staples--slow but steady growers.
Positive contributors to overall results during 1997 included strong stock
selection in the consumer staples, energy and capital goods sectors, in addition
to our modest overweighting in the strongly performing financial services
sector. With interest rates trending downward since mid-April, our decision to
raise the average duration of the portfolio's bond holdings also boosted
returns. Areas which held back performance during this period included the
relative underperformance of some of our technology and health-care holdings as
well as an underweighted position in communication services.
OUTLOOK
While our long-term outlook remains constructive, there are more reasons
than ever to maintain a cautious investment posture. On the positive side, the
economy continues to grow at a healthy, sustainable pace; inflation remains
benign; and the overall outlook for corporate earnings is still upbeat. On the
other hand, analysts' estimates for 1998 earnings are probably too high, and we
believe that the frequency of earnings disappointments will increase.
Our stock selection continues to focus on firms that possess above-average
earnings growth potential, superior management and global opportunities outside
Asia. We expect interest rates to continue to trend down and would not be
surprised if the Fed actually cut rates during the year, which would partially
offset the negative impact of slightly slower earnings growth on equity prices.
While the Asian "meltdown" introduces a new element of uncertainty in the
outlook for the financial markets, we do not believe the real impact will be
great. Health-care, financial services and technology continue to be the sectors
in which we have the greatest confidence for exceptional long-term growth.
58
<PAGE>
BALANCED SERIES
[TABULAR REPRESENTATION OF LINE CHART]
Balanced Benchmark* Balanced 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
12/31/97 20,800 18,612
Average Annual Total Returns for Periods Ending 12/31/97
From
Inception
5/1/92 to
1 Year 5 Years 12/31/97
---------------------------------------------------------------------------
Balanced Series 17.93% 11.15% 11.58%
---------------------------------------------------------------------------
Balanced Benchmark* 21.95% 14.19% 13.79%
---------------------------------------------------------------------------
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. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
*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, 1997
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES--12.6%
U.S. Treasury Notes--9.7%
U.S. Treasury Notes 6.375%,
5/15/99 ................................. AAA $3,775 $3,809,209
U.S. Treasury Notes 6.875%,
3/31/00 ................................. AAA 3,100 3,176,074
U.S. Treasury Notes 6%, 8/15/00 ........... AAA 1,700 1,712,218
U.S. Treasury Notes 6.625%,
6/30/01 ................................. AAA 2,280 2,344,125
U.S. Treasury Notes 6.50%,
8/15/05 ................................. AAA 1,550 1,616,883
U.S. Treasury Notes 6.50%,
10/15/06 ................................ AAA 9,235 9,668,306
----------
22,326,815
----------
Agency Mortgage-Backed Securities--2.9%
FNMA 6.85%, 5/17/20 ....................... AAA 1,700 1,744,094
GNMA 6.50%, '23-'24 ....................... AAA 5,020 5,004,931
----------
6,749,025
----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $28,536,332)............................................... 29,075,840
----------
MUNICIPAL BONDS--3.4%
California--1.4%
California State Department Water
System Series S 5%, 12/1/29 ............. AA 450 437,521
Kern County Pension Obligation
Taxable 7.26%, 8/15/14 .................. AAA 420 446,183
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
California--continued
L.A. County Public Works
Financing Authority Series A
5.125%, 12/1/29 ......................... AAA $ 685 $ 672,999
Long Beach Pension Obligation
Taxable 6.87%, 9/1/06 ................... AAA 230 239,285
Orange County Pension Series A
Taxable 7.62%, 9/1/08 ................... AAA 650 714,142
San Bernardino County Pension
Obligation Revenue Taxable
6.94%, 8/1/09 ........................... AAA 300 313,830
San Bernardino County Pension
Obligation Revenue Taxable
6.87%, 8/1/08 ........................... AAA 110 114,331
Ventura County Pension Obligation
Taxable 6.54%, 11/1/05 .................. AAA 260 265,054
----------
3,203,345
----------
Florida--0.8%
Florida State Department of
Transportation Series A 5%,
7/1/27 .................................. AA+ 545 530,367
Miami Beach Special Obligation
Taxable 8.60%, 9/1/21 ................... AAA 875 988,286
University of Miami Exchangeable
Revenue Series A Taxable
7.65%, 4/1/20 ........................... AAA 270 284,988
----------
1,803,641
----------
</TABLE>
See Notes to Financial Statements
59
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
Massachusetts--0.2%
Massachusetts State Water
Authority Series D 5%, 8/1/24 ......... AAA $ 545 $ 529,457
----------
Texas--0.3%
Houston Water & Sewer
Refunding, Jr. Lien, Series D
5%, 12/1/25 ........................... AAA 685 669,978
----------
Virginia--0.4%
Newport News Series B Taxable
7.05%, 1/15/25 ........................ AA- 1,000 1,008,910
----------
Washington--0.3%
Washington State Series E Taxable
5%, 7/1/22 ............................ AA+ 685 673,677
----------
TOTAL MUNICIPAL BONDS
(Identified cost $7,652,600).............................................. 7,889,008
----------
NON-CONVERTIBLE BONDS--7.2%
Asset-Backed Securities--1.7%
AESOP Funding II LLC 144A 97-1,
A2 6.40%, 10/20/03 (c) ................ AAA 1,200 1,209,750
Capita Equipment Receivables Trust
97-1, B 6.45%, 8/15/02 ................ A+ 770 771,203
Chase Credit Card Master Trust
97-2, A 6.30%, 4/15/03 ................ AAA 350 352,584
Fleetwood Credit Corp. 96-B, A
6.90%, 3/15/12 ........................ AAA 582 587,315
Green Tree Financial Corp. 96-2,
M1 7.60%, 4/15/27 ..................... AA- 675 704,109
Newcourt Receivables Asset Trust
97-1, A3 6.11%, 5/21/01 ............... AAA 190 190,030
----------
3,814,991
----------
Non-Agency Mortgage-Backed Securities--5.1%
CS First Boston Mortgage
Securities Corp. 95-AE, B
7.182%, 11/25/27 ...................... AA- 425 427,922
CS First Boston Mortgage
Securities Corp. 97-C2, B
6.72%, 1/17/35 ........................ Aa(d) 2,000 2,012,500
DLJ Mortgage Acceptance Corp.
96-CF1, A1B 144A 7.58%,
3/13/28 (c) ........................... AAA 400 423,625
First Union Lehman Bros. 97-C1, B
7.43%, 4/18/29 ........................ Aa(d) 930 973,884
G.E. Capital Mortgage Services,
Inc. 96-8, M 7.25%, 5/25/26 ........... AA 246 248,333
Lehman Large Loan 97-LL1, B
6.95%, 3/12/07 ........................ AA 825 844,980
Nationslink Funding Corp. 96-1, B
7.69%, 12/20/05 ....................... AA 450 478,547
Norwest Asset Securities Corp.
96-9, A15 7.75%, 1/25/27 .............. Aaa(d) 2,000 2,079,375
Residential Asset Securitization
Trust 96-A8, A1 8%, 12/25/26 .......... AAA 462 468,691
Residential Funding Mortgage
Securities I 96-S1, A11 7.10%,
1/25/26 ............................... AAA 1,000 1,012,188
Residential Funding Mortgage
Securities I 96-S4, M1 7.25%,
2/25/26 ............................... AA 982 993,577
Residential Funding Mortgage
Securities I 96-S8, A4 6.75%,
3/25/11 ............................... AAA 651 655,476
Resolution Trust Corp. 93-C1, B
8.75%, 5/25/24 ........................ Aa(d) 195 195,496
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
Non-Agency Mortgage-Backed Securities--continued
Resolution Trust Corp. 95-2, M1
7.15%, 5/25/29 ........................ Aa(d) $ 531 $ 540,275
Structured Asset Securities Corp.
93-C1, B 6.60%, 10/25/24 .............. A+ 525 514,542
----------
11,869,411
----------
Paper & Forest Products--0.3%
Buckeye Cellulose Corp. 8.50%,
12/15/05 .............................. BB- 700 721,000
----------
Truckers--0.1%
Teekay Shipping Corp. 8.32%, 2/1/08 BB 230 234,600
----------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $16,414,402)............................................. 16,640,002
----------
FOREIGN GOVERNMENT SECURITIES--8.0%
Argentina--0.6%
Republic of Argentina Bearer FRB
6.688%, 3/31/05 (e) ................... BB 1,507 1,347,060
----------
Brazil--0.8%
Republic of Brazil C Bond, PIK
interest capitalization, 8%,
4/15/14 (e) ........................... BB- 91 72,333
Republic of Brazil DCB-L Bearer
Euro 6.75%, 4/15/12 (e) ............... BB- 425 323,531
Republic of Brazil NMB-L Bearer
6.75%, 4/15/09 ........................ BB- 1,780 1,438,463
----------
1,834,327
----------
Bulgaria--0.3%
Bulgaria FLIRB Series A Bearer
Euro 2.25%, 7/28/12 (e) ............... B(d) 1,165 709,194
----------
Colombia--0.6%
Republic of Colombia 7.25%,
2/15/03 ............................... BBB- 610 591,700
Republic of Colombia Yankee
7.25%, 2/23/04 ........................ BBB- 825 778,594
----------
1,370,294
----------
Croatia--0.3%
Croatia Series A 6.625%, 7/31/10 (e) BBB- 775 682,000
----------
Ecuador--0.6%
Ecuador Bearer PDI Euro, PIK
interest capitalization, 6.688%,
2/27/15 (e) ........................... B(d) 1,914 1,270,058
----------
Mexico--1.0%
United Mexican States Global Bond
11.50%, 5/15/26 ....................... BB 2,005 2,372,416
----------
Panama--0.6%
Panama 8.875%, 9/30/27 .................. BB+ 1,510 1,420,910
----------
Peru--0.5%
Peru PDI 4%, 3/7/17 (e) ................. BB 1,900 1,249,250
----------
Poland--0.8%
Poland Bearer PDI 4%, 10/27/14 (e) BBB- 1,450 1,256,062
Poland Discount Euro 6.688%,
10/27/24 (e) .......................... BBB- 600 584,625
----------
1,840,687
----------
Russia--1.3%
Russia Interest Notes Series US
144A 6.719%, 12/15/15 (c)(e) .......... NR 4,335 3,077,850
----------
Venezuela--0.6%
Republic of Venezuela 9.25%,
9/15/27 ............................... B+ 1,595 1,426,528
----------
</TABLE>
See Notes to Financial Statements
60
<PAGE>
BALANCED SERIES
VALUE
----------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $17,837,553).............................. $18,600,574
-----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- -------
FOREIGN NON-CONVERTIBLE BONDS--0.2%
Chile--0.2%
Compania Sud Americana de
Vapores SA 7.375%, 12/8/03 ......... BBB $120 119,250
Petropower I Funding Trust 144A
7.36%, 2/15/14 (c) ................. BBB 350 354,494
-------
473,744
-------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $467,658).................................. 473,744
-------
SHARES
---------
COMMON STOCKS--53.2%
Banks (Major Regional)--4.3%
AmSouth Bancorporation ........................ 8,300 450,794
Banc One Corp. ................................ 39,100 2,123,619
BankBoston Corp. .............................. 23,800 2,235,712
Compass Bankshares, Inc. ...................... 6,400 280,000
Mellon Bank Corp. ............................. 23,500 1,424,688
NationsBank Corp. ............................. 22,400 1,362,200
Southtrust Corp. .............................. 12,000 761,250
Washington Mutual, Inc. ....................... 20,500 1,308,156
---------
9,946,419
---------
Banks (Money Center)--1.2%
BankAmerica Corp. ............................. 23,500 1,715,500
Citicorp ...................................... 8,700 1,100,006
---------
2,815,506
---------
Biotechnology--0.3%
Centocor, Inc. (b) ............................ 23,100 768,075
---------
Broadcasting (Television, Radio, & Cable)--0.3%
Chancellor Media Corp. (b) .................... 8,800 656,700
---------
Chemicals (Specialty)--0.3%
Solutia, Inc. (b) ............................. 29,900 797,956
---------
Communications Equipment--1.6%
Ciena Corp. (b) ............................... 35,600 2,176,050
Lucent Technologies, Inc. ..................... 19,400 1,549,575
---------
3,725,625
---------
Computers (Hardware)--3.0%
International Business Machines Corp. ......... 66,700 6,974,319
---------
Computers (Networking)--0.4%
Cisco Systems, Inc. (b) ....................... 17,850 995,138
---------
Computers (Peripherals)--0.3%
EMC Corp. (b) ................................. 25,900 710,631
---------
Computers (Software & Services)--3.7%
Adaptec, Inc. (b) ............................. 57,600 2,138,400
BMC Software, Inc. (b) ........................ 47,600 3,123,750
Compuware Corp. (b) ........................... 69,000 2,208,000
Edwards (J.D.) & Co. (b) ...................... 24,900 734,550
Yahoo!, Inc. (b) .............................. 5,200 360,100
---------
8,564,800
---------
Distributors (Food & Health)--0.9%
Cardinal Health, Inc. ......................... 27,100 2,035,887
---------
Electrical Equipment--1.2%
General Electric Co. .......................... 38,400 2,817,600
---------
SHARES VALUE
-------- -------------
Electronics (Instrumentation)--0.3%
Linear Technology Corp. ...................... 10,000 $ 576,250
----------
Electronics (Semiconductors)--1.4%
National Semiconductor Corp. (b) ............. 76,500 1,984,219
Texas Instruments, Inc. ...................... 27,400 1,233,000
----------
3,217,219
----------
Entertainment--0.9%
Tele-Comm Liberty Media Group (b) ............ 59,600 2,160,500
----------
Financial (Diversified)--0.6%
American Express Co. ......................... 15,400 1,374,450
----------
Health Care (Diversified)--2.0%
Bristol-Myers Squibb Co. ..................... 22,400 2,119,600
Warner-Lambert Co. ........................... 19,500 2,418,000
----------
4,537,600
----------
Health Care (Drugs--Major Pharmaceuticals)--3.1%
Lilly (Eli) & Co. ............................ 15,900 1,107,037
Pfizer, Inc. ................................. 64,800 4,831,650
Watson Pharmaceuticals, Inc. (b) ............. 40,500 1,313,719
----------
7,252,406
----------
Health Care (Hospital Management)--1.0%
HBO & Co. .................................... 45,800 2,198,400
----------
Health Care (Long Term Care)--0.6%
HEALTHSOUTH Corp. (b) ........................ 51,200 1,420,800
----------
Health Care (Medical Products & Supplies)--1.6%
Guidant Corp. ................................ 34,400 2,141,400
Medtronic, Inc. .............................. 30,200 1,579,837
----------
3,721,237
----------
Household Furn. & Appliances--0.6%
Sunbeam Corp., Inc. .......................... 33,800 1,423,825
----------
Household Products (Non-Durables)--0.7%
Colgate-Palmolive Co. ........................ 20,800 1,528,800
----------
Insurance (Life/Health)--0.3%
UNUM Corp. ................................... 14,000 761,250
----------
Insurance (Multi-Line)--1.3%
Reliastar Financial Corp. .................... 4,600 189,463
Travelers Group, Inc. ........................ 52,800 2,844,600
----------
3,034,063
----------
Insurance (Property-Casualty)--0.9%
Allstate Corp. ............................... 22,700 2,062,862
----------
Investment Banking/Brokerage--0.3%
Merrill Lynch & Co., Inc. .................... 9,300 678,319
----------
Machinery (Diversified)--0.6%
Deere & Co. .................................. 25,100 1,463,644
----------
Manufacturing (Diversified)--1.7%
Tyco International Ltd. ...................... 84,900 3,825,806
----------
Oil (Domestic Integrated)--1.1%
Tosco Corp. .................................. 64,100 2,423,781
----------
Oil & Gas (Drilling & Equipment)--4.8%
BJ Services Co. (b) .......................... 18,700 1,345,231
Cooper Cameron Corp. (b) ..................... 8,800 536,800
Diamond Offshore Drilling, Inc. .............. 27,200 1,309,000
Halliburton Co. .............................. 45,700 2,373,544
Nabors Industries, Inc. (b) .................. 7,800 245,213
Noble Drilling Corp. (b) ..................... 18,700 572,687
Rowan Companies, Inc. (b) .................... 16,900 515,450
Schlumberger Ltd. ............................ 33,400 2,688,700
Transocean Offshore, Inc. .................... 28,700 1,382,981
----------
10,969,606
----------
See Notes to Financial Statements
61
<PAGE>
BALANCED SERIES
SHARES VALUE
-------- --------------
Oil & Gas (Refining & Marketing)--0.3%
Santa Fe International Corp. .................... 18,300 $ 744,581
------------
Personal Care--1.3%
Gillette Co. .................................... 29,700 2,982,994
------------
Retail (Building Supplies)--0.9%
Home Depot, Inc. ................................ 35,550 2,093,006
------------
Retail (Drug Stores)--2.1%
CVS Corp. ....................................... 36,400 2,331,875
Rite Aid Corp. .................................. 41,600 2,441,400
------------
4,773,275
------------
Retail (Food Chains)--1.3%
Safeway, Inc. (b) ............................... 46,100 2,915,825
------------
Retail (General Merchandise)--1.0%
Borders Group, Inc. (b) ......................... 30,700 961,294
Staples, Inc. (b) ............................... 50,900 1,412,475
------------
2,373,769
------------
Telecommunications (Cellular/Wireless)--1.5%
AirTouch Communications, Inc. (b) ............... 85,300 3,545,281
------------
Telecommunications (Long Distance)--1.9%
AT&T Corp. ...................................... 73,000 4,471,250
------------
Tobacco--1.6%
Philip Morris Companies, Inc. ................... 80,800 3,661,250
------------
TOTAL COMMON STOCKS
(Identified cost $112,342,089).......................... 123,000,705
------------
FOREIGN COMMON STOCKS--3.7%
Computers (Software & Services)--0.2%
Baan Company NV (Netherlands) (b) ............... 9,500 313,500
------------
Health Care (Drugs--Major Pharmaceuticals)--0.9%
SmithKline Beecham PLC Sponsored ADR
(United Kingdom) .............................. 40,700 2,093,506
------------
Health Care (Medical Products & Supplies)--0.3%
Elan PLC Sponsored ADR (Ireland) (b) 13,600 696,150
------------
Household Furn. & Appliances--1.5%
Philips Electronics NV ADR NY Registered
(Netherlands) ................................. 57,600 3,484,800
------------
Oil (International Integrated)--0.8%
Elf Aquitane Sponsored ADR (France) ............. 32,300 1,893,588
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $9,129,222)............................ 8,481,544
------------
TOTAL LONG-TERM INVESTMENTS--88.3%
(Identified cost $192,379,856).......................... 204,161,417
------------
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------- -------- --------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--11.3%
Commercial Paper--8.3%
General Electric Capital Corp.
6.25%, 1/5/98 ....................... A-1+ $ 825 $ 824,427
Greenwich Funding Corp. 5.91%,
1/9/98 .............................. A-1+ 2,300 2,296,979
Receivables Capital Corp. 5.90%,
1/9/98 .............................. A-1+ 92 91,879
Exxon Imperial U.S., Inc. 5.82%,
1/13/98 ............................. A-1+ 3,000 2,994,180
AlliedSignal, Inc. 5.87%, 1/15/98 ..... A-1 2,405 2,399,510
Receivables Capital Corp. 6.15%,
1/23/98 ............................. A-1+ 2,500 2,490,604
Receivables Capital Corp. 5.70%,
1/26/98 ............................. A-1+ 1,035 1,030,903
Corporate Receivables Corp.
5.55%, 1/28/98 ...................... A-1 1,410 1,404,059
Proctor & Gamble Co. 5.63%,
2/11/98 ............................. A-1+ 3,650 3,626,596
CXC, Inc. 5.75%, 3/23/98 .............. A-1+ 2,000 1,974,125
--------------
19,133,262
--------------
Federal Agency Securities--3.0%
FHLB 5.75%, 1/2/98 .................... 4,880 4,879,221
FHLMC 5.63%, 2/18/98 .................. 2,000 1,984,987
--------------
6,864,208
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $25,997,542) ................................ 25,997,470
--------------
TOTAL INVESTMENTS--99.6%
(Identified cost $218,377,398)................................ 230,158,887(a)
Cash and receivables, less liabilities--0.4% ................. 1,020,932
--------------
NET ASSETS--100.0% ............................................. $ 231,179,819
==============
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $16,642,077 and gross
depreciation of $4,860,606 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$218,377,416.
(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,
1997, these securities amounted to a value of $5,065,719 or 2.2% of net
assets.
(d) As rated by Moody's, Fitch or Duff & Phelps.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
62
<PAGE>
BALANCED SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $218,377,398) ........................ $ 230,158,887
Cash ................................................................................. 2,920,756
Receivables
Investment securities sold .......................................................... 2,492,794
Interest and dividends .............................................................. 1,130,031
-------------
Total assets ....................................................................... 236,702,468
-------------
Liabilities
Payables
Investment securities purchased ..................................................... 5,248,936
Fund shares repurchased ............................................................. 28,797
Investment advisory fee ............................................................. 105,898
Financial agent fee ................................................................. 11,553
Trustees' fee ....................................................................... 912
Accrued expenses .................................................................... 126,553
-------------
Total liabilities .................................................................. 5,522,649
-------------
Net Assets ........................................................................... $ 231,179,819
=============
Net Assets Consist of:
Capital paid in on shares of beneficial interest .................................... $ 210,297,393
Undistributed net investment income ................................................. 52,552
Accumulated net realized gain ....................................................... 9,048,385
Net unrealized appreciation ......................................................... 11,781,489
-------------
Net Assets ........................................................................... $ 231,179,819
=============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization ..... 18,861,194
=============
Net asset value and offering price per share ......................................... $ 12.26
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Interest .................................................................... $ 6,556,658
Dividends ................................................................... 1,284,526
-----------
Total investment income .................................................... 7,841,184
-----------
Expenses
Investment advisory fee ..................................................... 1,194,141
Financial agent fee ......................................................... 130,270
Printing .................................................................... 84,167
Custodian ................................................................... 52,810
Professional ................................................................ 30,300
Trustees .................................................................... 21,014
Miscellaneous ............................................................... 15,345
-----------
Total expenses ............................................................. 1,528,047
-----------
Net investment income ........................................................ 6,313,137
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ............................................. 28,914,720
Net realized gain on written options ........................................ 7,293
Net realized gain on foreign currency and foreign currency transactions ..... 6,764
Net change in unrealized appreciation (depreciation) on investments ......... 398,108
-----------
Net gain on investments ...................................................... 29,326,885
-----------
Net increase in net assets resulting from operations ......................... $35,640,022
===========
</TABLE>
See Notes to Financial Statements
63
<PAGE>
BALANCED SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income ............................................................ $ 6,313,137 $ 5,806,775
Net realized gain ................................................................ 28,928,777 16,867,817
Net change in unrealized appreciation (depreciation) ............................. 398,108 (2,671,304)
------------- -------------
Net increase in net assets resulting from operations ............................. 35,640,022 20,003,288
------------- -------------
From Distributions to Shareholders
Net investment income ............................................................ (6,626,999) (5,536,811)
Net realized gains ............................................................... (25,653,795) (18,064,626)
------------- -------------
Decrease in net assets from distributions to shareholders ........................ (32,280,794) (23,601,437)
------------- -------------
From Share Transactions
Proceeds from sales of shares (2,522,290 and 2,805,856 shares, respectively) ..... 32,463,957 34,642,833
Net asset value of shares issued from reinvestment of distributions
(2,611,513 and 1,949,091 shares, respectively) .................................. 32,280,794 23,601,437
Cost of shares repurchased (3,214,459 and 3,529,372 shares, respectively) ........ (41,209,392) (43,662,808)
------------- -------------
Increase in net assets from share transactions ................................... 23,535,359 14,581,462
------------- -------------
Net increase in net assets ....................................................... 26,894,587 10,983,313
Net Assets
Beginning of period .............................................................. 204,285,232 193,301,919
------------- -------------
End of period (including undistributed net investment income of $52,552
and $351,214, respectively) ..................................................... $ 231,179,819 $ 204,285,232
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------------ ------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............. $ 12.06 $12.30 $ 10.53
Income from investment operations
Net investment income ........................... 0.38 0.36 0.40(2)
Net realized and unrealized gain (loss) ......... 1.73 0.89 2.02
------- ------ --------
Total from investment operations ............... 2.11 1.25 2.42
------- ------ --------
Less distributions
Dividends from net investment income ............ (0.40) (0.35) (0.40)
Dividends from net realized gains ............... (1.51) (1.14) (0.25)
-------- ------- ---------
Total distributions ............................ (1.91) (1.49) (0.65)
-------- ------- ---------
Change in net asset value ........................ 0.20 (0.24) 1.77
-------- ------- ---------
Net asset value, end of period ................... $ 12.26 $12.06 $ 12.30
======== ======= =========
Total return ..................................... 17.93% 10.56% 23.28%
Ratios/supplemental data:
Net assets, end of period (thousands) ............$ 231,180 $204,285 $ 193,302
Ratio to average net assets of:
Operating expenses .............................. 0.71% 0.68% 0.65%(3)
Net investment income ........................... 2.92% 2.93% 3.44%
Portfolio turnover rate .......................... 181% 229% 223%
Average commission rate paid(4) .................. $0.0525 $0.0641 N/A
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
---------------------- ----------------------
<S> <C> <C>
Net asset value, beginning of period ............. $11.31 $10.77
Income from investment operations
Net investment income ........................... 0.38(1)(2) 0.32(1)(2)
Net realized and unrealized gain (loss) ......... (0.70) 0.60
--------- --------
Total from investment operations ............... (0.32) 0.92
--------- --------
Less distributions
Dividends from net investment income ............ (0.36) (0.32)
Dividends from net realized gains ............... (0.10) (0.06)
--------- --------
Total distributions ............................ (0.46) (0.38)
--------- --------
Change in net asset value ........................ (0.78) 0.54
--------- --------
Net asset value, end of period ................... $10.53 $11.31
========= ========
Total return ..................................... (2.80)% 8.57%
Ratios/supplemental data:
Net assets, end of period (thousands) ............ $161,105 $158,144
Ratio to average net assets of:
Operating expenses .............................. 0.69% 0.70%
Net investment income ........................... 3.44% 3.16%
Portfolio turnover rate .......................... 171% 161%
Average commission rate paid(4) .................. N/A N/A
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
and $0.001 per share, respectively.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(4) 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
64
<PAGE>
REAL ESTATE SERIES
INVESTOR PROFILE
Phoenix Real Estate Series Fund is designed for investors seeking
investment in a diversified portfolio of real estate investment trusts ("REITs")
and real estate operating companies ("REOCs"). The Portfolio's objective is to
emphasize appreciation and current yield equally.
INVESTMENT REVIEW
For the period ended December 31, 1997, the Phoenix Real Estate Series Fund
provided a total net return of 22.05%, outperforming the NAREIT Equity Total
Return Index gross return for the same period of 20.29%. The S&P 500 Index total
return for 1997 was 33.38%.
Growth in FFO (the REIT substitute for earnings) was very strong and
exceeded analysts' expectations with average REIT FFO growth of 13%. Throughout
the year, REITs experienced less volatility during market swings than the S&P
500 even though $23 billion in REIT equity offerings were brought to market,
more than 1996 and 1995 combined. Nevertheless, REITs have outperformed the S&P
500 Index, on a total return basis, in 5 out of the last 7 years.
Our investment strategy begins with identifying preferred property types
and markets, based on fundamental analysis of the economic, demographic, and
real estate market trends, which are then used to form a portfolio framework. We
then identify companies with significant exposure to those preferred markets and
which are trading at attractive levels. Our 1997 returns were enhanced from
overweightings in the hotel and office sectors, the top performing sectors for
two years. The results from luxury, full-service, urban hotels indicated
increased demand, relatively little new supply, increasing occupancy, and rising
room rates. Office REITs had similar positive results with a record volume of
acquisitions, increasing occupancy, and rising rental rates. The Fund benefited
from an underweighting in the apartment and retail sectors. Concerns about
potential overbuilding in apartments and weak sales growth and a generally
over-stored condition substantiated our views.
OUTLOOK
Our outlook for REITs remains very positive, for several reasons. First,
real estate and REITs continue to exhibit strong fundamentals. Demand and supply
are in equilibrium in most markets and the pace of new development is modest.
REITs have access to competitively cheap cost of capital, and leverage remains
modest with a group average of approximately 35%. In a number of markets
occupancy continues to rise and rents are escalating.
Second, it appears as if the growth for REITs in 1998 will keep pace with
the broader market. REIT analysts are predicting REIT growth of 10 to 12% in
1998 which when combined with yields of 5 to 6%, equate to total return
projections of 15 to 18%. REITs began 1997 trading at a multiple of 11.5 times
current FFO and ended the year at approximately the same multiple. The S&P 500
ended 1997 at 20 times current earnings, or 1.7 times the REIT FFO multiple of
11.5 times versus a historical average of less than 1.5 times the REIT FFO
multiple, implying the S&P 500 is relatively expensive.
Third, REITs are beginning to substantiate the view that they are defensive
investments due to their high current yields and the relative high certainty of
revenues derived from contractual rents on portfolios of property within the
U.S. The broader market continues to address the impact of economic and currency
weakness in Southeast Asia, Korea, and Japan. Investors should continue to view
REITs as an attractive "safe harbor" option.
Finally, we believe there are themes that we can continue to exploit in
1998. We anticipate a great deal of merger activity and expect REITs will
continue to look outside the industry to rationalize the ownership of real
estate in a tax efficient structure with modest leverage.
65
<PAGE>
REAL ESTATE SERIES
[TABULAR REPRESENTATION OF LINE CHART]
NAREIT* Real Estate Series
5/1/95 $10,000 $10,000
12/31/95 11,779 11,548
12/31/96 15,677 15,618
12/31/97 19,134 18,787
Average Annual Total Returns for Periods Ending 12/31/97
From
Inception
5/1/95 to
1 Year 12/31/97
---------------------------------------------------------------------------
Real Estate Series 22.05% 27.50%
---------------------------------------------------------------------------
NAREIT Equity Index* 20.29% 26.63%
---------------------------------------------------------------------------
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, 1997
SHARES VALUE
----------- ----------
COMMON STOCKS--92.5%
REAL ESTATE INVESTMENT TRUSTS--91.7%
COMMERCIAL--30.3%
Office/Industrial--28.4%
Boston Properties, Inc. ........................ 55,500 $ 1,834,969
CarrAmerica Realty Corp. ....................... 1,000 31,688
Duke Realty Investments, Inc. .................. 76,600 1,857,550
Equity Office Properties Trust ................. 34,173 1,078,588
First Industrial Realty Trust, Inc. ............ 52,600 1,900,175
Highwoods Properties, Inc. ..................... 59,900 2,227,531
Mack-Cali Realty Corp. ......................... 47,200 1,935,200
Reckson Associates Realty Corp. ................ 57,200 1,451,450
Spieker Properties, Inc. ....................... 51,700 2,216,637
Weeks Corp. .................................... 30,500 976,000
-----------
15,509,788
-----------
Storage--1.9%
Storage USA, Inc. .............................. 25,900 1,034,381
-----------
TOTAL COMMERCIAL ............................................. 16,544,169
-----------
DIVERSIFIED--12.7%
Colonial Properties Trust ...................... 35,000 1,054,375
Crescent Real Estate Equities Co. .............. 74,900 2,949,187
Vornado Realty Trust ........................... 62,200 2,919,513
-----------
6,923,075
-----------
HEALTH CARE--3.6%
Health Care Property Investors, Inc. ........... 5,650 213,641
Nationwide Health Properties, Inc. ............. 47,900 1,221,450
OMEGA Healthcare Investors, Inc. ............... 14,000 540,750
-----------
1,975,841
-----------
HOTELS--17.8%
FelCor Suite Hotels, Inc. ...................... 39,500 1,402,250
Patriot American Hospitality, Inc. ............. 91,800 2,644,988
Starwood Lodging Trust combined certificate .... 64,900 3,756,087
Sunstone Hotel Investors, Inc. ................. 111,500 1,923,375
-----------
9,726,700
-----------
NET LEASE--2.0%
TriNet Corporate Realty Trust, Inc. ............ 28,000 1,083,250
-----------
RESIDENTIAL--17.6%
Apartments--14.5%
Bay Apartment Communities, Inc. ................ 63,900 2,492,100
Camden Property Trust .......................... 26,100 809,100
Equity Residential Properties Trust ............ 49,600 2,507,900
Essex Property Trust, Inc. ..................... 30,700 1,074,500
Irvine Apartment Communities, Inc. ............. 33,500 1,065,719
-----------
7,949,319
-----------
SHARES VALUE
----------- -----------
Manufactured Homes--3.1%
Manufactured Home Communities, Inc. ............ 33,800 $ 912,600
Sun Communities, Inc. .......................... 21,300 765,469
-----------
1,678,069
-----------
TOTAL RESIDENTIAL ............................................ 9,627,388
-----------
RETAIL--7.7%
Community/Neighborhood--2.1%
Developers Diversified Realty Corp. ............ 20,000 765,000
Regency Realty Corp. ........................... 15,000 415,312
-----------
1,180,312
-----------
Factory Outlet--1.6%
Chelsea GCA Realty, Inc. ....................... 22,600 863,038
-----------
Regional Malls--4.0%
Macerich Company (The) ......................... 30,300 863,550
Simon DeBartolo Group, Inc. .................... 17,796 581,707
Urban Shopping Centers, Inc. ................... 21,700 756,787
-----------
2,202,044
-----------
TOTAL RETAIL .................................................... 4,245,394
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $40,757,618) ................................. 50,125,817
-----------
REAL ESTATE OPERATING COMPANIES--0.8%
Regional Malls--0.8%
Rouse Co. ...................................... 12,500 409,375
-----------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $320,613) .................................... 409,375
-----------
TOTAL COMMON STOCKS
(Identified cost $41,078,231) ................................. 50,535,192
-----------
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- ---------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--7.8%
Commercial Paper--7.8%
Goldman, Sachs & Co. 6.75%, 1/2/98 ..... A-1+ $1,000 999,813
BellSouth Telecommunications, Inc.
6%, 1/5/98 ........................... A-1+ 1,790 1,788,807
Marsh & McLennan Cos. 6.20%,
1/5/98 ............................... A-1+ 995 994,314
Potomac Electric Power Co. 6.20%,
1/7/98 ............................... A-1 500 499,483
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $4,282,417)..................................... 4,282,417
-----------
TOTAL INVESTMENTS--100.3%
(Identified cost $45,360,648) ................................... 54,817,609(a)
Cash and receivables, less liabilities--(0.3%) .................. (158,600)
-----------
NET ASSETS--100.0% ................................................ $54,659,009
===========
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $9,498,575 and gross
depreciation of $41,614 for income tax purposes. At December 31, 1997, the
aggregate cost of securities for federal income tax purposes was
$45,360,648.
See Notes to Financial Statements
66
<PAGE>
REAL ESTATE SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $45,360,648) ..................... $54,817,609
Cash ............................................................................. 3,278
Receivables
Dividends and interest .......................................................... 227,663
-----------
Total assets ................................................................... 55,048,550
-----------
Liabilities
Payables
Fund shares repurchased ......................................................... 314,362
Investment advisory fee ......................................................... 14,763
Trustees' fee ................................................................... 3,874
Financial agent fee ............................................................. 2,670
Accrued expenses ................................................................ 53,872
-----------
Total liabilities .............................................................. 389,541
-----------
Net Assets ....................................................................... $54,659,009
===========
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................ $45,076,319
Undistributed net investment income ............................................. 80,383
Accumulated net realized gain ................................................... 45,346
Net unrealized appreciation ..................................................... 9,456,961
-----------
Net Assets ....................................................................... $54,659,009
===========
Shares of beneficial interest outstanding, $1 par value, unlimited authorization . 3,336,491
===========
Net asset value and offering price per share ..................................... $16.38
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Dividends ............................................................... $1,685,789
Interest ................................................................ 106,768
----------
Total investment income ................................................ 1,792,557
----------
Expenses
Investment advisory fee ................................................. 292,874
Financial agent fee ..................................................... 23,430
Printing ................................................................ 29,311
Professional ............................................................ 27,900
Trustees ................................................................ 20,365
Custodian ............................................................... 18,058
Miscellaneous ........................................................... 4,913
----------
Total expenses ......................................................... 416,851
Less expenses borne by investment adviser .............................. (26,352)
----------
Net expenses ........................................................... 390,499
----------
Net investment income .................................................... 1,402,058
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ......................................... 1,766,075
Net change in unrealized appreciation (depreciation) on investments ..... 5,041,754
----------
Net gain on investments .................................................. 6,807,829
----------
Net increase in net assets resulting from operations ..................... $8,209,887
==========
</TABLE>
See Notes to Financial Statements
67
<PAGE>
REAL ESTATE SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income ................................................................. $ 1,402,058 $ 538,337
Net realized gain ..................................................................... 1,766,075 357,371
Net change in unrealized appreciation (depreciation) .................................. 5,041,754 3,569,257
------------- ------------
Net increase in net assets resulting from operations .................................. 8,209,887 4,464,965
------------- ------------
From Distributions to Shareholders
Net investment income ................................................................. (1,330,417) (529,595)
Net realized gains .................................................................... (1,843,915) (234,185)
------------- ------------
Decrease in net assets from distributions to shareholders ............................. (3,174,332) (763,780)
------------- ------------
From Share Transactions
Proceeds from sales of shares (2,796,827 and 1,121,196 shares, respectively) .......... 42,663,506 14,117,141
Net asset value of shares issued from reinvestment of distributions
(196,112 and 59,531 shares, respectively) ............................................ 3,174,332 763,780
Cost of shares repurchased (1,242,092 and 342,758 shares, respectively) ............... (18,924,144) (4,344,888)
------------- ------------
Increase in net assets from share transactions ........................................ 26,913,694 10,536,033
------------- ------------
Net increase in net assets ............................................................ 31,949,249 14,237,218
Net Assets
Beginning of period ................................................................... 22,709,760 8,472,542
------------- ------------
End of period (including undistributed net investment income of $80,383 and $8,742,
respectively) ......................................................................... $ 54,659,009 $ 22,709,760
============= ============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
Year Ended December 31, 5/1/95 to
1997 1996 12/31/95
---------------- ---------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period .......... $ 14.32 $11.33 $10.00
Income from investment operations
Net investment income ........................ 0.50(3) 0.50(3) 0.33(3)
Net realized and unrealized gain ............. 2.62 3.14 1.42
--------- ------- --------
Total from investment operations ............ 3.12 3.64 1.75
--------- ------- --------
Less distributions
Dividends from net investment income ......... (0.48) (0.50) (0.33)
Dividends from net realized gains ............ (0.58) (0.15) (0.06)
Tax return of capital ........................ -- -- (0.03)
--------- ------- --------
Total distributions ......................... (1.06) (0.65) (0.42)
--------- ------- --------
Change in net asset value ..................... 2.06 2.99 1.33
--------- ------- --------
Net asset value, end of period ................ $ 16.38 $14.32 $11.33
========= ======= ========
Total return .................................. 22.05% 33.09% 17.79%(2)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 54,659 $22,710 $8,473
Ratio to average net assets of:
Operating expenses ........................... 1.00% 1.00% 1.00%(1)
Net investment income ........................ 3.59% 4.36% 4.80%(1)
Portfolio turnover rate ....................... 41% 21% 10%(2)
Average commission rate paid(4) ............... $ 0.0490 $0.0468 N/A
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.01,
$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
68
<PAGE>
STRATEGIC THEME SERIES
INVESTOR PROFILE
Strategic Theme Series is designed for long-term investors seeking capital
appreciation while accepting the higher risk associated with investing in the
stock market.
INVESTMENT REVIEW
For the 12 months ended December 31, 1997, Phoenix Strategic Theme Series
returned 17.16%. By comparison the S&P 500 Index was up 33.38% and the S&P
Midcap 400 Index was up 32.27%. Although the Fund underperformed last year,
since inception it has exceeded 58% of a peer universe of 159 funds with an
annualized total return of 19.47%, according to Lipper Analytical Services, Inc.
All performance figures assume reinvestment of dividends and exclude the effect
of sales charges.
Large-cap stocks dominated in 1997. In fact, the largest 50 companies in
the S&P 500 Index accounted for a disproportionate amount of the Index's return.
We do not believe this trend is sustainable. Over the past 12 months the Fund
has focused on the small- and mid-cap arenas, which we believe offer more
opportunities for thematic investing, higher earnings growth rates and more
attractive valuations compared to large-cap stocks.
The Fund's performance was generated by both new and existing themes.
Internet Commerce Ignition, a new theme, represents companies benefiting from
the explosive growth of the number of people and businesses utilizing the
Internet for retailing, advertising and business-to-business commerce. Our
emphasis on the theme Deregulating Financial Services continued to serve us
well. Convergence among banks, insurance companies and brokerages will drive
above-average earnings growth and industry consolidation. 21st Century Medicine
continues to be an attractive theme due to remarkable advances in gene-mapping,
biotechnology and non-invasive surgical techniques that are changing the way
medicine is practiced and enhancing the quality of life.
Hindering the Fund's performance was an overweighting in energy service
stocks and select technology stocks.
OUTLOOK
We believe our key investment themes focusing on domestic companies with
strong revenue and earnings growth will serve us well in an environment
characterized by worries of the Asian contagion. Driving investment themes
coupled with our defensive use of cash should help in what we believe to be a
trading environment in 1998. As of December 31, the Fund's asset allocation mix
was 87.2% equities and 12.8% cash equivalents.
[TABULAR REPRESENTATION OF PIE CHART]
Internet Commerce Ignition 7.5%
Software Solutions 8.0%
Next Destination Data 8.3%
Special Situations 0.4%
Move to Outsourcing 2.5%
Retail Revival 2.9%
Next Generation Semiconductors 3.0%
Genomic Revolution 3.2%
Logic of Logistics 3.7%
Power Plays 4.1%
Short-Terms & Equivalents 12.8%
Blue Skies 10.2%
Deregulating Financial Services 13.8%
21st Century Medicine 13.9%
Energy Technology 5.7%
69
<PAGE>
STRATEGIC THEME SERIES
[TABULAR REPRESENTATION OF LINE CHART]
S&P 500 Stock Strategic Theme S&P MidCap 400
Index** Series Index*
1/29/96 $10,000 $10,000 $10,000
12/31/96 12,198 11,033 10,011
12/31/97 16,197 12,927 15,818
Average Annual Total Returns for Period Ending 12/31/97
From
Inception
1/29/96 to
1 Year 12/31/97
---------------------------------------------------------------------------
Strategic Theme Series 17.16% 14.28%
---------------------------------------------------------------------------
S&P MidCap 400 Index* 32.27% 26.93%
---------------------------------------------------------------------------
S&P 500 Stock Index** 33.38% 28.50%
---------------------------------------------------------------------------
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. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
* The S&P MidCap 400 is an unmanaged index composed of companies with market
capitalizations between $300 million and $5 billion.
** The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
SCHEDULE OF INVESTMENTS
December 31, 1997
SHARES VALUE
--------- -------
COMMON STOCKS--86.0%
Banks--Midwest--2.5%
U.S. Bancorp .............................. 10,500 $1,175,344
----------
Banks--Southeast--1.1%
Union Planters Corp. ...................... 8,000 543,500
----------
Banks--Super Regional--0.9%
Wachovia Corp. ............................ 5,500 446,188
----------
Commercial--Leasing Companies--2.1%
Avis Rent A Car, Inc. (b) ................. 25,000 798,437
Budget Group, Inc. (b) .................... 5,800 200,463
----------
998,900
----------
Computer--Services--7.8%
America Online, Inc. (b) .................. 10,500 936,469
Ciber, Inc. (b) ........................... 12,500 725,000
Excite, Inc. (b) .......................... 30,500 915,000
Shared Medical Systems Corp. .............. 7,000 462,000
Yahoo!, Inc. (b) .......................... 10,000 692,500
----------
3,730,969
----------
Computer--Software--10.2%
Citrix Systems, Inc. (b) .................. 7,000 532,000
Compuware Corp. (b) ....................... 23,000 736,000
Intuit, Inc. (b) .......................... 25,000 1,031,250
Keane, Inc. (b) ........................... 12,000 487,500
PeopleSoft, Inc. (b) ...................... 33,500 1,306,500
Platinum Technology, Inc. (b) ............. 27,000 762,750
----------
4,856,000
----------
Electric--Semiconductor Equipment--0.9%
Novellus Systems, Inc. (b) ................ 14,000 452,375
----------
Electric--Semiconductor Manufacturing--1.0%
Micron Technology, Inc. (b) ............... 18,000 468,000
----------
SHARES VALUE
----------------- ------------
Finance--Mortgage and Related Services--1.0%
FNMA ...................................... 8,500 $ 485,031
----------
Finance--Savings & Loan--2.0%
Ahmanson (H.F.) & Co. ..................... 7,500 502,031
Ocwen Financial Corp. (b) ................. 17,000 432,437
----------
934,468
----------
Insurance--Diversified--1.9%
Transamerica Corp. ........................ 4,000 426,000
Travelers Group, Inc. ..................... 8,500 457,937
----------
883,937
----------
Insurance--Life--1.5%
Lincoln National Corp. .................... 6,300 492,187
Protective Life Corp. ..................... 4,000 239,000
----------
731,187
----------
Insurance--Property/Casualty/Title--2.9%
Allstate Corp. ............................ 8,200 745,175
General Re Corp. .......................... 3,000 636,000
----------
1,381,175
----------
Medical--Biomed/Genetics--3.2%
Biogen, Inc. (b) .......................... 13,000 472,875
Incyte Pharmaceuticals, Inc. (b) .......... 14,000 630,000
Transkaryotis Therapies, Inc. (b) ......... 11,600 407,450
----------
1,510,325
----------
Medical--Ethical Drugs--4.2%
Lilly (Eli) & Co. ......................... 15,000 1,044,375
Pfizer, Inc. .............................. 13,000 969,312
----------
2,013,687
----------
Medical--Instruments--3.3%
Medtronic, Inc. ........................... 18,000 941,625
Sofamor Danek Group, Inc. (b) ............. 10,000 650,625
----------
1,592,250
----------
Medical--Products--4.0%
Guidant Corp. ............................. 16,000 996,000
Sepracor, Inc. (b) ........................ 23,000 921,437
----------
1,917,437
----------
See Notes to Financial Statements
70
<PAGE>
STRATEGIC THEME SERIES
SHARES VALUE
----------- -------------
Medical/Dental--Supplies--2.3%
Safeskin Corp. (b) .......................... 19,500 $ 1,106,625
-----------
Oil & Gas--Drilling--1.8%
Diamond Offshore Drilling, Inc. ............. 10,000 481,250
Noble Drilling Corp. (b) .................... 12,000 367,500
-----------
848,750
-----------
Oil & Gas--Field Services--2.8%
Halliburton Co. ............................. 9,000 467,437
Schlumberger Ltd. ........................... 10,500 845,250
-----------
1,312,687
-----------
Oil & Gas--U.S. Exploration & Production--1.0%
Cross Timbers Oil Co. ....................... 6,100 152,119
Houston Exploration Co. (The) (b) ........... 17,000 312,375
-----------
464,494
-----------
Real Estate Operations--0.4%
Tower Realty Trust, Inc. .................... 7,700 189,613
-----------
Retail--Discount & Variety--0.5%
Consolidated Stores Corp. (b) ............... 5,000 219,688
-----------
Retail--Home Furnishings--1.0%
Ethan Allen Interiors, Inc. ................. 12,000 462,750
-----------
Retail--Major Discount Chains--0.5%
Costco Companies, Inc. (b) .................. 5,500 245,438
-----------
Retail/Wholesale--Building Products--1.0%
Home Depot, Inc. ............................ 8,000 471,000
-----------
Telecommunications--Equipment--1.5%
Ciena Corp. (b) ............................. 11,500 702,938
-----------
Telecommunications--Services--5.9%
AT&T Corp. .................................. 28,000 1,715,000
ITC DeltaCom, Inc. (b) ...................... 6,000 99,000
Teleport Communications Group, Inc.
Class A (b) ............................... 18,000 987,750
-----------
2,801,750
-----------
Transportation--Airline--10.3%
AMR Corp. (b) ............................... 8,000 1,028,000
Alaska Air Group, Inc. (b) .................. 12,500 484,375
Comair Holdings, Inc. ....................... 18,000 434,250
Delta Air Lines, Inc. ....................... 8,000 952,000
Southwest Airlines Co. ...................... 28,500 701,812
U.S. Airways Group, Inc. (b) ................ 20,500 1,281,250
-----------
4,881,687
-----------
Transportation--Services--1.5%
C.H. Robinson Worldwide, Inc. ............... 33,000 738,375
-----------
Utility--Electric Power--4.1%
Boston Edison Co. ........................... 6,000 227,250
Consolidated Edison Company of New York,
Inc. ...................................... 12,000 492,000
IPALCO Enterprises, Inc. .................... 6,000 251,625
Minnesota Power & Light Co. ................. 5,500 239,594
New York State Electric & Gas Corp. ......... 14,000 497,000
PG&E Corp. .................................. 8,000 243,500
-----------
1,950,969
-----------
SHARES VALUE
----------- -------------
Utility--Telephone--0.9%
Ameritech Corp. ............................. 5,500 $ 442,750
-----------
TOTAL COMMON STOCKS
(Identified cost $38,081,291) ............................... 40,960,287
-----------
FOREIGN COMMON STOCKS--1.2%
Electric--Semiconductor Equipment--1.0%
ASM Lithography Holding NV
(Netherlands) (b) ......................... 7,500 506,250
-----------
Oil & Gas--Drilling--0.2%
Precision Drilling Corp. (Canada) (b) ....... 3,500 85,313
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $575,255) .............................. 591,563
-----------
TOTAL LONG-TERM INVESTMENTS--87.2%
(Identified cost $38,656,546) ............................... 41,551,850
-----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- ---------
SHORT-TERM OBLIGATIONS--22.8%
Commercial Paper--20.5%
Koch Industries, Inc. 6.70%,
1/2/98 ........................... A-1+ $1,295 1,294,759
Sara Lee Corp. 6.05%, 1/7/98 ....... A-1+ 1,000 998,992
Greenwich Funding Corp.
5.91%, 1/9/98 .................... A-1+ 345 344,547
Receivables Capital Corp.
5.90%, 1/9/98 .................... A-1+ 835 833,905
Exxon Imperial U.S., Inc. 5.82%,
1/13/98 .......................... A-1+ 1,015 1,013,031
Corporate Receivables Corp.
6.08%, 1/14/98 ................... A-1 360 359,210
Receivables Capital Corp.
6.25%, 1/16/98 ................... A-1+ 1,000 997,396
Coca-Cola Co. 5.75%, 1/21/98 ....... A-1+ 1,110 1,106,454
Corporate Asset Funding Co.,
Inc. 6%, 1/21/98 ................. A-1+ 1,290 1,285,700
CXC, Inc. 6.03%, 1/27/98 ........... A-1+ 1,540 1,533,293
---------
9,767,287
---------
Federal Agency Securities--2.3%
FHLMC 5.75%, 1/22/98 ............... 84 83,718
FHLMC 5.63%, 2/18/98 ............... 1,000 992,493
---------
1,076,211
---------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $10,843,498) ............................. 10,843,498
----------
TOTAL INVESTMENTS--110.0%
(Identified cost $49,500,044) ............................. 52,395,348(a)
Cash and receivables, less liabilities--(10.0%) ........... (4,775,837)
----------
NET ASSETS--100.0% .......................................... $47,619,511
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $3,236,891 and gross
depreciation of $665,645 for income tax purposes. At December 31, 1997, the
aggregate cost of securities for federal income tax purposes was
$49,824,102.
(b) Non-income producing.
See Notes to Financial Statements
71
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $49,500,044) ..................... $ 52,395,348
Cash ............................................................................. 696
Receivables
Interest and dividends .......................................................... 21,865
Fund shares sold ................................................................ 4,640
------------
Total assets ................................................................... 52,422,549
------------
Liabilities
Payables
Investment securities purchased ................................................. 4,722,034
Investment advisory fee ......................................................... 3,340
Trustees' fee ................................................................... 3,086
Financial agent fee ............................................................. 2,343
Accrued expenses ................................................................ 72,235
------------
Total liabilities .............................................................. 4,803,038
------------
Net Assets ....................................................................... $ 47,619,511
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................ $ 46,329,596
Accumulated net realized loss ................................................... (1,605,389)
Net unrealized appreciation ..................................................... 2,895,304
------------
Net Assets ....................................................................... $ 47,619,511
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization . 4,208,172
============
Net asset value and offering price per share ..................................... $ 11.32
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Interest ................................................................ $ 372,110
Dividends ............................................................... 174,274
----------
Total investment income ................................................ 546,384
----------
Expenses
Investment advisory fee ................................................. 289,018
Financial agent fee ..................................................... 23,121
Printing ................................................................ 49,183
Custodian ............................................................... 25,202
Professional ............................................................ 25,070
Trustees ................................................................ 20,039
Miscellaneous ........................................................... 7,287
----------
Total expenses ......................................................... 438,920
Less expense borne by investment adviser ............................... (53,563)
----------
Net expenses ........................................................... 385,357
----------
Net investment income .................................................... 161,027
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ......................................... 4,405,157
Net realized loss on written options .................................... (111,241)
Net change in unrealized appreciation (depreciation) on investments ..... 1,374,168
----------
Net gain on investments .................................................. 5,668,084
----------
Net increase in net assets resulting from operations ..................... $5,829,111
==========
</TABLE>
See Notes to Financial Statements
72
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
Year Ended January 29, 1996
December 31, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
From Operations
Net investment income .......................................................... $ 161,027 $ 94,091
Net realized gain (loss) ....................................................... 4,293,916 (438,134)
Net change in unrealized appreciation (depreciation) ........................... 1,374,168 1,521,136
------------- -------------
Net increase in net assets resulting from operations ........................... 5,829,111 1,177,093
------------- -------------
From Distributions to Shareholders
Net investment income .......................................................... (161,027) (94,091)
Net realized gains ............................................................. (4,293,916) --
In excess of net realized gains ................................................ (1,167,255) --
Tax return of capital .......................................................... (23,025) (21,960)
------------- -------------
Decrease in net assets from distributions to shareholders ...................... (5,645,223) (116,051)
------------- -------------
From Share Transactions
Proceeds from sales of shares (2,325,529 and 3,425,481 shares, respectively) ... 27,902,960 36,431,726
Net asset value of shares issued from reinvestment of distributions (504,343 and
10,456 shares, respectively) .................................................. 5,645,223 116,051
Cost of shares repurchased (987,193 and 1,070,444 shares, respectively) ........ (12,084,569) (11,636,810)
------------- -------------
Increase in net assets from share transactions ................................. 21,463,614 24,910,967
------------- -------------
Net increase in net assets ..................................................... 21,647,502 25,972,009
Net Assets
Beginning of period ............................................................ 25,972,009 0
------------- -------------
End of period (including undistributed net investment income of $0 and $0,
respectively) ................................................................. $ 47,619,511 $ 25,972,009
============= =============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Year From Inception
Ended 1/29/96 to
12/31/97 12/31/96
---------------- ---------------
<S> <C> <C>
Net asset value, beginning of period .......... $10.98 $10.00
Income from investment operations
Net investment income ........................ 0.05(2) 0.04(2)
Net realized and unrealized gain ............. 1.82 0.99
------- -------
Total from investment operations ............ 1.87 1.03
------- -------
Less distributions
Dividends from net investment income ......... (0.05) (0.04)
Dividends from net realized gains ............ (1.16) --
In excess of net realized gains .............. (0.31) --
Tax return of capital ........................ (0.01) (0.01)
------- -------
Total distributions ......................... (1.53) (0.05)
------- -------
Change in net asset value ..................... 0.34 0.98
------- -------
Net asset value, end of period ................ $11.32 $10.98
======= =======
Total return .................................. 17.16% 10.33%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $47,620 $25,972
Ratio to average net assets of:
Operating expenses ........................... 1.00% 1.00%(1)
Net investment income ........................ 0.42% 0.64%(1)
Portfolio turnover rate ....................... 642% 391%(3)
Average commission rate paid(4) ............... $0.0579 $0.0587
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.02
and $0.02 per share, respectively.
(3) Not annualized.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
See Notes to Financial Statements
73
<PAGE>
ABERDEEN NEW ASIA SERIES
INVESTOR PROFILE
Aberdeen New Asia Series is designed for aggressive, long-term investors
who seek maximum growth potential and greater diversification. Investors should
note that foreign investments pose added risks, such as currency fluctuation,
less public information and political and economic uncertainty. There are also
additional risks inherent in investing in a single sector.
INVESTMENT REVIEW
For the 12 months ended December 31, 1997, Phoenix New Asia Series was down
32.39%, while the MSCI AC Asia Pacific ex Japan Index declined 32.64%. All
performance figures assume reinvestment of dividends and exclude the effect of
sales charges.
The Fund suffered from recent events in Southeast Asia as signs of cracks
in the Asian economic miracle began to emerge in late October. Thailand's
problems have been part political and part economic. Poor lending practices have
continued unchecked with funds channeled into non-productive assets, such as
property. As the economy has slowed, the corporate sector has been left with a
large debt, and many of the finance houses are technically bankrupt. Although
the economy will slow dramatically and corporate earnings will plummet, as
investors our emphasis must be on the quality of business, management and
financials.
Thailand's crisis has had a ripple effect throughout Southeast Asia,
causing a fallout in stock markets and currencies in Indonesia, Korea, Malaysia
and the Philippines. The question now is whether "Asia's financial crisis" is
deeper than first believed. Our view is that it remains country specific. The
currency shocks throughout Southeast Asia have shown governments that access to
international capital markets cannot be on their own terms. We have also been
wary of the region's obsession with mega projects and the belief that property
values can only rise in value.
There are signs of a slowing Chinese economy, and inflation has turned to
disinflation in recent months, pointing to problematic domestic demand. Hong
Kong has not escaped the decelerating forces in the other regional economies.
Although the government has successfully managed to maintain the Hong Kong
dollar peg, we expect it to disappear some time soon as the economic cost is too
great. It has already caused a 20% correction in property prices and held back
corporate earnings.
The economies of Australia and New Zealand boast a generally strong
corporate and public sector. Our investments in these areas have performed well
during this reporting period. Our holdings are concentrated in the industrial,
commercial and financial sectors, not the resources sector.
OUTLOOK
We believe that the turnaround in stock markets and in economies can be
rapid simply because the affected countries do not have the strength to resist.
Southeast Asia's economy may begin to improve in 18 months or more, but sooner
in terms of the stock markets. Asia will stop short of a market meltdown. Once
currencies find a level, prices settle and interest rates fall, liquidity will
improve. With currencies nearer their true value, the "tigers" have an
opportunity to compete once again.
Looking forward, the key is to be selective and identify those companies
that are well-managed, have good products and manage their finances sensibly. As
the cycle turns in Asia's favor, these companies will emerge even stronger.
[TABULAR REPRESENTATION OF LINE CHART]
MSCI AC Asia Pacific Aberdeen New Asia
Ex Japan Index* Series
9/17/96 $10,000 $10,000
12/31/96 10,385 10,016
12/31/97 6,995 6,772
Average Annual Total Returns for Periods Ending 12/31/97
From
Inception
9/17/96 to
1 Year 12/31/97
---------------------------------------------------------------------------
Aberdeen New Asia Series -32.39% -26.12%
---------------------------------------------------------------------------
MSCI AC Asia Pacific Ex Japan Index* -32.64% -24.24%
---------------------------------------------------------------------------
This chart assumes an initial gross investment of $10,000 made on 9/17/96
(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.
*Morgan Stanley Capital International All Country Asia Pacific (excluding Japan)
Index is a market-value weighted average of the performance of 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.
74
<PAGE>
ABERDEEN NEW ASIA SERIES
SCHEDULE OF INVESTMENTS
December 31, 1997
SHARES VALUE
----------- -------------
COMMON STOCKS--87.0%
Australia--18.2%
Australian Gas Light Co. Ltd. (Utility-Gas) ........ 50,000 $ 348,602
BRL Hardy Ltd. (Beverages) ......................... 157,500 484,702
Commonwealth Bank of Australia (Banks) ............. 25,000 286,701
Pacifica Group Ltd. (Miscellaneous) ................ 60,000 198,840
QBE Insurance Group Ltd. (Insurance) ............... 112,500 506,312
-----------
1,825,157
-----------
Hong Kong--20.6%
CDL Hotels International Ltd. (Hotels) ............. 700,000 212,307
Giordano International Ltd. (Retail) ............... 400,000 138,097
Hongkong Electric Holdings Ltd.
(Utility-Electric) ............................... 110,000 418,097
Manhattan Card Co. Ltd. (Consumer Finance) 700,000 246,186
National Mutual Asia Ltd. (Insurance) .............. 450,000 447,201
Smartone Telecommunications (Utility-
Telephone) ....................................... 100,000 192,948
Swire Pacific Ltd. Class B (Miscellaneous) ......... 400,000 405,255
-----------
2,060,091
-----------
India--8.3%
Grasim Industries Ltd. Sponsored GDR 144A
(Basic Materials) (c) ............................ 22,600 246,340
Industrial Credit & Investment Corporation of
India Ltd Sponsored GDR (Diversified
Financial Services) .............................. 45,000 585,000
-----------
831,340
-----------
Indonesia--3.9%
PT Bank Bali (Banks) ............................... 370,000 45,452
PT Duta Anggada Realty TBK (Property) .............. 200,000 7,279
PT Indosat TBK (Utility-Telephone) ................. 180,000 334,132
-----------
386,863
-----------
Malaysia--4.0%
AMMB Holdings Berhad (Diversified Financial
Services) ........................................ 50,000 32,757
Malaysian Oxygen Berhad (Chemical) ................. 80,000 178,815
Muhibbah Engineering (M) Berhad (Engineering
& Construction) .................................. 85,000 54,595
Rashid Hussain Berhad (Diversified Financial
Services) ........................................ 50,000 38,794
Sime UEP Properties Berhad (Property) .............. 180,000 96,190
-----------
401,151
-----------
New Zealand--2.4%
Telecom Corporation of New Zealand Ltd.
(Utility-Telephone) .............................. 50,000 242,437
-----------
Philippines--7.7%
Ayala Land, Inc. Class B (Engineering &
Construction) .................................... 575,000 230,583
Bank of the Philippine Islands (Banks) ............. 20,000 44,613
La Tondena Distillers, Inc. (Beverages) ............ 175,000 81,143
Manila Electric Co. (Electric Companies) ........... 9,000 30,226
Philippine Long Distance Telephone Co.
Sponsored ADR (Utility-Telephone) ................ 17,000 382,500
-----------
769,065
-----------
Singapore--9.0%
Clipsal Industries Ltd. (Electrical Equipment) ..... 100,000 128,000
Robinson & Co. Ltd. (Retail) ....................... 108,000 384,593
Rothmans Industries Ltd. (Tobacco) ................. 75,000 391,715
-----------
904,308
-----------
SHARES VALUE
----------- -------------
South Korea--0.9%
Samsung Electronics Sponsored GDR 144A
Non-Voting Shares (Electronics) (c) .............. 15,000 $ 93,750
-----------
Sri Lanka--1.4%
National Development Bank Ltd. (Banks) (b) ......... 36,500 135,808
-----------
Taiwan--4.0%
Standard Foods Taiwan Ltd. GDR Reg S
(Retail-Food) (b) ................................ 35,000 402,500
-----------
Thailand--3.5%
Bangkok Bank Public Co. Ltd. (Banks) ............... 40,000 99,692
Ruam Pattana Fund II (Closed End Mutual Fund)....... 1,250,000 127,211
Siam Commercial Bank Public Co. Ltd. (Banks) ....... 106,666 121,844
-----------
348,747
-----------
United Kingdom--3.1%
HSBC Holdings PLC (Banks) .......................... 12,000 310,219
-----------
TOTAL COMMON STOCKS
(Identified cost $13,074,969) ................................ 8,711,436.
-----------
WARRANTS--0.0%
Malaysia--0.0%
AMMB Holdings Berhad Warrants (Diversified
Financial Services) (b) .......................... 6,000 462
-----------
Thailand--0.0%
Siam Commercial Bank Public Co. Ltd.
Warrants (Banks) ................................. 26,666 0
-----------
TOTAL WARRANTS
(Identified cost $0)........................................... 462
-----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- -----------
CONVERTIBLE BONDS--0.0%
Malaysia--0.0%
AMMB Holdings Berhad (ICULS)
Cv. 7.50%, 5/8/02 (Diversified
Financial Services) ........................ NR 60(d) 4,008
-----
TOTAL CONVERTIBLE BONDS
(Identified cost $24,024).................................. 4,008
-----
NON-CONVERTIBLE BONDS--0.1%
Malaysia--0.1%
AMMB Holdings Berhad 5%, 5/13/02
(Diversified Financial Services) ........... NR 60(d) 7,091
-----
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $24,024).................................. 7,091
-----
TOTAL LONG-TERM INVESTMENTS--87.1%
(Identified cost $13,123,017).............................. 8,722,997
---------
SHORT-TERM OBLIGATIONS--10.0%
Aubrey G. Lanston & Co., Inc. repurchase
agreement, 5.75%, dated 12/31/97 due
1/2/98, repurchase price $1,000,319,
collateralized by U.S. Treasury Note
6.25%, 6/30/98, market value $1,021,132 $1,000 1,000,000
---------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,000,000)............................... 1,000,000
---------
TOTAL INVESTMENTS--97.1%
(Identified cost $14,123,017).............................. 9,722,997(a)
Cash and receivables, less liabilities--2.9% .............. 293,705
-----------
NET ASSETS--100.0% .......................................... $10,016,702
===========
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $398,772 and gross
depreciation of $4,949,287 for income tax purposes. At December 31, 1997 the
aggregate cost of securities for federal income tax purposes was
$14,273,512.
(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,
1997, these securities amounted to a value of $340,090 or 3.4% of net
assets.
(d) Par value represents Malaysian Ringgits.
See Notes to Financial Statements
75
<PAGE>
ABERDEEN NEW ASIA SERIES
INDUSTRY DIVERSIFICATION
As a Percentage of Total Value of Total Long-Term Investments
(Unaudited)
Banks .................................. 12.0%
Basic Materials ........................ 2.8
Beverages .............................. 6.5
Chemical ............................... 2.0
Closed End Mutual Fund ................. 1.5
Consumer Finance ....................... 2.8
Diversified Financial Services ......... 7.7
Electric Companies ..................... 0.3
Electrical Equipment ................... 1.5
Electronics ............................ 1.1
Engineering & Construction ............. 3.3
Hotels ................................. 2.4
Insurance .............................. 10.9
Miscellaneous .......................... 6.9
Property ............................... 1.2
Retail ................................. 6.0
Retail-Food ............................ 4.6
Tobacco ................................ 4.5
Utility-Electric ....................... 4.8
Utility-Gas ............................ 4.0
Utility-Telephone ...................... 13.2
-----
100.0%
=====
See Notes to Financial Statements
76
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $14,123,017) ..................... $ 9,722,997
Foreign currency at value (Identified cost $7,445)................................ 7,445
Cash ............................................................................. 57,058
Receivables
Investment securities sold ...................................................... 278,311
Dividends and interest .......................................................... 17,972
Fund shares sold ................................................................ 425
Tax reclaim ..................................................................... 150
-----------
Total assets ................................................................... 10,084,358
-----------
Liabilities
Payables
Investment advisory fee ......................................................... 4,914
Trustees' fee ................................................................... 4,365
Financial agent fee ............................................................. 1,633
Accrued expenses ................................................................ 56,744
-----------
Total liabilities .............................................................. 67,656
-----------
Net Assets ....................................................................... $10,016,702
===========
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................ $15,094,871
Distributions in excess of net investment income ................................ (159,799)
Accumulated net realized loss ................................................... (513,917)
Net unrealized depreciation ..................................................... (4,404,453)
-----------
Net Assets ....................................................................... $10,016,702
===========
Shares of beneficial interest outstanding, $1 par value, unlimited authorization . 1,555,458
===========
Net asset value and offering price per share ..................................... $6.44
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Dividends .............................................................................. $ 351,842
Interest ............................................................................... 55,368
Foreign taxes withheld ................................................................. (33,831)
-----------
Total investment income ............................................................... 373,379
-----------
Expenses
Investment advisory fee ................................................................ 129,766
Financial agent fee .................................................................... 7,786
Custodian .............................................................................. 59,952
Trustees ............................................................................... 20,505
Professional ........................................................................... 20,486
Printing ............................................................................... 17,972
Miscellaneous .......................................................................... 3,338
-----------
Total expenses ........................................................................ 259,805
Less expenses borne by investment adviser ............................................. (97,597)
-----------
Net expenses .......................................................................... 162,208
-----------
Net investment income ................................................................... 211,171
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized loss on securities ........................................................ (513,917)
Net realized loss on foreign currency transactions ..................................... (12,179)
Net change in unrealized appreciation (depreciation) on investments .................... (4,377,468)
Net change in unrealized appreciation (depreciation) on foreign currency and foreign
currency transactions ------------
(4,383)
Net loss on investments ................................................................. (4,907,947)
-----------
Net decrease in net assets resulting from operations .................................... ($ 4,696,776)
===========
</TABLE>
See Notes to Financial Statements
77
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-------------------
<S> <C>
From Operations
Net investment income ................................................................... $ 211,171
Net realized gain (loss) ................................................................ (526,096)
Net change in unrealized appreciation (depreciation) .................................... (4,381,851)
------------
Net increase (decrease) in net assets resulting from operations ......................... (4,696,776)
------------
From Distributions to Shareholders
Net investment income ................................................................... (211,171)
Net realized gains ...................................................................... (6,760)
In excess of net investment income ...................................................... (143,676)
Tax return of capital ................................................................... (76,927)
------------
Decrease in net assets from distributions to shareholders ............................... (438,534)
------------
From Share Transactions
Proceeds from sales of shares (1,188,914 and 1,343,657 shares, respectively) ............ 10,623,009
Net asset value of shares issued from reinvestment of distributions (66,703 and 5,928
shares, respectively) .................................................................. 438,534
Cost of shares repurchased (862,809 and 186,935 shares, respectively) ................... (7,494,737)
------------
Increase in net assets from share transactions .......................................... 3,566,806
------------
Net increase (decrease) in net assets ................................................... (1,568,504)
Net Assets
Beginning of period ..................................................................... 11,585,206
------------
End of period (including distributions in excess of net investment income of
($159,799) and ($3,944), respectively) ................................................. $ 10,016,702
============
</TABLE>
<TABLE>
<CAPTION>
From Inception
September 17, 1996 to
December 31, 1996
----------------------
<S> <C>
From Operations
Net investment income ................................................................... $ 58,378
Net realized gain (loss) ................................................................ 3,328
Net change in unrealized appreciation (depreciation) .................................... (22,602)
------------
Net increase (decrease) in net assets resulting from operations ......................... 39,104
------------
From Distributions to Shareholders
Net investment income ................................................................... (58,378)
Net realized gains ...................................................................... --
In excess of net investment income ...................................................... (512)
Tax return of capital ................................................................... --
------------
Decrease in net assets from distributions to shareholders ............................... (58,890)
------------
From Share Transactions
Proceeds from sales of shares (1,188,914 and 1,343,657 shares, respectively) ............ 13,400,256
Net asset value of shares issued from reinvestment of distributions (66,703 and 5,928
shares, respectively) .................................................................. 58,890
Cost of shares repurchased (862,809 and 186,935 shares, respectively) ................... (1,854,154)
------------
Increase in net assets from share transactions .......................................... 11,604,992
------------
Net increase (decrease) in net assets ................................................... 11,585,206
Net Assets
Beginning of period ..................................................................... 0
------------
End of period (including distributions in excess of net investment income of
($159,799) and ($3,944), respectively) ................................................. $ 11,585,206
============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
Year Ended 9/17/96 to
12/31/97 12/31/96
--------------- ---------------
<S> <C> <C>
Net asset value, beginning of period .......... $9.96 $10.00
Income from investment operations
Net investment income ........................ 0.15(1) 0.05(1)
Net realized and unrealized gain (loss) ...... (3.36) (0.04)
------- --------
Total from investment operations ............ (3.21) 0.01
------- --------
Less distributions
Dividends from net investment income ......... (0.15) (0.05)
Dividends from net realized gains ............ (0.01) --
In excess of net investment income ........... (0.10) --
Tax return of capital ........................ (0.05) --
------- --------
Total distributions ......................... (0.31) (0.05)
------- --------
Change in net asset value ..................... (3.52) (0.04)
------- --------
Net asset value, end of period ................ $6.44 $9.96
======= ========
Total return .................................. (32.39)% 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $10,017 $11,585
Ratio to average net assets of:
Operating expenses ........................... 1.25% 1.25%(2)
Net investment income ........................ 1.63% 2.40%(2)
Portfolio turnover rate ....................... 27% 2%(3)
Average commission rate paid(4) ............... $0.0109 $0.0109
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.07
and $0.03 per share, respectively.
(2) Annualized. (3) Not annualized.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for securities trades on
which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
See Notes to Financial Statements
78
<PAGE>
ENHANCED INDEX SERIES
INVESTMENT REVIEW
Since its inception in July 1997, the Fund has returned 5.83% compared with
5.67% for the S&P 500 Index. All performance figures assume reinvestment of
dividends and are net of fees.
The Fund underperformed its benchmark in the fourth quarter, 2.61% versus
2.84% as the market returned to the large-cap domination. Because of the Fund's
sector and style neutral construction, the weakness can be attributed entirely
to stock selection, particularly in the telephone and retail sectors. While our
strategy constrains each stock's relative weight in the portfolio, limiting the
impact of each purchase decision, a few holdings were worth noting.
In the telephone sector, an overweighted position in Worldcom and
underweighted position in AT&T held back performance. Worldcom shares suffered
from the second round of bidding for MCI, although strategically this company is
the best-positioned and has the best managerial track record for achieving
merger synergies. We believe they will be the best performing telephone stock in
1998 as they capture proportionately more revenue in Internet, local and long
distance. AT&T, a laggard in the first half of 1997, has rallied on the
cost-cutting reputation of its new CEO, Michael Armstrong, and the prospects of
a merger as industry consolidation continues.
In the retail sector, overweighted positions in Sears and Toys "R" Us
contributed to the performance shortfall. Sears fell sharply in October when the
company warned that fourth-quarter results might be disappointing as more
customers fell behind in credit card payments. Weakness in Toys "R" Us stemmed
from overblown rumors over a poor Christmas shopping season. However, strong
sales in the final week of the year helped the company meet earnings
expectations.
Good stock selection in the drug sector was a positive contributor to
results. The single most successful decision was to underweight Merck & Co. That
allowed us to overweight Schering-Plough and Warner-Lambert, which both had
excellent results. Schering-Plough had been a neglected stock with solid
management and an enormously successful allergy drug, Claritin. Warner-Lambert
had two of the most successful drug launches ever this year, with Lipitor (a
cholesterol drug) and Rezulin (a diabetes drug), far exceeding analysts' sales
estimates. The stock gave back some of its gains in December but remains
attractive. Stock selection in the financial services and consumer staple
sectors also contributed positively to the portfolio, in particular holdings in
Green Tree Acceptance and Archer-Daniels-Midland.
OUTLOOK
We expect moderately lower growth and higher inflation next year. Gross
domestic product should grow at a more trend-like rate of 2.7% in 1998, down
from approximately 3.7% in 1997. We believe inflation will tick up to 2.25% from
1.8% last year as wage pressures begin to be felt during this latter stage of
prolonged economic expansion. Accordingly, we expect after-tax corporate
operating profit growth to fall from 12% this year to 7% next year.
Going forward, we will continue to invest in attractively valued stocks
where we have a high degree of confidence in our forecasts, where we can
identify events that can cause value to be realized and where a compelling
risk/reward tradeoff can be offered.
Total Returns for Period Ending 12/31/97
From
Inception
7/15/97 to
12/31/97
--------------------------------------------------
Enhanced Index Series 5.83%
--------------------------------------------------
S&P 500 Stock Index* 5.67%
--------------------------------------------------
* The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
total return performance.
79
<PAGE>
ENHANCED INDEX SERIES
SCHEDULE OF INVESTMENTS
December 31, 1997
SHARES VALUE
---------- -------
COMMON STOCKS--92.4%
Aerospace/Defense--1.2%
Boeing Co. ............................. 6,600 $ 322,987
General Motors Corp. Class H ........... 1,300 48,019
Sundstrand Corp. ....................... 100 5,037
----------
376,043
----------
Airlines--0.2%
AMR Corp. (b) .......................... 400 51,400
Southwest Airlines Co. ................. 900 22,162
----------
73,562
----------
Aluminum--0.4%
Aluminum Company of America ............ 1,100 77,412
Reynolds Metals Co. .................... 500 30,000
----------
107,412
----------
Auto Parts & Equipment--0.8%
Cooper Tire & Rubber Co. ............... 700 17,063
Dana Corp. ............................. 300 14,250
Echlin, Inc. ........................... 600 21,713
Genuine Parts Co. ...................... 1,600 54,300
Goodyear Tire & Rubber Co. ............. 1,500 95,437
ITT Industries, Inc. ................... 1,100 34,512
Lear Corp. (b) ......................... 400 19,000
----------
256,275
----------
Automobiles--1.2%
Chrysler Corp. ......................... 5,800 204,088
Ford Motor Co. ......................... 2,600 126,587
General Motors Corp. ................... 500 30,312
----------
360,987
----------
Banks (Major Regional)--5.0%
Associated Banc-Corp ................... 200 11,025
Banc One Corp. ......................... 2,200 119,488
BankBoston Corp. ....................... 600 56,363
Barnett Banks, Inc. .................... 1,100 79,063
Charter One Financial, Inc. ............ 300 18,938
City National Corp. .................... 200 7,387
Colonial BancGroup, Inc. ............... 200 6,887
Comerica, Inc. ......................... 300 27,075
Compass Bankshares, Inc. ............... 300 13,125
Crestar Financial Corp. ................ 500 28,500
Deposit Guaranty Corp. ................. 200 11,375
Dime Bancorp, Inc. ..................... 500 15,125
First American Corp. ................... 100 4,975
First Commerce Corp. ................... 500 33,625
First of America Bank Corp. ............ 1,100 84,837
First Union Corp. ...................... 4,100 210,125
Firstar Corp. .......................... 500 21,219
Fleet Financial Group, Inc. ............ 1,200 89,925
Hibernia Corp. Class A ................. 600 11,287
KeyCorp ................................ 800 56,650
Mercantile Bancorporation, Inc. ........ 600 36,900
NationsBank Corp. ...................... 2,800 170,275
Northern Trust Corp. ................... 100 6,975
Provident Financial Group, Inc. ........ 200 9,700
Republic New York Corp. ................ 200 22,837
Southtrust Corp. ....................... 400 25,375
Sovereign Bancorp, Inc. ................ 400 8,300
Star Banc Corp. ........................ 400 22,950
SunTrust Banks, Inc. ................... 100 7,137
U.S. Bancorp ........................... 700 78,356
Union Planters Corp. ................... 200 13,587
SHARES VALUE
--------- ---------
Banks (Major Regional)--continued
Valley National Bancorp ........................... 200 $ 7,863
Washington Federal, Inc. .......................... 200 6,288
Washington Mutual, Inc. ........................... 1,100 70,194
Wells Fargo & Co. ................................. 400 135,775
Westamerica Bancorporation ........................ 100 10,225
----------
1,539,731
----------
Banks (Money Center)--2.7%
BankAmerica Corp. ................................. 3,000 219,000
Bankers Trust New York Corp. ...................... 400 44,975
Chase Manhattan Corp. ............................. 1,800 197,100
Citicorp .......................................... 2,000 252,875
First Chicago NBD Corp. ........................... 1,300 108,550
----------
822,500
----------
Beverages (Alcoholic)--0.4%
Anheuser-Busch Companies, Inc. .................... 2,500 110,000
----------
Beverages (Non-Alcoholic)--2.7%
Coca-Cola Co. ..................................... 8,500 566,313
PepsiCo, Inc. ..................................... 7,100 258,706
----------
825,019
----------
Broadcasting (Television, Radio, & Cable)--0.8%
Comcast Corp. Special Class A ..................... 1,400 44,187
Tele-Communications TCI Group A (b) ............... 3,300 92,194
U.S. West Media Group (b) ......................... 4,300 124,163
----------
260,544
----------
Building Materials--0.1%
Owens Corning ..................................... 500 17,062
----------
Chemicals--2.2%
Air Products & Chemicals, Inc. .................... 500 41,125
Dow Chemical Co. .................................. 1,100 111,650
Du Pont (E.I.) de Nemours & Co. ................... 5,300 318,331
Lyondell Petrochemical Co. ........................ 400 10,600
Monsanto Co. ...................................... 2,800 117,600
Praxair, Inc. ..................................... 700 31,500
Rohm & Haas Co. ................................... 300 28,725
Union Carbide Corp. ............................... 600 25,763
----------
685,294
----------
Chemicals (Diversified)--0.1%
PPG Industries, Inc. .............................. 700 39,987
----------
Chemicals (Specialty)--0.2%
Albemarle Corp. ................................... 200 4,775
Crompton & Knowles Corp. .......................... 300 7,950
Cytec Industries, Inc. (b) ........................ 200 9,388
International Flavors & Fragrances, Inc. .......... 500 25,750
Solutia, Inc. (b) ................................. 700 18,681
----------
66,544
----------
Commercial Finance--0.1%
Fremont General Corp. ............................. 200 10,950
National Commerce Bancorporation .................. 200 7,050
North Fork Bancorporation, Inc. ................... 300 10,069
Pacific Century Financial Corp. ................... 400 9,900
Wilmington Trust Corp. ............................ 100 6,237
----------
44,206
----------
Communications Equipment--1.5%
360 Communications Co. (b) ........................ 600 12,113
Harris Corp. ...................................... 700 32,113
Lucent Technologies, Inc. ......................... 3,100 247,612
Motorola, Inc. .................................... 3,200 182,600
----------
474,438
----------
See Notes to Financial Statements
80
<PAGE>
ENHANCED INDEX SERIES
SHARES VALUE
------------ -------------
Computers (Hardware)--3.5%
Compaq Computer Corp. (b) ..................... 4,000 $ 225,750
Dell Computer Corp. (b) ....................... 1,700 142,800
Hewlett Packard Co. ........................... 1,500 93,750
International Business Machines Corp. (c) ..... 5,100 533,268
Quantum Corp. (b) ............................. 700 14,044
Sun Microsystems, Inc. (b) .................... 2,000 79,750
----------
1,089,362
----------
Computers (Networking)--1.1%
Bay Networks, Inc. (b) ........................ 1,100 28,119
Cabletron Systems, Inc. (b) ................... 800 12,000
Cisco Systems, Inc. (b) ....................... 5,500 306,625
----------
346,744
----------
Computers (Peripherals)--0.2%
EMC Corp. (b) ................................. 2,700 74,081
----------
Computers (Software & Services)--2.5%
Computer Associates International, Inc. ....... 2,500 132,187
Electronic Data Systems Corp. ................. 1,800 79,088
Microsoft Corp. (b) (c) ....................... 3,400 439,450
Oracle Corp. (b) .............................. 5,300 118,256
Sybase, Inc. (b) .............................. 300 3,994
----------
772,975
----------
Consumer Finance--0.4%
Beneficial Corp. .............................. 200 16,625
Green Tree Financial Corp. .................... 600 15,713
Household International, Inc. ................. 500 63,781
Providian Financial Corp. ..................... 400 18,075
----------
114,194
----------
Containers & Packaging (Paper)--0.1%
Stone Container Corp. ......................... 600 6,262
Temple-Inland, Inc. ........................... 400 20,925
Union Camp Corp. .............................. 200 10,738
----------
37,925
----------
Diversified Financial Services--0.5%
American General Corp. ........................ 1,300 70,281
Capital One Financial Corp. ................... 300 16,256
MBNA Corp. .................................... 2,200 60,088
----------
146,625
----------
Electric Companies--2.6%
Baltimore Gas & Electric Co. .................. 800 27,250
CMS Energy Corp. .............................. 500 22,031
Central & Southwest Corp. ..................... 1,100 29,769
Cinergy Corp. ................................. 800 30,650
DTE Energy Co. ................................ 700 24,281
Dominion Resources, Inc. ...................... 1,000 42,562
Duke Energy Corp. ............................. 1,900 105,212
Edison International .......................... 1,900 51,656
Entergy Corp. ................................. 1,300 38,919
GPU, Inc. ..................................... 600 25,275
Houston Industries, Inc. ...................... 1,500 40,031
Illinova Corp. ................................ 400 10,775
New England Electric System ................... 300 12,825
Nipsco Industries, Inc. ....................... 100 4,944
Northern States Power Co. ..................... 400 23,300
PECO Energy Co. ............................... 1,200 29,100
PP&L Resources, Inc. .......................... 900 21,544
Potomac Electric Power Co. .................... 600 15,488
Public Service Enterprise Group, Inc. ......... 700 22,181
Southern Co. .................................. 3,600 93,150
Teco Energy, Inc. ............................. 700 19,688
Texas Utilities Co. ........................... 1,200 49,875
SHARES VALUE
------------ ----------
Electric Companies--continued
Unicom Corp. .................................. 1,100 $ 33,825
Union Electric Co. ............................ 500 21,625
Wisconsin Energy Corp. ........................ 600 17,250
----------
813,206
----------
Electrical Equipment--3.6%
Coltec Industries, Inc. (b) ................... 400 9,275
Emerson Electric Co. .......................... 2,600 146,738
General Electric Co. .......................... 10,500 770,437
General Signal Corp. .......................... 300 12,656
Honeywell, Inc. ............................... 1,200 82,200
Rockwell International Corp. .................. 1,800 94,050
----------
1,115,356
----------
Electronics (Component Distributors)--0.1%
Grainger (W.W.), Inc. ......................... 300 29,156
----------
Electronics (Defense)--0.5%
Raytheon Co. Class A (b) ...................... 1,501 74,040
Raytheon Co. Class B .......................... 1,800 90,900
----------
164,940
----------
Electronics (Instrumentation)--0.2%
Perkin Elmer Corp. ............................ 500 35,531
Xilinx, Inc. (b) .............................. 400 14,025
----------
49,556
----------
Electronics (Semiconductors)--2.3%
Intel Corp. (c) ............................... 8,300 583,075
National Semiconductor Corp. (b) .............. 900 23,344
Texas Instruments, Inc. ....................... 2,100 94,500
----------
700,919
----------
Engineering & Construction--0.1%
Fluor Corp. ................................... 500 18,687
Foster Wheeler Corp. .......................... 200 5,413
----------
24,100
----------
Entertainment--2.1%
Time Warner, Inc. ............................. 3,700 229,400
Viacom, Inc. Class B (b) ...................... 2,500 103,594
Walt Disney Co. ............................... 3,200 317,000
----------
649,994
----------
Entertainment, Leisure & Gaming--0.1%
International Game Technology ................. 800 20,200
----------
Equipment (Semiconductor)--0.2%
Applied Materials, Inc. (b) ................... 1,900 57,237
----------
Financial (Diversified)--2.8%
American Express Co. .......................... 2,000 178,500
Associates First Capital Corp. Class A ........ 300 21,337
Bear Stearns Companies, Inc. .................. 500 23,750
ContiFinancial Corp. (b) ...................... 200 5,037
FHLMA ......................................... 3,000 125,813
FNMA (c) ...................................... 4,600 262,487
Finova Group, Inc. ............................ 200 9,938
Greenpoint Financial Corp. .................... 200 14,513
Lehman Brothers Holdings, Inc. ................ 500 25,500
MBIA, Inc. .................................... 500 33,406
Money Store, Inc. (The) ....................... 200 4,200
Morgan Stanley, Dean Witter, Discover and Co. 2,600 153,725
TCF Financial Corp. ........................... 400 13,575
----------
871,781
----------
Foods--1.5%
CPC International, Inc. ....................... 400 43,100
General Mills, Inc. ........................... 500 35,813
Heinz (H.J.) Co. .............................. 1,500 76,219
Hershey Foods Corp. ........................... 400 24,775
Kellogg Co. ................................... 2,100 104,212
See Notes to Financial Statements
81
<PAGE>
ENHANCED INDEX SERIES
SHARES VALUE
---------- ----------
Foods--continued
Nabisco Holdings Corp. Class A ................ 200 $ 9,687
Ralston-Ralston Purina Group .................. 600 55,763
Sara Lee Corp. ................................ 2,100 118,256
---------
467,825
---------
Footwear--0.2%
Nike, Inc. Class B ............................ 1,500 58,875
Reebok International Ltd. (b) ................. 500 14,406
---------
73,281
---------
Gaming, Lottery, & Parimutuel Cos.--0.0%
Harrah's Entertainment, Inc. (b) .............. 600 11,325
---------
Hardware & Tools--0.1%
Black & Decker Corp. .......................... 900 35,156
---------
Health Care (Diversified)--4.2%
Abbott Laboratories ........................... 700 45,894
American Home Products Corp. .................. 3,400 260,100
Bristol-Myers Squibb Co. ...................... 5,400 510,975
Johnson & Johnson ............................. 3,700 243,737
Warner-Lambert Co. ............................ 1,800 223,200
---------
1,283,906
---------
Health Care (Drugs-Major Pharmaceuticals)--4.1%
Agouron Pharmaceuticals, Inc. (b) ............. 100 2,938
Chiron Corp. (b) .............................. 1,000 17,000
Forest Laboratories, Inc. (b) ................. 300 14,794
Lilly (Eli) & Co. ............................. 2,000 139,250
Merck & Co., Inc. ............................. 5,800 616,250
Pfizer, Inc. .................................. 4,200 313,162
Schering-Plough Corp. ......................... 2,500 155,312
Watson Pharmaceuticals, Inc. (b) .............. 600 19,463
---------
1,278,169
---------
Health Care (Hospital Management)--0.9%
Columbia/HCA Healthcare Corp. (c) ............. 5,400 159,975
Health Care and Retirement Corp. (b) .......... 400 16,100
Health Management Association, Inc. Class A (b) 700 17,675
Tenet Healthcare Corp. (b) .................... 2,800 92,750
---------
286,500
---------
Health Care (Managed Care)--0.4%
Humana, Inc. (b) .............................. 1,600 33,200
United Healthcare Corp. ....................... 1,700 84,469
---------
117,669
---------
Health Care (Medical Products & Supplies)--0.5%
Bard (C.R.), Inc. ............................. 500 15,656
Bausch & Lomb, Inc. ........................... 600 23,775
Baxter International, Inc. .................... 900 45,394
Boston Scientific Corp. (b) ................... 1,800 82,575
---------
167,400
---------
Health Care (Specialized Services)--0.0%
Alza Corp. (b) ................................ 300 9,544
---------
Household Furn. & Appliances--0.2%
Leggett & Platt, Inc. ......................... 900 37,687
Whirlpool Corp. ............................... 700 38,500
---------
76,187
---------
Household Products (Non-Durables)--2.3%
Kimberly Clark Corp. .......................... 2,800 138,075
Procter & Gamble Co. .......................... 7,000 558,687
---------
696,762
---------
Housewares--0.1%
Rubbermaid, Inc. .............................. 1,400 35,000
---------
SHARES VALUE
------- ----------
Insurance (Life/Health)--0.5%
Aetna, Inc. ................................. 1,300 $ 91,731
Transamerica Corp. .......................... 300 31,950
UNUM Corp. .................................. 800 43,500
---------
167,181
---------
Insurance (Multi-Line)--3.1%
Ambac Financial Group, Inc. ................. 400 18,400
American International Group, Inc. .......... 4,000 435,000
Cigna Corp. ................................. 500 86,531
Financial Security Assurance Holdings Ltd. .. 200 9,650
Hartford Financial Services Group, Inc. ..... 700 65,494
Lincoln National Corp. ...................... 400 31,250
PMI Group, Inc. (The) ....................... 200 14,462
SAFECO Corp. ................................ 800 39,000
Travelers Group, Inc. ....................... 5,000 269,375
---------
969,162
---------
Insurance (Property-Casualty)--0.7%
Allstate Corp. .............................. 500 45,438
General Re Corp. ............................ 400 84,800
Mercury General Corp. ....................... 200 11,050
Ohio Casualty Corp. ......................... 200 8,925
St. Paul Companies, Inc. .................... 500 41,031
Travelers Property Casualty Corp. Class A ... 400 17,600
---------
208,844
---------
Insurance Brokers--0.3%
Marsh & McLennan Companies, Inc. ............ 1,000 74,563
---------
Investment Banking/Brokerage--0.1%
Edwards (A.G.), Inc. ........................ 400 15,900
---------
Iron & Steel--0.1%
Allegheny Teledyne, Inc. .................... 1,000 25,875
Nucor Corp. ................................. 200 9,663
---------
35,538
---------
Leisure Time (Products)--0.6%
Circus Circus Enterprises, Inc. (b) ......... 700 14,350
Hasbro, Inc. ................................ 1,300 40,950
MGM Grand, Inc. (b) ......................... 400 14,425
Mattel, Inc. ................................ 2,400 89,400
Mirage Resorts, Inc. (b) .................... 1,200 27,300
---------
186,425
---------
Lodging-Hotels--0.4%
Extended Stay America, Inc. (b) ............. 500 6,219
Hilton Hotels Corp. ......................... 1,700 50,575
ITT Corp. (b) ............................... 800 66,300
---------
123,094
---------
Machinery (Diversified)--0.5%
Caterpillar, Inc. ........................... 2,200 106,837
Cooper Industries, Inc. ..................... 700 34,300
Harnischfeger Industries, Inc. .............. 300 10,594
Ingersoll-Rand Co. .......................... 300 12,150
---------
163,881
---------
Manufacturing (Diversified)--2.1%
Aeroquip-Vickers, Inc. ...................... 200 9,813
AlliedSignal, Inc. .......................... 5,200 202,475
Eaton Corp. ................................. 400 35,700
Illinois Tool Works, Inc. ................... 800 48,100
Johnson Controls, Inc. ...................... 800 38,200
Tenneco, Inc. ............................... 1,800 71,100
Tyco International Ltd. ..................... 5,200 234,325
---------
639,713
---------
See Notes to Financial Statements
82
<PAGE>
ENHANCED INDEX SERIES
SHARES VALUE
------ --------
Metals Mining--0.2%
Freeport-McMoran Copper & Gold, Inc.
Class A ...................................... 1,200 $ 18,375
Oregon Metallurgical Corp. (b) ................. 300 10,013
Phelps Dodge Corp. ............................. 400 24,900
---------
53,288
---------
Natural Gas--0.4%
Consolidated Natural Gas Co. ................... 500 30,250
Enron Corp. .................................... 1,600 66,500
Western Resources, Inc. ........................ 300 12,900
---------
109,650
---------
Office Equipment & Supplies--0.0%
Symbol Technologies, Inc. ...................... 400 15,100
---------
Oil (Domestic Integrated)--0.9%
Atlantic Richfield Co. ......................... 1,700 136,212
Occidental Petroleum Corp. ..................... 1,200 35,175
Phillips Petroleum Co. ......................... 800 38,900
Pogo Producing Co. ............................. 100 2,950
Tosco Corp. .................................... 800 30,250
Unocal Corp. ................................... 600 23,288
---------
266,775
---------
Oil (International Integrated)--4.6%
Amoco Corp. .................................... 1,400 119,175
Chevron Corp. .................................. 2,800 215,600
Exxon Corp. .................................... 11,000 673,062
Mobil Corp. .................................... 3,800 274,313
Texaco, Inc. ................................... 2,600 141,375
---------
1,423,525
---------
Oil & Gas (Drilling & Equipment)--1.1%
Baker Hughes, Inc. ............................. 900 39,263
Cooper Cameron Corp. (b) ....................... 300 18,300
Diamond Offshore Drilling, Inc. ................ 400 19,250
ENSCO International, Inc. ...................... 300 10,050
Falcon Drilling Company, Inc. (b) .............. 400 14,025
Halliburton Co. ................................ 200 10,387
Input/Output, Inc. (b) ......................... 200 5,937
Noble Drilling Corp. (b) ....................... 700 21,438
Schlumberger Ltd. .............................. 2,400 193,200
Smith International, Inc. (b) .................. 200 12,275
---------
344,125
---------
Oil & Gas (Exploration & Production)--0.1%
Anadarko Petroleum Corp. ....................... 200 12,138
Union Pacific Resources Group, Inc. ............ 700 16,975
Valero Energy Corp. ............................ 300 9,431
---------
38,544
---------
Oil & Gas (Refining & Marketing)--0.1%
Ashland, Inc. .................................. 400 21,475
El Paso Natural Gas Co. ........................ 300 19,950
---------
41,425
---------
Paper & Forest Products--0.7%
Boise Cascade Corp. ............................ 400 12,100
Bowater, Inc. .................................. 300 13,331
Champion International Corp. ................... 700 31,719
Georgia-Pacific Corp. .......................... 600 36,450
Georgia-Pacific Corp. (Timber Group) (b) ....... 500 11,344
International Paper Co. ........................ 200 8,625
Louisiana-Pacific Corp. ........................ 700 13,300
Mead Corp. ..................................... 700 19,600
Weyerhaeuser Co. ............................... 1,200 58,875
---------
205,344
---------
SHARES VALUE
-------- -------
Personal Care--1.1%
Avon Products, Inc. ........................... 600 $ 36,825
Gillette Co. .................................. 2,900 291,269
---------
328,094
---------
Photography/Imaging--1.3%
Eastman Kodak Co. ............................. 2,700 164,194
Xerox Corp. ................................... 3,000 221,437
---------
385,631
---------
Publishing--0.1%
Tele-Communications TCI Ventures
Group A (b) ................................. 1,200 33,975
---------
Railroads--0.9%
Burlington Northern, Inc. ..................... 800 74,350
CSX Corp. ..................................... 1,100 59,400
Illinois Central Corp. ........................ 300 10,219
Norfolk Southern Corp. ........................ 1,900 58,544
Union Pacific Corp. ........................... 1,300 81,168
Wisconsin Central Transportation Corp. (b) .... 200 4,675
---------
288,356
---------
Restaurants--0.8%
McDonald's Corp. .............................. 4,900 233,975
---------
Retail (Building Supplies)--0.7%
Home Depot, Inc. .............................. 2,700 158,962
Lowe's Companies, Inc. ........................ 500 23,844
Sherwin-Williams Co. .......................... 600 16,650
---------
199,456
---------
Retail (Computers & Electronics)--0.1%
Circuit City Stores, Inc. ..................... 600 21,338
---------
Retail (Department Stores)--0.7%
Dillard's, Inc. Class A ....................... 700 24,675
Federated Department Stores, Inc. (b) ......... 1,400 60,287
J.C. Penney, Inc. ............................. 1,100 66,344
May Department Stores Co. ..................... 1,300 68,494
---------
219,800
---------
Retail (Drug Stores)--0.1%
General Nutrition Co., Inc. (b) ............... 500 17,000
---------
Retail (Food Chains)--0.6%
Albertson's, Inc. ............................. 100 4,738
American Stores Co. ........................... 1,600 32,900
Kroger Co. (b) ................................ 1,600 59,100
Safeway, Inc. (b) ............................. 1,500 94,875
---------
191,613
---------
Retail (General Merchandise)--2.2%
Best Buy Co., Inc. (b) ........................ 300 11,063
Corporate Express, Inc. (b) ................... 800 10,300
Dayton Hudson Corp. ........................... 1,400 94,500
Kmart Corp. (b) ............................... 2,700 31,219
Sears Roebuck & Co. ........................... 2,500 113,125
Wal-Mart Stores, Inc. ......................... 10,200 402,262
---------
662,469
---------
Retail (Specialty)--0.3%
AutoZone, Inc. (b) ............................ 1,000 29,000
Toys "R" Us, Inc. (b) ......................... 1,800 56,588
---------
85,588
---------
Retail (Specialty-Apparel)--0.1%
TJX Co., Inc. ................................. 900 30,938
---------
See Notes to Financial Statements
83
<PAGE>
ENHANCED INDEX SERIES
SHARES VALUE
----------- -------------
Savings & Loan Companies--0.2%
Ahmanson (H.F.) & Co. ....................... 400 $ 26,775
Golden West Financial Corp. ................. 200 19,563
Ocwen Financial Corp. (b) ................... 300 7,631
-----------
53,969
-----------
Services (Commercial & Consumer)--0.2%
Service Corporation International ........... 1,800 66,487
-----------
Services (Data Processing)--0.3%
Equifax, Inc. ............................... 1,100 38,981
First Data Corp. ............................ 2,200 64,350
-----------
103,331
-----------
Specialty Printing--0.1%
Donnelley (R.R.) & Sons Co. ................. 1,000 37,250
-----------
Telecommunications (Cellular/Wireless)--0.4%
AirTouch Communications, Inc. (b) ........... 2,800 116,375
-----------
Telecommunications (Long Distance)--2.5%
AT&T Corp. .................................. 5,200 318,500
MCI Communications Corp. .................... 4,300 184,094
Sprint Corp. ................................ 2,400 140,700
WorldCom, Inc. (b) .......................... 4,300 130,075
-----------
773,369
-----------
Telephone--3.7%
Ameritech Corp. ............................. 300 24,150
Bell Atlantic Corp. ......................... 2,700 245,700
BellSouth Corp. ............................. 4,200 236,513
GTE Corp. ................................... 5,200 271,700
SBC Communications, Inc. (c) ................ 5,000 366,250
-----------
1,144,313
-----------
Textiles (Apparel)--0.1%
Fruit of the Loom, Inc. Class A (b) ......... 600 15,375
Nine West Group, Inc. (b) ................... 100 2,594
-----------
17,969
-----------
Tobacco--1.9%
Philip Morris Companies, Inc. (c) ........... 12,600 570,938
-----------
Truckers--0.1%
CNF Transportation, Inc. .................... 200 7,675
Ryder System, Inc. .......................... 400 13,100
-----------
20,775
-----------
Trucks & Parts--0.0%
Cummins Engine Co., Inc. .................... 200 11,813
-----------
Utility--Electric--0.0%
Northeast Utilities ......................... 700 8,269
-----------
SHARES VALUE
----------- -------------
Utility--Water--0.0%
American Water Works, Inc. .................. 400 $ 10,925
-----------
Waste Management--0.4%
Waste Management, Inc. ...................... 4,200 115,500
Wheelabrator Technologies, Inc. ............. 500 8,031
-----------
123,531
-----------
TOTAL COMMON STOCKS
(Identified cost $27,667,300) .............................. 28,516,303
-----------
FOREIGN COMMON STOCKS--2.6%
Aluminum--0.1%
Alcan Aluminum Ltd. (Canada) ................ 1,500 41,438
-----------
Beverages (Alcoholic)--0.2%
Seagram Ltd. (Canada) ....................... 2,000 64,625
-----------
Communications Equipment--0.2%
Northern Telecom Ltd. (Canada) .............. 600 53,400
-----------
Foods--0.7%
Unilever NV (Netherlands) ................... 3,300 206,044
-----------
Metals Mining--0.1%
Inco Ltd. (Canada) .......................... 1,100 18,700
-----------
Oil (International Integrated)--1.3%
Royal Dutch Petroleum Co. ADR NY
Registered (Netherlands) .................. 7,500 406,405
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $807,870).................................. 790,612
-----------
TOTAL LONG-TERM INVESTMENTS--95.0%
(Identified cost $28,475,170)............................... 29,306,915
-----------
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000)
------------- -------
SHORT-TERM OBLIGATIONS--5.7%
Commercial Paper--5.5%
Goldman Sachs 6.75%, 1/2/98 A-1+ $600 599,888
Marsh & McLennan Cos., Inc.
6.20%, 1/5/98 ................. A-1+ 695 694,521
Preferred Receivables Funding
6.60%, 1/6/98 ................. A-1 400 399,633
-----------
1,694,042
-----------
Federal Agency Securities--0.2%
U.S. Treasury Bills 5.06%, 1/29/98 (c) ...... 50 49,800
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,743,842).......................... 1,743,842
-----------
TOTAL INVESTMENTS--100.7%
(Identified cost $30,219,012)......................... 31,050,757(a)
Cash and receivables, less liabilities--(0.7%) ....... (199,385)
-----------
NET ASSETS--100.0% ..................................... $30,851,372
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $2,066,104 and gross
depreciation of $1,239,877 for income tax purposes. At December 31, 1997,
the aggregate cost of securities for federal income tax purposes was
$30,224,530.
(b) Non-income producing.
(c) All or a portion segregated as collateral.
See Notes to Financial Statements
84
<PAGE>
ENHANCED INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
Assets
Investment securities at value (Identified cost $30,219,012) ..................... $ 31,050,757
Receivables
Fund shares sold ................................................................ 113,662
Dividends and interest .......................................................... 41,902
Investment securities sold ...................................................... 23,871
------------
Total assets ................................................................... 31,230,192
------------
Liabilities
Payables
Custodian ....................................................................... 1,251
Investment securities purchased ................................................. 346,143
Variation margin for futures contracts .......................................... 307
Investment advisory fee ......................................................... 3,151
Trustees' fee ................................................................... 2,880
Financial agent fee ............................................................. 1,480
Accrued expenses ................................................................ 23,608
------------
Total liabilities .............................................................. 378,820
------------
Net Assets ....................................................................... $ 30,851,372
============
Net Assets Consist of:
Capital paid in on shares of beneficial interest ................................ $ 29,852,034
Undistributed net investment income ............................................. 9,237
Accumulated net realized gain ................................................... 158,289
Net unrealized appreciation ..................................................... 831,812
------------
Net Assets ....................................................................... $ 30,851,372
============
Shares of beneficial interest outstanding, $1 par value, unlimited authorization . 2,942,318
============
Net asset value and offering price per share ..................................... $ 10.49
============
</TABLE>
STATEMENT OF OPERATIONS
From inception July 15, 1997 to December 31, 1997
<TABLE>
<S> <C>
Investment Income
Dividends ............................................................... $ 174,936
Interest ................................................................ 39,297
----------
Total investment income ................................................ 214,233
----------
Expenses
Investment advisory fee ................................................. 47,974
Financial agent fee ..................................................... 6,397
Custodian ............................................................... 29,248
Professional ............................................................ 9,998
Trustees ................................................................ 9,338
Printing ................................................................ 8,186
Miscellaneous ........................................................... 725
----------
Total expenses ......................................................... 111,866
Less expenses borne by investment adviser .............................. (53,231)
----------
Net expenses ........................................................... 58,635
----------
Net investment income .................................................... 155,598
----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities ......................................... 248,183
Net realized gain on futures contracts .................................. 47,858
Net change in unrealized appreciation (depreciation) on investments ..... 831,812
----------
Net gain on investments .................................................. 1,127,853
----------
Net increase in net assets resulting from operations ..................... $1,283,451
==========
</TABLE>
See Notes to Financial Statements
85
<PAGE>
ENHANCED INDEX SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
From Inception
July 15, 1997 to
December 31, 1997
------------------
<S> <C>
From Operations
Net investment income ................................................................... $ 155,598
Net realized gain ....................................................................... 296,041
Net change in unrealized appreciation (depreciation) .................................... 831,812
------------
Net increase in net assets resulting from operations .................................... 1,283,451
------------
From Distributions to Shareholders
Net investment income ................................................................... (146,361)
Net realized gains ...................................................................... (137,752)
------------
Decrease in net assets from distributions to shareholders ............................... (284,113)
------------
From Share Transactions
Proceeds from sales of shares (3,153,122 shares) ........................................ 31,994,673
Net asset value of shares issued from reinvestment of distributions (27,107 shares) ..... 284,113
Cost of shares repurchased (237,911 shares) ............................................. (2,426,752)
------------
Increase in net assets from share transactions .......................................... 29,852,034
------------
Net increase in net assets .............................................................. 30,851,372
Net Assets
Beginning of period ..................................................................... 0
------------
End of period (including undistributed net investment income of $9,237) ................. $ 30,851,372
============
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
From Inception
7/15/97 to
12/31/97
---------------
<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 ............. 0.54
--------
Total from investment operations ............ 0.59
--------
Less distributions
Dividends from net investment income ......... (0.05)
Dividends from net realized gains ............ (0.05)
--------
Total distributions ......................... (0.10)
--------
Change in net asset value ..................... 0.49
--------
Net asset value, end of period ................ $ 10.49
========
Total return .................................. 5.83%(3)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $30,851
Ratio to average net assets of:
Operating expenses ........................... 0.55%(1)
Net investment income ........................ 1.46%(1)
Portfolio turnover rate ....................... 9%(3)
Average commission rate paid(4) ............... $0.0293
</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
86
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Note 1--Organization
The Phoenix Edge Series Fund (the "Fund") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised
of the Money Market, Growth, Multi-Sector Fixed Income, Strategic Allocation,
International, Balanced, Real Estate Securities ("Real Estate"), Strategic
Theme, Aberdeen New Asia, and Research Enhanced Index ("Enhanced Index")
Series. The Fund was established as part of the December 8, 1986
reorganization of the Phoenix Home Life Variable Accumulation Account (the
Account) from a management investment company to a unit investment trust under
the Investment Company Act of 1940. The Fund is organized with Series which
are available only to the sub-accounts of the Phoenix Home Life Variable
Accumulation Account, the Phoenix Home Life Variable Universal Life Account,
the PHL Variable Accumulation Account, the Phoenix Life and Annuity Variable
Universal Life Account, and the Phoenix Home Life Separate Accounts B, C, and
D.
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term
growth of capital, with income as a secondary consideration. The Multi-Sector
Fixed Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks to realize as high a level of total rate
of return over an extended period of time as is considered consistent with
prudent investment risk by investing in three market segments; stocks, bonds
and money market instruments. The International Series seeks as its investment
objective a high total return consistent with reasonable risk by investing
primarily in an internationally diversified portfolio of equity securities.
The Balanced Series seeks to provide reasonable income, long-term growth and
conservation of capital. The Real Estate Series seeks to achieve capital
appreciation and income with approximately equal emphasis through investments
in real estate investment trusts and companies that operate, manage, develop
or invest in real estate. The Strategic Theme Series seeks long-term
appreciation of capital by investing in securities that the adviser believes
are well positioned to benefit from cultural, demographic, regulatory, social
or technological changes worldwide. The Aberdeen New Asia Series seeks to
provide long-term capital appreciation by investing primarily in diversified
equity securities of issuers organized and principally operating in Asia,
excluding Japan. The Enhanced Index Series seeks 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.
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 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
87
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
accounting principles. These differences include the treatment of non-taxable
dividends, expiring capital loss carryforwards, foreign currency gain/loss,
partnerships, and losses deferred due to wash sales and excise tax
regulations. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
E. Foreign Currency Translation
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement dates of a portfolio transaction is
treated as a gain or loss on foreign currency. Likewise, the gain or loss
resulting from a change in currency exchange rates between the date income is
accrued and paid is treated as a gain or loss on foreign currency. The Fund
does not separate that portion of the results of operations arising from
changes in exchange rates and that portion arising from changes in the market
prices of securities.
F. Forward Currency Contracts
Each Series may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to
varying degrees, elements of market risk in excess of the amount recognized in
the statement of assets and liabilities. Risks arise from the possible
movements in foreign exchange rates or if the counterparty does not perform
under the contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. These contracts are traded directly between currency traders and
their customers. The contract is marked-to-market daily and the change in
market value is recorded by the Series as an unrealized gain (or loss). When
the contract is closed or offset with the same counterparty, the Series
records a realized gain (or loss) equal to the change in the value of the
contract when it was opened and the value at the time it was closed or offset.
G. Futures Contracts
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Series may enter into financial
futures contracts as a hedge against anticipated changes in the market value
of their portfolio securities. Upon entering into a futures contract, the
Series is required to pledge to the broker an amount of cash and/or securities
equal to the "initial margin" requirements of the futures exchange on which
the contract is traded. Pursuant to the contract, the Series agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as variation
margins and are recorded by the Series as unrealized gains or losses. When the
contract is closed, the Series records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The potential risk to the Series is that the
change in value of the futures contract may not correspond to the change in
value of the hedged instruments.
H. Options
Each Series may write covered options or purchase options contracts for the
purpose of hedging against changes in the market value of the underlying
securities or foreign currencies.
Each Series will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported
separately in the Statement of Operations. When a written option is exercised,
the proceeds on sales or amounts paid are adjusted by the amount of premium
received. Options written are reported as a liability in the Statement of
Assets and Liabilities and subsequently marked-to-market to reflect the
current value of the option. The risk associated with written options is that
the change in value of options contracts may not correspond to the change in
value of the hedged instruments. In addition, losses may arise from changes in
the value of the underlying instruments, or if a liquid secondary market does
not exist for the contracts.
Each Series may purchase options which are included in the Series' Schedule of
Investments and subsequently marked-to-market to reflect the current value of
the option. When a purchased option is exercised, the cost of the security is
adjusted by the amount of premium paid. The risk associated with purchased
options is limited to the premium paid.
I. Expenses
Expenses incurred by the Fund with respect to any two or more Series are
allocated in proportion to the net assets of each Series, except where
allocation of direct expense to each Series or an alternative allocation
method can be more fairly made.
J. 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
88
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
securities collateralizing the repurchase agreement. The collateral is marked
to market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Series in the event of default by the
seller. If the seller defaults and the value of the collateral declines or, if
the seller enters insolvency proceedings, realization of collateral may be
delayed or limited.
Note 3--Investment Advisory Fees and Related Party Transactions As compensation
for its advisory services to the Fund, Phoenix Investment Counsel, Inc.
("PIC"), an indirect majority-owned subsidiary of Phoenix Home Life Mutual
Insurance Company ("PHL") is entitled to a fee, based upon the following
annual rates as a percentage of the average daily net assets of each separate
Series listed below:
<TABLE>
<CAPTION>
Rate for first Rate for next Rate for excess
Series $250 million $250 million over $500 million
- - ------------------------------------- ---------------- --------------- ------------------
<S> <C> <C> <C>
Money Market ...................... 0.40% 0.35% 0.30%
Multi-Sector Fixed Income ......... 0.50 0.45 0.40
Balanced .......................... 0.55 0.50 0.45
Strategic Allocation .............. 0.60 0.55 0.50
Growth ............................ 0.70 0.65 0.60
International ..................... 0.75 0.70 0.65
Strategic Theme ................... 0.75 0.70 0.65
Enhanced Index .................... 0.45 0.45 0.45
</TABLE>
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
"subadvisor") 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 investment adviser for the Real Estate Series through December 31, 1997,
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 Duff & Phelps Investment
Management Co. ("DPIM"), a subsidiary of Phoenix Duff & Phelps, ("PD&P"). PD&P
is a majority owned subsidiary of PHL. For its services, DPIM 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. Formerly, ABKB/LaSalle Securities Limited
Partnership ("ABKB") served as sub-adviser for the Real Estate Series.
Effective January 1, 1998, DPIM will serve as the investment adviser for the
Real Estate Series.
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, Aberdeen
New Asia and Enhanced Index 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, Aberdeen New Asia and Enhanced
Index Series pay other operating expenses up to 0.40%, 0.25%, 0.25%, 0.25% and
0.10%, respectively, of its average net assets. Expenses above these limits
are paid by the Advisers, PIC, PRS, PAIA and/or PHL and/or PHL Variable
Insurance Company.
As Financial Agent to the Fund and to each Series, Phoenix Equity Planning
Corporation ("PEPCO"), an indirect majority-owned subsidiary of 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, 1997, PHL and affiliates held shares in the Phoenix Edge
Series Fund and/or in the underlying unit investment trusts which had the
following aggregate value:
Growth Series .................... $ 7,997,177
Real Estate Series ............... 8,148,788
Aberdeen New Asia Series ......... 1,998,699
Enhanced Index Series ............ 15,783,780
89
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
Note 4--Purchases and Sales of Securities
Purchases and sales of securities during the year ended December 31, 1997
(excluding U.S. Government securities, short-term securities, options written
and forward currency contracts) aggregated the following:
<TABLE>
<CAPTION>
Purchases Sales
----------------- -----------------
<S> <C> <C>
Growth Series ............................ $3,619,739,680 $3,651,711,268
Multi-Sector Fixed Income Series ......... 173,980,334 126,118,303
Strategic Allocation Series .............. 1,003,405,070 1,029,003,699
International Series ..................... 328,125,305 314,229,483
Balanced Series .......................... 297,177,203 293,887,898
Real Estate Series ....................... 37,529,880 15,045,654
Strategic Theme Series ................... 210,479,187 200,137,869
Aberdeen New Asia Series ................. 6,144,524 3,184,519
Enhanced Index Series .................... 30,496,809 2,269,834
</TABLE>
There were no purchases or sales of such securities in the Money Market
Series.
Purchases and sales of long-term U.S. Government securities during the year
ended December 31, 1997 aggregated the following:
Purchases Sales
--------------- ---------------
Multi-Sector Fixed Income Series ......... $105,010,870 $113,190,039
Strategic Allocation Series .............. 224,574,984 213,938,456
Balanced Series .......................... 52,738,999 75,575,712
There were no purchases or sales of long-term U.S. Government securities in
the Money Market, Growth, International, Real Estate, Strategic Theme,
Aberdeen New Asia or Enhanced Index Series.
At December 31, 1997, the Enhanced Index Series had entered into futures
contracts as follows:
<TABLE>
<CAPTION>
Value of
Number Contracts Market Net
of when Value of Unrealized
Description Contracts Opened Contracts Appreciation
- - ---------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Standard & Poor's 500 Index--March, '98 (Long)......... 5 $1,223,808 $1,223,875 $67
</TABLE>
Written call option activity for the year ended December 31, 1997 aggregated
the following:
<TABLE>
<CAPTION>
Strategic Allocation Series Balanced Series Strategic Theme Series
--------------------------- ----------------------- ----------------------
# of Amount # of Amount # of Amount
Options of Premiums Options of Premiums Options of Premiums
----------- --------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at December 31, 1996 ......... -- $ -- -- $ -- -- $ --
Options written .................................. 5,299 1,543,694 1,088 164,786 40 33,879
Options canceled in closing purchase transactions (5,149) (1,503,833) (210) (62,250) (40) (33,879)
Options expired .................................. -- -- (516) (44,049) -- --
Options exercised ................................ (150) (39,861) (362) (58,487) -- --
------ ------------ ----- --------- --- ---------
Options outstanding at December 31, 1997 ......... -- $ -- -- $ -- -- $ --
====== ============ ===== ========= === =========
</TABLE>
Note 5--Forward Currency Contracts
At December 31, 1997, 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>
Net
In Unrealized
Contracts Exchange Settlement Appreciation
to Deliver For Date Value (Depreciation)
- - --------------------- ----------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
DM 23,000,000 US 12,954,462 3/2/98 $12,836,279 $118,183
UK 6,500,000 US 10,703,550 3/2/98 10,661,116 42,434
FL 15,200,000 US 7,594,307 3/2/98 7,526,703 67,604
FF 107,100,000 US 18,024,903 3/2/98 17,854,317 170,586
--------
$398,807
=========
</TABLE>
DM = German Deutschemark
UK = British Pounds Sterling
FL = Dutch Florin
FF = French Franc
US = U.S. Dollar
90
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997
Note 6--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.
Note 7--Loan Agreements
The Fund may invest in direct debt instruments which are interests in amounts
owned by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from third
parties. A loan is often administered by a bank or other financial institution
(the lender) that acts as agent for all holders. The agent administers the
terms of the loan, as specified in the loan agreement. When investing in a
loan participation, the Fund has the right to receive payments of principal,
interest and any fees to which it is entitled only from the lender selling the
loan agreement and only upon receipt by the lender of payments from the
borrower. The Fund generally has no right to enforce compliance with the terms
of the loan agreement with the borrower. As a result, the Fund may be subject
to the credit risk of both the borrower and the lender that is selling the
loan agreement. For loans which the Fund is a participant, the Fund may not
sell its participation in the loan without the lender's prior consent. When
the Fund purchases assignments from lenders it acquires direct rights against
the borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the government entities responsible for the repayment of the debt
may be unable, or unwilling to pay the principal and interest when due.
Note 8--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,
1997, 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 ............................ $ (19,655) $ 19,655 $ --
Multi-Sector Fixed Income ......... 187,722 (18,867) (168,855)
Health Care (Diversified) ......... 1.7 168,855 --
Strategic Allocation .............. 7,524 (7,524) --
International ..................... (1,568,096) 1,568,096 --
Balanced .......................... 15,200 (15,200) --
Aberdeen New Asia ................. (12,179) 12,179 --
</TABLE>
Note 9--Capital Loss Carryovers
At December 31, 1997, the Aberdeen New Asia Series had available for federal
income tax purposes unused capital losses of $143,419 expiring in 2005. In
addition, the Strategic Theme Series was able to utilize losses deferred in
the prior year against current year capital gains in the amount of $396,065.
Under current tax law, capital losses realized after October 31, 1997 may be
deferred and treated as occurring on the first day of the following tax year.
For the calendar year ended December 31, 1997 the Growth, International,
Strategic Theme, and Aberdeen New Asia Series elected to defer $1,144,
$770,654, $1,280,577 and $379,802, respectively, in losses occurring between
November 1, 1997 and December 31, 1997. In addition, the Growth and Aberdeen
New Asia Series were able to utilize losses deferred in the prior year against
current year capital gains in the amount of $613 and $1,755, respectively.
- --------------------------------------------------------------------------------
TAX INFORMATION NOTICE (Unaudited)
For the fiscal year ended December 31, 1997, the following Series distributed
long-term capital gains dividends as follows:
Growth Series ............................ $91,409,290
Multi-Sector Fixed Income Series ......... 1,909,193
Strategic Allocation Series .............. 1,365,642
International Series ..................... 14,812,671
Balanced Series .......................... 5,139,202
Real Estate Series ....................... 936,899
91
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [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 Series,
Strategic Allocation Series (formerly Total Return Series), International
Series, Balanced Series, Real Estate Series, Strategic Theme Series, Aberdeen
New Asia Series and Enhanced Index Series (constituting the Phoenix Edge Series
Fund, hereafter referred to as the "Fund") at December 31, 1997, and the results
of each of their operations, the changes in each of 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, 1997 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 19, 1998
<PAGE>
THE PHOENIX EDGE SERIES FUND
101 Munson Street
Greenfield, Massachusetts 01301
Board of Trustees
C. Duane Blinn
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Philip R. Reynolds
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
Officers
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
David R. Pepin, Executive Vice President
William J. Newman, Senior Vice President
James D. Wehr, Senior Vice President
Hugh Young, Senior Vice President
David L. Albrycht, Vice President
Curtiss O. Barrows, Vice President
Mary E. Canning, Vice President
Steven L. Colton, Vice President
Timothy Devlin, Vice President
Jeanne H. Dorey, Vice President
John D. Kattar, Vice President
William E. Keen, III, Vice President
David Lui, Vice President
William R. Moyer, Vice President
Scott C. Noble, Vice President
Barbara Rubin, Vice President
Leonard J. Saltiel, Vice President
Julie L. Sapia, Vice President
Michael Schatt, Vice President
Dorothy J. Skaret, Vice President
Piere G. Trinque, Vice President
James Wiess, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
Investment Advisers
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
Phoenix Realty Securities, Inc.
(Real Estate Securities Series)
38 Prospect Street
Hartford, Connecticut 06115-0479
Phoenix-Aberdeen International Advisors, LLC
(Aberdeen New Asia Series)
56 Prospect Street
Hartford, Connecticut 06115-0480
Custodians
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(Aberdeen New Asia Series and International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust Company
(Real Estate Securities Series and
Research Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Transfer Agent
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
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 are included in
the Annual Report to Shareholders for the period ended
December 31, 1997, incorporated by reference.
(b) Exhibits:
1. Declaration of Trust of the Registrant dated February 18,
1986, filed with the Registration Statement on Form N-1A on
April 18, 1986 and filed via Edgar with Post-Effective
Amendment No. 18 on June 20, 1996.
1.1 Amendment to Declaration of Trust, establishing the
International Series, filed with Post-Effective Amendment
No. 7 on March 2, 1992 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
1.2 Amendment to Declaration of Trust, conforming the Fund's
borrowing restrictions to California Department's Borrowing
Guidelines, filed with Post-Effective Amendment No. 7 on
March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
1.3 Amendment to Declaration of Trust, establishing the Balanced
Series, filed with Post-Effective Amendment No. 8 on April
28, 1992 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
1.4 Amendment to Declaration of Trust, establishing the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 12 on February 16, 1995 and filed via Edgar
with Post-Effective Amendment No. 20 on April 29, 1997.
1.5 Amendment to Declaration of Trust, establishing the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
1.6 Amendment to Declaration of Trust, changing the name of the
Series currently designated "Bond Series" to the
"Multi-Sector Fixed Income Series," filed via Edgar with
Post-Effective Amendment No. 17 on April 17, 1996.
1.7 Amendment to Declaration of Trust, establishing the Aberdeen
New Asia Series, filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
1.8 Amendment to Declaration of Trust, establishing the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
1.9 Amendment to Declaration of Trust, establishing five new
Series filed via Edgar herewith.
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 Investment Advisory Agreement between Registrant and Phoenix
Realty Securities, Inc. covering the Phoenix Real Estate
Securities Series, dated February 28, 1995 and assigned
March 2, 1998 to Duff & Phelps Investment Management Co.,
filed with Post-Effective Amendment No. 13, on April 28,
1995 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
5.2 Form of Investment Advisory Agreement between Registrant and
Phoenix-Aberdeen International Advisors, LLC, covering the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 18 on June 20, 1996.
5.3 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Aberdeen Fund Managers, Inc. covering
Aberdeen New Asia Series filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
5.4 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Phoenix Investment Counsel, Inc. covering
Aberdeen New Asia Series filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
5.5 Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc., covering the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
5.6 Form of Subadvisory Agreement among Registrant, Phoenix
Investment Counsel, Inc. and J. P. Morgan Investment
Management, Inc., covering the Research Enhanced Index
Series, filed via Edgar with Post-Effective Amendment No. 22
on July 15, 1997.
C-1
<PAGE>
5.7 Form of Subadvisory Agreement among the Registrant, Phoenix
Realty Securities, Inc. and Duff & Phelps Investment
Management Co., covering the Phoenix Real Estate Securities
Series, filed via Edgar with Post-Effective Amendment No. 23
on December 12, 1997.
5.8 Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc., covering the Engemann
Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Income and
Growth, Phoenix Value Equity and Schafer Mid-Cap Value
Series, filed via Edgar with Post-Effective Amendment No. 24
on February 24, 1998.
5.9 Form of Investment Subadvisory Agreement among the
Registrant, Phoenix Investment Counsel, Inc. and Roger
Engemann & Associates, Seneca Capital Management, LLC and
Schafer Capital Management, Inc., filed via Edgar with
Post-Effective Amendment No. 24 on February 24, 1998.
6. Not Applicable.
7. Not Applicable.
8. Form of Custodian Agreement between Registrant and The Chase
Manhattan Bank, N.A. covering the International Series,
filed with Post-Effective Amendment No. 4 on March 13, 1990
and filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
8.1 Form of Amendment to Custodian Agreement covering
International, Money Market, Growth, Multi-Sector Fixed
Income, Strategic Income and Balanced Series, filed with
Post-Effective Amendment No. 7 on March 2, 1992 and filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
8.2 Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. covering the International and Asia Series,
filed with Post-Effective Amendment No. 12 on February 16,
1995 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
8.3 Form of Custodian Agreement between Registrant and State
Street Bank and Trust Company dated May 1, 1997 covering the
Real Estate Securities and Enhanced Index Series, filed via
Edgar with Post-Effective Amendment No. 23 on December 12,
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 Financial Agent Agreement between Registrant and Phoenix
Equity Planning Corporation dated December 11, 1996 filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
9.3 First Amendment to Financial Agent Agreement effective
February 27, 1998 filed via Edgar herewith.
10. Opinion and Consent of Counsel covering shares of the
International, Multi-Sector Fixed Income, Growth, Money
Market, Balanced and Strategic Allocation Series, filed with
Post-Effective Amendment No. 7 on March 2, 1992 and filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
10.1 Opinion and Consent of Counsel covering shares of the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 13 on April 28, 1995 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
10.2 Opinion and Consent of Counsel covering shares of the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
10.3 Opinion and Consent of Counsel covering shares of the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 19 on September 3, 1996.
10.4 Opinion and Consent of Counsel covering shares of the
Research Enhanced Index Series filed via Edgar with
Post-Effective Amendment No. 22 on July 15, 1997.
10.5 Opinion and Consent of Counsel covering shares of the
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Growth
& Income, Phoenix Value Equity and Schafer Mid-Cap Value
Series filed via Edgar with Post-Effective Amendment No. 24
on February 24, 1998.
11. Written Consent of Price Waterhouse LLP, filed via Edgar
with Post-Effective Amendment No. 25 on April ,1998.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Financial Data Schedule, filed via Edgar herewith and
reflected on Edgar as Exhibit 27.
18. Powers of Attorney, filed via Edgar with Post-Effective
Amendment No. 17 on April 17, 1996.
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following diagram illustrates the Registrant's place in the
organizational structure:
[GRAPHIC OMITTED]
C-3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 15, 1998
-------------- --------------------
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 4
Asia Series 5
Enhanced Index Series 5
Nifty Fifty Series 5
Seneca Mid-Cap Series 5
Value Series 5
Growth & Income Series 5
Schafer Mid-Cap Series 5
- ----------
*Phoenix Mutual Life Insurance Company purchased 1 share of the Money Market
Series at a price of $10 per share on February 18, 1986.
ITEM 27. INDEMNIFICATION
The Declaration of Trust provides that the Fund shall indemnify each of its
Trustees and officers against liabilities arising by reason of being or having
been a Trustee or officer, except for matters as to which such Trustee or
officer shall have been finally adjudicated not to have acted in good faith and
except for liabilities arising by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Management of the Fund" in the Prospectus and "Management of the Fund"
in the Statement of Additional Information for information regarding the
business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (SEC File Nos.
801-5995 for Phoenix Investment Counsel Inc.; 801-48190 for Phoenix Realty
Securities, Inc.; 801-52167 for Phoenix-Aberdeen International Advisors, LLC;
801-14813 for Duff & Phelps Investment Management Co.) 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. 24 with respect to the Nifty Fifty,
Seneca Mid-Cap, Growth & Income, Value and Schafer Mid-Cap
Series.
(c) The information called for by Item 5A of Form N-1A is contained
in the Fund's annual report to shareholders; accordingly, the
Fund hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Fund's latest annual
report, upon request and without charge.
(d) Registrant undertakes to provide the information specified
pursuant to Regulation S-K, Item 512 (Reg. ss.229.512), as
applicable, the terms of which are incorporated herein by
reference.
(e) Registrant undertakes to call a special meeting of shareholders
for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other
shareholders, as required by Section 16(c) of the 1940 Act, if
requested to do so by holders of at least 10% of a Portfolio's
outstanding shares.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford and the State of Connecticut
on the 29th day of April, 1998.
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 29th day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
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
---------------------------------------------
Herbert Roth, Jr.*
</TABLE>
S-1(C)
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Trustee
---------------------------------------------
Richard E. Segerson*
Trustee
---------------------------------------------
Lowell P. Weicker, Jr.*
</TABLE>
By: /s/ Philip R. McLoughlin
--------------------------
*Philip R. McLoughlin, pursuant to powers of attorney filed previously.
S-2(C)
EXHIBIT 24(b) 1.9
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 (the "Trust") organized under a Declaration of
Trust dated February 18, 1986, as amended from time to time (the "Declaration"),
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 27, 1997, 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 February
27, 1998, at which a quorum was present, the Board of Trustees, acting pursuant
to ARTICLE VII, Section 7.3 of said Declaration for the purpose of establishing
five new Series of Shares denominated the "Engemann Nifty Fifty Series," "Seneca
Mid-Cap Series," "Phoenix Growth and Income Series," "Phoenix Value Equity
Series," and "Schafer Mid-Cap Value Series," unanimously voted to amend said
Declaration and Trust, effective February 27, 1998, 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 fifteen
Series are hereby established and designated: 'Aberdeen New Asia Series',
'Balanced Series', 'Engemann Nifty Fifty Series', 'Growth Series',
'International Series', 'Money Market Series', 'Multi-Sector Fixed Income
Series', 'Phoenix Growth and Income Series', 'Phoenix Value Equity
Series', 'Real Estate Securities Series', 'Research Enhanced Index
Series', 'Schafer Mid-Cap Value Series', 'Seneca Mid-Cap Series',
'Strategic Allocation Series', and 'Strategic Theme Series'."
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of February, 1998.
________________________________________
Philip R. McLoughlin, individually and
as attorney-in-fact for Robert Chesek,
E. Virgil Conway, Harry Dalzell-Payne,
Francis E. Jeffries, Leroy Keith, Jr.,
Everett L. Morris, James M. Oates,
Calvin J. Pedersen, Herbert Roth, Jr.,
Richard E. Segerson and Lowell P.
Weicker, Jr.
<PAGE>
DELEGATION AND POWER OF ATTORNEY
PHOENIX EQUITY SERIES FUND
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 Equity Series Fund,
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 30, 1997, establishing Phoenix Equity Series
Fund, pursuant to Section 2.2 of that certain Agreement and
Declaration of Trust dated May 31, 1996, as amended, establishing
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
<PAGE>
DELEGATION AND POWER OF ATTORNEY
AUGUST 27, 1997
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, establishing 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 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 the
Secretary of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunto subscribed this Delegation and Power of
Attorney this 27th day of August, 1997.
- ------------------------------------- ---------------------------------------
/s/ C. Duane Blinn /s/ Leroy Keith, Jr.
C. Duane Blinn Leroy Keith, Jr.
- ------------------------------------- ---------------------------------------
/s/ Robert Chesek /s/ Everett L. Morris
Robert Chesek Everett L. Morris
- ------------------------------------- ---------------------------------------
E. Virgil Conway /s/ James M. Oates
E. Virgil Conway James M. Oates
- ------------------------------------- ---------------------------------------
/s/ Harry Dalzell-Payne /.s/ Calvin J. Pedersen
Harry Dalzell-Payne Calvin J. Pedersen
- ------------------------------------- ---------------------------------------
/s/ Francis E. Jeffries /s/ Philip R. Reynolds
Francis E. Jeffries Philip R. Reynolds
- ------------------------------------- ---------------------------------------
/s/ Herbert Roth, Jr. /s/ Lowell P. Weicker, Jr.
<PAGE>
- ------------------------------------- ---------------------------------------
Herbert Roth, Jr. Lowell P. Weicker
- ------------------------------------- ---------------------------------------
/s/ Richard E. Segerson
Richard E. Segerson
- ------------------------------------- ---------------------------------------
EXHIBIT 24(B) 9.3
FIRST AMENDMENT TO FINANCIAL AGENT AGREEMENT
<PAGE>
FIRST AMENDMENT TO FINANCIAL AGENT AGREEMENT
THIS AMENDMENT made effective as of the 27th day of February, 1998 amends that
certain Financial Agent Agreement dated December 11, 1996 by and between Phoenix
Equity Planning Corporation and The Phoenix Edge Series Fund (the "Agreement")
as hereinbelow provided.
W I T N E S S E T H :
WHEREAS, the parties hereto wish to amend the Agreement to eliminate
the provision that states that Financial Agent is not responsible for the acts
or omissions of any agent appointed by it:
NOW, THEREFORE, in consideration of the foregoing premise, the first
sentence of Paragraph 4 of the Agreement is amended to read as follows:
"Financial Agent shall not be liable for anything done or omitted to be
done by it in the exercise of due care in discharging its duties
specifically described hereunder."
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers on this 23rd day of March, 1998.
THE PHOENIX EDGE SERIES FUND
By: /s/ Michael E. Haylon
-------------------------------------------
Michael E. Haylon
Executive Vice President
PHOENIX EQUITY PLANNING CORPORATION
By: Philip R. McLoughlin
-------------------------------------------
Philip R. McLoughlin
President
EXHIBIT 24(B) 11
WRITTEN CONSENT OF PRICE WATERHOUSE LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 19, 1998, relating to the financial statements and financial highlights
of the Money Market Series, Growth Series, Multi-Sector Fixed Income Series,
Strategic Allocation (formerly Total Return) Series, International Series,
Balanced Series, Real Estate Series, Strategic Theme Series, Aberdeen New Asia
Series and Enhanced Index 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 Accounts" 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.
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> PHOENIX EDGE MONEY MARKET SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 122594
<INVESTMENTS-AT-VALUE> 122594
<RECEIVABLES> 4045
<ASSETS-OTHER> 61
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126700
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 93
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126607
<SHARES-COMMON-STOCK> 12661
<SHARES-COMMON-PRIOR> 13136
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 126607
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6936
<OTHER-INCOME> 0
<EXPENSES-NET> (674)
<NET-INVESTMENT-INCOME> 6262
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6262)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35987
<NUMBER-OF-SHARES-REDEEMED> (37089)
<SHARES-REINVESTED> 626
<NET-CHANGE-IN-ASSETS> (4754)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 494
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 674
<AVERAGE-NET-ASSETS> 123513
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> PHOENIX EDGE GROWTH SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1373918
<INVESTMENTS-AT-VALUE> 1498696
<RECEIVABLES> 14186
<ASSETS-OTHER> 90
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1512972
<PAYABLE-FOR-SECURITIES> 5594
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1810
<TOTAL-LIABILITIES> 7404
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1330807
<SHARES-COMMON-STOCK> 78569
<SHARES-COMMON-PRIOR> 65391
<ACCUMULATED-NII-CURRENT> 876
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 49107
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124778
<NET-ASSETS> 1505568
<DIVIDEND-INCOME> 13104
<INTEREST-INCOME> 5907
<OTHER-INCOME> 0
<EXPENSES-NET> (10190)
<NET-INVESTMENT-INCOME> 8821
<REALIZED-GAINS-CURRENT> 208505
<APPREC-INCREASE-CURRENT> 44028
<NET-CHANGE-FROM-OPS> 261354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8665)
<DISTRIBUTIONS-OF-GAINS> (236147)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12503
<NUMBER-OF-SHARES-REDEEMED> (12075)
<SHARES-REINVESTED> 12751
<NET-CHANGE-IN-ASSETS> 270173
<ACCUMULATED-NII-PRIOR> 739
<ACCUMULATED-GAINS-PRIOR> 76729
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8659
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10190
<AVERAGE-NET-ASSETS> 1380669
<PER-SHARE-NAV-BEGIN> 18.89
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 3.70
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (3.43)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.16
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> PHOENIX EDGE MULTI-SECTOR FIXED INCOME SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 184010
<INVESTMENTS-AT-VALUE> 188815
<RECEIVABLES> 3260
<ASSETS-OTHER> 55
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 192130
<PAYABLE-FOR-SECURITIES> 330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173
<TOTAL-LIABILITIES> 503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185251
<SHARES-COMMON-STOCK> 18455
<SHARES-COMMON-PRIOR> 14026
<ACCUMULATED-NII-CURRENT> 336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4806
<NET-ASSETS> 191627
<DIVIDEND-INCOME> 156
<INTEREST-INCOME> 12558
<OTHER-INCOME> 0
<EXPENSES-NET> (1046)
<NET-INVESTMENT-INCOME> 11668
<REALIZED-GAINS-CURRENT> 4695
<APPREC-INCREASE-CURRENT> 391
<NET-CHANGE-FROM-OPS> 16754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11946)
<DISTRIBUTIONS-OF-GAINS> (4694)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8084
<NUMBER-OF-SHARES-REDEEMED> (5265)
<SHARES-REINVESTED> 1610
<NET-CHANGE-IN-ASSETS> 46583
<ACCUMULATED-NII-PRIOR> 427
<ACCUMULATED-GAINS-PRIOR> 1251
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 805
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1059
<AVERAGE-NET-ASSETS> 160968
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> (0.77)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> PHOENIX EDGE STRATEGIC ALLOCATION SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 401598
<INVESTMENTS-AT-VALUE> 422469
<RECEIVABLES> 9284
<ASSETS-OTHER> 2671
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 434424
<PAYABLE-FOR-SECURITIES> 5037
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385
<TOTAL-LIABILITIES> 5422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 392784
<SHARES-COMMON-STOCK> 30382
<SHARES-COMMON-PRIOR> 27418
<ACCUMULATED-NII-CURRENT> 32
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15315
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20871
<NET-ASSETS> 429002
<DIVIDEND-INCOME> 2775
<INTEREST-INCOME> 8530
<OTHER-INCOME> 0
<EXPENSES-NET> (2862)
<NET-INVESTMENT-INCOME> 8443
<REALIZED-GAINS-CURRENT> 63639
<APPREC-INCREASE-CURRENT> 3449
<NET-CHANGE-FROM-OPS> 75531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8833)
<DISTRIBUTIONS-OF-GAINS> (52948)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3408
<NUMBER-OF-SHARES-REDEEMED> (4807)
<SHARES-REINVESTED> 4364
<NET-CHANGE-IN-ASSETS> 54758
<ACCUMULATED-NII-PRIOR> 415
<ACCUMULATED-GAINS-PRIOR> 4632
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2344
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2862
<AVERAGE-NET-ASSETS> 403522
<PER-SHARE-NAV-BEGIN> 13.65
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 2.46
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> (1.98)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.12
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> PHOENIX EDGE INTERNATIONAL SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 163202
<INVESTMENTS-AT-VALUE> 193771
<RECEIVABLES> 806
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194587
<PAYABLE-FOR-SECURITIES> 6
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472
<TOTAL-LIABILITIES> 478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 163224
<SHARES-COMMON-STOCK> 13357
<SHARES-COMMON-PRIOR> 11895
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1444)
<ACCUMULATED-NET-GAINS> 1364
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30964
<NET-ASSETS> 194108
<DIVIDEND-INCOME> 2255
<INTEREST-INCOME> 1052
<OTHER-INCOME> 0
<EXPENSES-NET> (1935)
<NET-INVESTMENT-INCOME> 1372
<REALIZED-GAINS-CURRENT> 13882
<APPREC-INCREASE-CURRENT> 5898
<NET-CHANGE-FROM-OPS> 21152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2639)
<DISTRIBUTIONS-OF-GAINS> (18496)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3309
<NUMBER-OF-SHARES-REDEEMED> (3280)
<SHARES-REINVESTED> 1434
<NET-CHANGE-IN-ASSETS> 21441
<ACCUMULATED-NII-PRIOR> 1391
<ACCUMULATED-GAINS-PRIOR> 4615
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1435
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1935
<AVERAGE-NET-ASSETS> 191303
<PER-SHARE-NAV-BEGIN> 14.52
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (1.50)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.53
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> PHOENIX EDGE BALANCED SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 218377
<INVESTMENTS-AT-VALUE> 230158
<RECEIVABLES> 3623
<ASSETS-OTHER> 2921
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236702
<PAYABLE-FOR-SECURITIES> 5249
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 273
<TOTAL-LIABILITIES> 5522
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210297
<SHARES-COMMON-STOCK> 18861
<SHARES-COMMON-PRIOR> 16942
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 53
<ACCUMULATED-NET-GAINS> 9048
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11782
<NET-ASSETS> 231180
<DIVIDEND-INCOME> 1284
<INTEREST-INCOME> 6557
<OTHER-INCOME> 0
<EXPENSES-NET> (1528)
<NET-INVESTMENT-INCOME> 6313
<REALIZED-GAINS-CURRENT> 28929
<APPREC-INCREASE-CURRENT> 398
<NET-CHANGE-FROM-OPS> 35640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6627
<DISTRIBUTIONS-OF-GAINS> 25654
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2522
<NUMBER-OF-SHARES-REDEEMED> (3214)
<SHARES-REINVESTED> 2612
<NET-CHANGE-IN-ASSETS> 26895
<ACCUMULATED-NII-PRIOR> 351
<ACCUMULATED-GAINS-PRIOR> 5789
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1194
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1528
<AVERAGE-NET-ASSETS> 215870
<PER-SHARE-NAV-BEGIN> 12.06
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 1.73
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (1.51)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> PHOENIX EDGE REAL ESTATE SECURITIES SERIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 45361
<INVESTMENTS-AT-VALUE> 54818
<RECEIVABLES> 228
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55049
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 390
<TOTAL-LIABILITIES> 390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45076
<SHARES-COMMON-STOCK> 3336
<SHARES-COMMON-PRIOR> 1586
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 45
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9457
<NET-ASSETS> 54659
<DIVIDEND-INCOME> 1686
<INTEREST-INCOME> 107
<OTHER-INCOME> 0
<EXPENSES-NET> (391)
<NET-INVESTMENT-INCOME> 1402
<REALIZED-GAINS-CURRENT> 1766
<APPREC-INCREASE-CURRENT> 5042
<NET-CHANGE-FROM-OPS> 8210
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1330)
<DISTRIBUTIONS-OF-GAINS> (1844)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2797
<NUMBER-OF-SHARES-REDEEMED> (1242)
<SHARES-REINVESTED> 196
<NET-CHANGE-IN-ASSETS> 31949
<ACCUMULATED-NII-PRIOR> 9
<ACCUMULATED-GAINS-PRIOR> 123
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 293
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417
<AVERAGE-NET-ASSETS> 39048
<PER-SHARE-NAV-BEGIN> 14.32
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 2.62
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (0.58)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.38
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> PHOENIX EDGE STRATEGIC THEME SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 49500
<INVESTMENTS-AT-VALUE> 52395
<RECEIVABLES> 27
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52423
<PAYABLE-FOR-SECURITIES> 4722
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81
<TOTAL-LIABILITIES> 4803
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46330
<SHARES-COMMON-STOCK> 4208
<SHARES-COMMON-PRIOR> 2365
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1605)
<ACCUM-APPREC-OR-DEPREC> 2895
<NET-ASSETS> 47620
<DIVIDEND-INCOME> 174
<INTEREST-INCOME> 372
<OTHER-INCOME> 0
<EXPENSES-NET> (385)
<NET-INVESTMENT-INCOME> 161
<REALIZED-GAINS-CURRENT> 4294
<APPREC-INCREASE-CURRENT> 1374
<NET-CHANGE-FROM-OPS> 5829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (161)
<DISTRIBUTIONS-OF-GAINS> (5461)
<DISTRIBUTIONS-OTHER> (23)
<NUMBER-OF-SHARES-SOLD> 2326
<NUMBER-OF-SHARES-REDEEMED> (987)
<SHARES-REINVESTED> 504
<NET-CHANGE-IN-ASSETS> 21648
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (438)
<GROSS-ADVISORY-FEES> 289
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 439
<AVERAGE-NET-ASSETS> 38536
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.82
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (1.47)
<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 11.32
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> PHOENIX EDGE ABERDEEN NEW ASIA SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 14123
<INVESTMENTS-AT-VALUE> 9723
<RECEIVABLES> 297
<ASSETS-OTHER> 65
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10085
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68
<TOTAL-LIABILITIES> 68
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15095
<SHARES-COMMON-STOCK> 1555
<SHARES-COMMON-PRIOR> 1163
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (160)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (514)
<ACCUM-APPREC-OR-DEPREC> (4404)
<NET-ASSETS> 10017
<DIVIDEND-INCOME> 352
<INTEREST-INCOME> 55
<OTHER-INCOME> (34)
<EXPENSES-NET> (162)
<NET-INVESTMENT-INCOME> 211
<REALIZED-GAINS-CURRENT> (526)
<APPREC-INCREASE-CURRENT> (4382)
<NET-CHANGE-FROM-OPS> (4697)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (355)
<DISTRIBUTIONS-OF-GAINS> (84)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1189
<NUMBER-OF-SHARES-REDEEMED> (863)
<SHARES-REINVESTED> 67
<NET-CHANGE-IN-ASSETS> (1568)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7
<OVERDISTRIB-NII-PRIOR> (4)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 260
<AVERAGE-NET-ASSETS> 12977
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (3.36)
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 6.44
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> PHOENIX EDGE ENHANCED INDEX SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-15-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 30219
<INVESTMENTS-AT-VALUE> 31051
<RECEIVABLES> 179
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31230
<PAYABLE-FOR-SECURITIES> 346
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33
<TOTAL-LIABILITIES> 379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29852
<SHARES-COMMON-STOCK> 2942
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 158
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 832
<NET-ASSETS> 30851
<DIVIDEND-INCOME> 175
<INTEREST-INCOME> 39
<OTHER-INCOME> 0
<EXPENSES-NET> (58)
<NET-INVESTMENT-INCOME> 156
<REALIZED-GAINS-CURRENT> 296
<APPREC-INCREASE-CURRENT> 832
<NET-CHANGE-FROM-OPS> 1284
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (146)
<DISTRIBUTIONS-OF-GAINS> (138)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3153
<NUMBER-OF-SHARES-REDEEMED> (238)
<SHARES-REINVESTED> 27
<NET-CHANGE-IN-ASSETS> 30851
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112
<AVERAGE-NET-ASSETS> 23025
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.54
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
