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<PAGE> PAGE 2
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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<PAGE> PAGE 18
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<PAGE> PAGE 19
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
066 A000500 N
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
070 B020600 N
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 33
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SIGNATURE DANE CRIGER
TITLE VICE PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932736
<NAME> THE PEGASUS PATHMAKER VARIABLE ANNUITY FUND
<SERIES>
<NUMBER> 2
<NAME> PEGASUS GROWTH & VALUE
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<TOTAL-LIABILITIES> 39
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,971
<SHARES-COMMON-STOCK> 2,386
<SHARES-COMMON-PRIOR> 652
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<OVERDISTRIBUTION-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (51)
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<NAME> THE PEGASUS PATHMAKER VARIABLE ANNUITY FUND
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<NUMBER> 3
<NAME> PEGASUS MID-CAP OPPORTUNITY FUND
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<ACCUMULATED-NII-CURRENT> 1
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<DISTRIBUTIONS-OF-INCOME> (3)
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<NUMBER-OF-SHARES-REDEEMED> (313)
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<NET-CHANGE-IN-ASSETS> 2,453
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<TABLE> <S> <C>
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<CIK> 0000932736
<NAME> THE PEGASUS PATHMAKER VARIABLE ANNUITY FUND
<SERIES>
<NUMBER> 4
<NAME> PEGASUS GROWTH FUND
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<CIK> 0000932736
<NAME> THE PEGASUS PATHMAKER VARIABLE ANNUITY FUND
<SERIES>
<NUMBER> 6
<NAME> PEGASUS INTRINSIC VALUE FUND
<S> <C>
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<PERIOD-START> MAY-01-1997
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<ACCUMULATED-NET-GAINS> 76
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 946
<NET-ASSETS> 13,926
<DIVIDEND-INCOME> 122
<INTEREST-INCOME> 54
<OTHER-INCOME> 0
<EXPENSES-NET> 60
<NET-INVESTMENT-INCOME> 116
<REALIZED-GAINS-CURRENT> 123
<APPREC-INCREASE-CURRENT> 945
<NET-CHANGE-FROM-OPS> 1,184
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (113)
<DISTRIBUTIONS-OF-GAINS> (47)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,225
<NUMBER-OF-SHARES-REDEEMED> (31)
<SHARES-REINVESTED> 14
<NET-CHANGE-IN-ASSETS> 13,926
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 77
<AVERAGE-NET-ASSETS> 6,318
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.57
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.53
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932736
<NAME> THE PEGASUS PATHMAKER VARIABLE ANNUITY FUND
<SERIES>
<NUMBER> 7
<NAME> PEGASUS BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,985
<INVESTMENTS-AT-VALUE> 33,839
<RECEIVABLES> 409
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,248
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18
<TOTAL-LIABILITIES> 18
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,371
<SHARES-COMMON-STOCK> 3,279
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 853
<NET-ASSETS> 34,230
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,037
<OTHER-INCOME> 0
<EXPENSES-NET> 115
<NET-INVESTMENT-INCOME> 922
<REALIZED-GAINS-CURRENT> 21
<APPREC-INCREASE-CURRENT> 853
<NET-CHANGE-FROM-OPS> 1,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (916)
<DISTRIBUTIONS-OF-GAINS> (21)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,249
<NUMBER-OF-SHARES-REDEEMED> (61)
<SHARES-REINVESTED> 91
<NET-CHANGE-IN-ASSETS> 34,230
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 119
<AVERAGE-NET-ASSETS> 15,443
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
ARTHUR ANDERSEN LLP
To the Trustees and Shareholders
of the Pegasus Funds:
In planning and performing our audit of the financial statements of the
PEGASUS VARIABLE FUNDS for the year ended December 31, 1997, we considered
their internal control, including control activities for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on internal control.
The management of the PEGASUS VARIABLE FUNDS is responsible for establishing
and maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of controls. Generally, controls that are relevant to an audit
pertain to the entity's objective of preparing financial statements for
external purposes that are fairly presented in conformity with general
accepted accounting principles. Those controls include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, error or fraud may occur
and not be detected. Also, projection of any evaluation of internal control to
future periods is subject to the risk that it may become inadequate because of
changes in conditions or that the effectiveness of the design and operation
may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving internal control and its operation, including controls for
safeguarding securities, that we consider to be material weaknesses as defined
above as of December 31, 1997.
This report is intended solely for the information and use of management, the
Board of Trustees of the PEGASUS VARIABLE FUNDS, and the Securities and
Exchange Commission.
Detroit, Michigan,
February 24, 1998. /s/ ARTHUR ANDERSEN LLP
AMENDMENT NO. 2
TO
TRUST INSTRUMENT
Pursuant to Article XI, Section 11.8 of the Trust Instrument dated
as of November 7, 1994 of Pegasus Variable Annuity Fund (the "Trust"), the
undersigned hereby adopt the following as Amendment No. 2 to the Trust
Instrument:
WHEREAS, Article XI, Section 11.9 of the Trust's Trust Instrument
dated as of November 7, 1994 (the "Trust Instrument") provides that
unless specifically provided, the Trustees may, without shareholder vote,
amend the Trust Instrument;
RESOLVED, that pursuant to the authorization described above, the
Trust Instrument shall be amended in the following respect:
Article I, Section 1.1 of the Trust Instrument shall be amended to
change the name of the Trust from "Pegasus Variable Annuity Fund" to
"Pegasus Variable Funds," and all other appropriate references in
the Trust Instrument are amended to reflect the fact that the name
of the Trust is "Pegasus Variable Funds";
FURTHER RESOLVED, that the foregoing amendment to the Trust
Instrument shall be effective upon the filing with the Securities and
Exchange Commission of an amendment to the Trust's Registration Statement
on Form N-lA showing the change in the Trust's name or upon such other
date as specified in such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No.
2, on behalf of the Trust, as of the date hereinafter set forth.
/s/ Will M. Caldwell
-----------------------------
Will M. Caldwell
/s/ Nicholas S. De Grazia
-----------------------------
Nicholas S. De Grazia
/s/ John P. Gould
-----------------------------
John P. Gould
<PAGE>
/s/ Marilyn McCoy
-----------------------------
Marilyn McCoy
/s/ Julius L. Pallone
-----------------------------
Julius L. Pallone
/s/ Donald G. Sutherland
-----------------------------
Donald G. Sutherland
/s/ Donald L. Tuttle
-----------------------------
Donald L. Tuttle
Date: December 1, 1997
-2-
