As filed with the Securities and Exchange Commission on January 18, 2002
Registration Nos. ___________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
--------------------
THE PHOENIX EDGE SERIES FUND
(Exact Name of Registrant as Specified in Charter)
--------------------
101 Munson Street, Greenfield, Massachusetts 01301
(Address of Principal Executive Offices)
Variable Annuity Operations
Phoenix Life Insurance Company
(800) 541-0171
(Registrants Telephone Number, including Area Code)
--------------------
Richard J. Wirth, Esq.
Phoenix Life Insurance Company
One American Row, PO Box 5056, Hartford, Connecticut 06102-5056
(860)403-5788
(Name and address of Agent for Service)
--------------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
--------------------
Registrant is relying on Section 24(f) of the Investment Company Act of
1940, as amended, which permits registration of an indefinite number of shares
of beneficial interest. Accordingly, no filing fee is due in connection with
this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
THE PHOENIX EDGE SERIES FUND
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
FORM N-14 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS/PROXY STATEMENT
- ------------------------------ -------------------------------------------------
PART A INFORMATION REQUIRED IN PROSPECTUS/PROXY STATEMENT
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Fee Table, Synopsis Information and Risk Synopsis; Principal Risk Factors; Comparison of
Factors Investment Objectives and Policies
4. Information about the Transaction Synopsis; The Proposed Reorganization;
Comparative Information on Shareholder Rights;
Exhibit A (Form of Agreement and Plan of
Reorganization)
5. Information about the Registrant Cover Page; Synopsis; Principal Risk Factors;
Comparison of Investment Objectives and
Policies; The Proposed Reorganization;
Comparative Information on Distribution
Arrangements; Comparative Information on
Shareholder Services; Information
on Shareholder Rights; and Other
Service Providers; Information About
The Funds; Current Prospectus of Registrant
6. Information about the Company Being Synopsis; Comparison of Investment Objectives
Acquired and Policies; The Proposed Reorganization;
Comparative Information on Distribution
Arrangements; Comparative Information on
Shareholder Services; Information
on Shareholder Rights; Information
About The Funds; Prospectus of the Registrant
dated October 29, 2001
7. Voting Information Synopsis; The Proposed Reorganization;
Comparative Information on Shareholder Rights;
Voting Information
8. Interest of Certain Persons and Experts The Proposed Reorganization
9. Additional Information Required for Not Applicable
Reoffering By Persons Deemed to be
Underwriters
FORM N-14 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS/PROXY STATEMENT
- ------------------------------ -------------------------------------------------
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information about the Registrant Cover Page; Statement of Additional Information
of Registrant, dated October 29, 2001
13. Additional Information about the See item 12
Company Being Acquired
14. Financial Statements Annual Report of the Registrant for the year ended
December 31, 2001; and Pro Forma Financial Statements
PART C: OTHER INFORMATION
15. Indemnification Indemnification
16. Exhibits Exhibits
17. Undertakings Undertakings
PART A
PHOENIX-JANUS CORE EQUITY SERIES
A SERIES OF
THE PHOENIX EDGE SERIES FUND
C/O PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
P.O. BOX 8037
BOSTON, MA 02266-8027
(800) 541-0171
--------------------------
February 22, 2002
Dear Contract/Policyholder:
The Phoenix-Janus Core Equity Series (the "Merging Series"), a series of The
Phoenix Edge Series Fund (the "Trust"), will hold a Special Meeting of
Shareholders at 10:00 a.m., local time, on March 18, 2002, at One American Row,
Hartford, Connecticut. At the meeting, Phoenix Life Insurance Company, and its
affiliates, will vote on an Agreement and Plan of Reorganization under which the
Merging Series will be combined with the Phoenix-Janus Growth Series, another
series of the Trust (the "Surviving Series"). The Surviving Series has a
substantially similar investment objective to that of the Merging Series. If
the reorganization agreement is implemented, the separate accounts holding
shares of the Merging Series will receive shares of the Surviving Series with an
aggregate value equal to the aggregate net asset value of your investment in the
Merging Series. No sales charge will be imposed in connection with the
reorganization. Phoenix Life Insurance Company will pay all costs of the
reorganization. The reorganization will be conditioned upon receipt of an
opinion of counsel indicating that the reorganization will qualify as a tax-free
reorganization for federal income tax purposes.
The Board of Trustees of the Trust believes that the reorganization offers
you the opportunity to pursue your goals in a larger fund. The Board of Trustees
has carefully considered and has unanimously approved the proposed
reorganization, as described in the accompanying materials, and believes that
the reorganization is in the best interests of the Merging Series and its
shareholders.
As an owner of a variable annuity or variable life insurance contract issued
by Phoenix Life Insurance Company, or its affiliated insurance companies
("Phoenix"), you have the contractual right to instruct the insurance company
how to vote the shares of the Merging Series at this meeting. Although you are
not directly a shareholder of the Merging Series, some of your contract value is
invested in the Merging Series pursuant to your policy or contract. For the
limited purposes of this prospectus and proxy statement, the term "shareholder"
refers to you as the contract/policy owner, unless the context otherwise
requires. Therefore, the Board of Trustees recommends that you complete and
return the enclosed voting instruction card to vote in favor of the
reorganization agreement. It is very important that you vote and that your
voting instruction card be received no later than March 18, 2002. If the voting
instruction card is executed and no direction is made, you will be considered as
voting FOR the proposal and, in the discretion of the insurance company, upon
such other business as may properly come before the Special Meeting.
We have enclosed a copy of the Notice of Special Meeting of Shareholders and
Prospectus/Proxy Statement and a card entitled "Voting Instructions". This card
should be used to register your vote on the proposals to be acted upon at the
Special Meeting. It is important for you to provide voting instructions with
respect to the issues described in the accompanying Prospectus/Proxy Statement.
We recommend that you read the Proxy Statement in its entirety as the
explanations will help you to decide what voting instructions you would like to
provide.
Voting instructions executed by you may be revoked at any time prior to
Phoenix voting the shares represented thereby by your providing Phoenix with a
properly executed written revocation of such voting instructions, or by your
providing Phoenix with proper later dated voting instructions by telephone or by
the Internet.
C-1
As a convenience, you can provide voting instructions in any one of four
ways:
Through the Internet - WWW.PROXYWEB.COM
By telephone - (888) 221-0697
By mail - USING THE ENCLOSED VOTING INSTRUCTIONS CARD(S) AND POSTAGE PAID
ENVELOPE
In Person - AT THE SPECIAL MEETING
YOUR VOTE ON THESE MATTERS IS IMPORTANT. PLEASE COMPLETE EACH VOTING
INSTRUCTIONS CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED OR VOTE USING
ONE OF THE OTHER METHODS DESCRIBED. PLEASE RESPOND - IN ORDER TO AVOID THE
ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT YOU VOTE PROMPTLY. IT IS
IMPORTANT THAT YOUR POLICY OR CONTRACT BE REPRESENTED.
Sincerely,
/S/ SIMON Y. TAN
- --------------------------------
SIMON Y. TAN
President
C-2
PHOENIX-JANUS CORE EQUITY SERIES
A SERIES OF
THE PHOENIX EDGE SERIES FUND
101 MUNSON STREET
GREENFIELD, MASSACHUSETTS 01301
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 18, 2002
--------------------------
To The Contract and Policy Holders:
The Phoenix-Janus Core Equity Series, a series of The Phoenix Edge Series
Fund (the "Trust"), a Massachusetts business trust, will hold a Special Meeting
of Shareholders at One American Row, Hartford, Connecticut on March 18, 2002 at
10:00 a.m., local time, for the following purposes:
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization, dated March 18, 2002, and the transactions it
contemplates, including (a) the transfer of all or substantially all of
the assets of the Phoenix-Janus Core Equity Series (the "Merging Series")
to the Phoenix-Janus Growth Series (the "Surviving Series"), another
series of The Phoenix Edge Series Fund, in exchange solely for shares of
the Surviving Series and the assumption by the Surviving Series of all
known liabilities of the Merging Series and (b) the distribution of the
shares of the Surviving Series so received to shareholders of the Merging
Series in complete liquidation of the Merging Series.
2. To consider and act upon any other business as may properly come before
the meeting and any adjournments thereof.
The Board of Trustees has fixed the close of business on January 15, 2002, as
the record date for determining shareholders entitled to notice of and to vote
at the Special Meeting and any adjournment or postponement thereof.
You are cordially invited to attend the Special Meeting.
Contract/Policyholders who do not expect to attend the Special Meeting are asked
to respond promptly via the Internet, via telephone or by returning a completed
voting instructions card. The Board of Trustees of the Trust is soliciting the
enclosed proxy.
By Order of the Board of Trustees of
The Phoenix Edge Series Fund,
RICHARD J. WIRTH
SECRETARY
Hartford, Connecticut
February 22, 2002
C-3
PHOENIX-JANUS CORE EQUITY SERIES
PHOENIX-JANUS GROWTH SERIES
BOTH, A SERIES OF
THE PHOENIX EDGE SERIES FUND
101 MUNSON STREET
GREENFIELD, MASSACHUSETTS 01301
PROSPECTUS/PROXY STATEMENT
FEBRUARY 22, 2002
The Phoenix Edge Series Fund ("Trust"), a Massachusetts business trust,
serves as an investment vehicle for use in connection with variable life
insurance policies and variable annuity contracts (collectively, "Contracts")
issued by Phoenix Life Insurance Company and its subsidiaries (together,
"Phoenix") and their separate accounts. Phoenix and the separate accounts are
the sole shareholders of record of the Trust.
This Prospectus/Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Trustees of the Trust, for use at the
special meeting of shareholders of the Phoenix-Janus Core Equity Series (the
"Merging Series") to be held at 10:00 a.m., local time, on March 18, 2002 at the
offices of the Phoenix Life Insurance Company located at One American Row,
Hartford, Connecticut, and at any adjournment(s) thereof.
The purpose of the meeting is to consider an Agreement and Plan of
Reorganization that would effect the reorganization of the Merging Series into
the Phoenix-Janus Growth Series, another series of The Phoenix Edge Series Fund
(the "Surviving Series"), as described below. Under the reorganization
agreement, all or substantially all of the assets of the Merging Series would be
transferred to the Surviving Series in exchange solely for shares of beneficial
interest in the Surviving Series and the assumption by the Surviving Series of
all known liabilities of the Merging Series. These shares of the Surviving
Series would then be distributed pro rata to the separate accounts of the
insurance companies then holding shares of the Merging Series, and then the
Merging Series would be liquidated. As a result of the proposed transactions,
the separate accounts would receive a number of full and fractional shares of
the Surviving Series with an aggregate net asset value equal to the aggregate
net asset value of the Merging Series shares on the effective date of the
reorganization.
The Surviving Series and the Merging Series are both series of the same
open-end management investment company. The Surviving Series has an investment
objective of long-term growth of capital in a manner consistent with the
preservation of capital. The Merging Series has an investment objective of
Long-term growth of capital. Phoenix Variable Advisors, Inc. is employed as the
investment advisor for the Surviving Series and the Merging Series. Janus
Capital Corporation is employed as the investment subadvisor for the Surviving
Series and the Merging Series.
This Prospectus/Proxy Statement, which you should retain for future
reference, sets forth concisely the information that you should know about the
Merging Series, the Surviving Series, and the transactions contemplated by the
reorganization agreement, before you vote on the proposed reorganization. As
used in this Prospectus/Proxy Statement, the term "series" refers to the Merging
Series and the Surviving Series collectively or individually.
A Prospectus and a Statement of Additional Information for the series dated
October 29, 2001, have been filed with the Securities and Exchange Commission
("SEC") and are incorporated by reference in this Prospectus/Proxy Statement.
Copies of the above-referenced documents are available upon written or oral
request and without charge by contacting Phoenix Variable Products Mail
Operations, P.O. Box 8027, Boston, Massachusetts 02266-8027, or by calling
toll-free at 1-800-541-0171.
1
The Trust files reports, proxy materials and other information with the SEC.
Information about the Fund, including the SAI, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You can obtain information on
the operation of the Public Reference Room by calling the SEC at (202) 942-8090.
Reports and other information about the Fund are available on the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. Copies of the information may
be obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: publicinfo@sec.gov, or by writing the SEC Public
Reference Section, Washington, D.C. 20549-0102.
This Prospectus/Proxy Statement constitutes the proxy statement of the
Merging Series for the meeting and the prospectus for shares of the Surviving
Series that have been registered with the SEC and are being issued in connection
with the reorganization. This Prospectus/Proxy Statement is expected to first be
sent to shareholders on or about February 22, 2002.
---------------
THE SECURITIES OF THE SURVIVING SERIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC NOR HAS THE SEC DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
TABLE OF CONTENTS
Page
----
SYNOPSIS................................................................. 4
PRINCIPAL RISK FACTORS................................................... 7
THE PROPOSED REORGANIZATION.............................................. 8
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................... 11
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS..................... 13
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES.......................... 13
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS............................ 14
FISCAL YEAR.............................................................. 15
MANAGEMENT AND OTHER SERVICE PROVIDERS................................... 15
VOTING INFORMATION....................................................... 15
ADDITIONAL INFORMATION ABOUT THE SERIES.................................. 17
MISCELLANEOUS............................................................ 18
OTHER BUSINESS........................................................... 20
APPENDIX A............................................................... A-1
3
SYNOPSIS
- --------------------------------------------------------------------------------
BACKGROUND The proposed reorganization is the outcome of deliberations by the
Board of Trustees of the Trust. Management recommended that the Trustees
consider the benefits that the series shareholders would realize if the Merging
Series were to be combined with the Surviving Series. In response to their
recommendation, the independent trustees of the Trust requested that management
outline a specific reorganization proposal for their consideration and provide
an analysis of the specific benefits that shareholders would realize from the
proposal. Independent trustees are trustees who are not "interested persons" of
the Trust (as defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended (the "1940 Act")). After considering the specific reorganization
proposal, the Trustees, including the independent trustees, at a meeting held on
November 13, 2001, unanimously approved the reorganization.
SUMMARY OF THE PROPOSED REORGANIZATION
The reorganization will be effected in accordance with the terms of a
reorganization agreement, a form of which is attached to this Prospectus/Proxy
Statement as Appendix A. The reorganization agreement provides for:
o the acquisition by the Surviving Series, on the closing date of the
reorganization, of all or substantially all of the assets of the Merging
Series in exchange solely for shares of the Surviving Series and the
assumption by the Surviving Series of all known liabilities of the
Merging Series;
o the distribution of shares of the Surviving Series to the shareholders of
the Merging Series in exchange for their respective shares of the Merging
Series; and
o the complete liquidation of the Merging Series as provided in the
Agreement and Plan of Reorganization.
The reorganization is anticipated to occur on or about March 22, 2002. If the
reorganization agreement is implemented, the separate account holding shares of
the Merging Series will receive a number of full and fractional shares of the
Surviving Series shares with an aggregate net asset value equal to the aggregate
net asset value as of the closing date of the reorganization.
The implementation of the reorganization agreement is subject to a number of
conditions set forth in the reorganization agreement. See "The Proposed
Reorganization." Among the significant conditions (which may not be waived) are:
o the receipt by the Trust of an opinion of counsel that, for federal
income tax purposes, the reorganization will qualify as a tax free
reorganization defined in section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"); and
o the approval of the reorganization agreement by the shareholders of the
Merging Series.
The reorganization agreement provides that Phoenix Life Insurance Company
will bear all costs and expenses of the reorganization, including the costs of
the meeting, the costs and expenses incurred in the preparation and mailing of
the notice, this Prospectus/Proxy Statement and the proxy, and the solicitation
of voting instruction cards.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment strategies of the Merging
Series and the Surviving Series are substantially similar:
o The Merging Series has an investment objective of long-term growth of
capital. The Surviving Series has an investment objective of long-term
growth of capital in a manner consistent with the preservation of
capital.
o Under normal circumstances, the Merging Series invests at least 80% of
its assets in equity securities selected for their growth potential.
Under normal circumstances, the Surviving Series invests primarily in
common stocks selected for their growth potential.
See "Principal Risk Factors" and "Comparison of Investment Objectives and
Policies" below, for further information on the similarities and differences
between the investment objectives, policies and risks of the Surviving Series
and the Merging Series. You can also find additional information for the
Surviving Series in its Prospectus.
4
DIVIDENDS AND DISTRIBUTIONS
Both series distribute net investment income quarterly. Both series
distribute net realized capital gains, if any, at least annually. All dividends
and distributions of the Merging Series and the Surviving Series are paid in
additional shares of the respective series. You can also find additional
information on dividends and distributions for the Surviving Series in its
Prospectus.
EXCHANGES
Both series currently offer shareholders similar exchange privileges.
Shareholders of either series may exchange their shares for shares of another
series of the Trust.
REDEMPTION PROCEDURES
Shareholders of both series may redeem their shares at a redemption price
equal to the net asset value of the shares (minus any applicable product
surrender charge) as next determined following the receipt of a redemption order
in proper form. Ordinarily, payments of redemption proceeds for redeemed shares
are made within seven days after receipt of a redemption request in proper form.
See "Comparative Information on Shareholder Services" for more information. You
can also find additional information on the Surviving Series' redemption
procedures in its Prospectus.
FEDERAL TAX CONSEQUENCES OF PROPOSED REORGANIZATION
At the closing of the reorganization, the Trust and the Surviving Series will
receive an opinion of counsel, subject to customary assumptions and
representations, that:
o no gain or loss will be recognized by the Merging Series on the transfer of
the assets of the Merging Series to the Surviving Series in exchange for
Surviving Series shares and the assumption by the Surviving Series of all
known liabilities of the Merging Series or upon the distribution of
Surviving Series shares to the Merging Series insurance company
shareholders in exchange for their shares of the Merging Series; and
o no gain or loss will be recognized by the Surviving Series upon the receipt
of the assets of the Merging Series solely in exchange for the Surviving
Series shares and the assumption by the Surviving Series of all known
liabilities of the Merging Series.
See "The Proposed Reorganization--Federal Income Tax Consequences" for more
information.
RISK FACTORS
An investment in the Surviving Series is subject to specific risks arising
from the types of securities in which the Surviving Series invests and general
risks arising from investing in any mutual fund type of investment. The
principal risks to which the Surviving Series is subject include the risks of
investing in U.S. and foreign (including emerging market) equities and fixed
income securities. Investors can lose money by investing in the Surviving
Series. There is no assurance that the Surviving Series will meet its investment
objective. Because the Surviving Series' investment objectives and policies are
substantially similar to those of the Merging Series, an investment in the
Surviving Series is subject to many of the same risks as an investment in the
Merging Series. See "Principal Risk Factors" for the principal risks associated
with an investment in the Surviving Series.
MANAGEMENT AND OTHER SERVICE PROVIDERS
As the investment subadvisor for both series, Janus Capital Corporation
("Janus") is responsible for managing the investment program and the general
operations of both series, as well as the day-to-day management of each series'
portfolio. Janus began serving as an investment advisor to an investment company
in 1970 and currently serves as investment advisor to all of the Janus retail
funds, acts as subadvisor for a number of private label mutual funds and
provides separate account advisory services for institutional accounts.
Karen L. Reidy is the portfolio manager of the Merging Series. Ms. Reidy is an
Executive Vice President and also serves as the portfolio manager of the Janus
Balanced Fund and Janus Core Equity Fund (formerly, "Janus Equity Income Fund"),
retail funds with similar objectives and strategies as the series. E. Marc Pinto
is portfolio manager of the Surviving Series. He is also the portfolio manager
of several Janus portfolios in the large cap growth discipline. He has also
served as an assistant portfolio manager of Janus Twenty Fund and Janus Growth
and Income Fund.
5
Phoenix Variable Advisors, Inc. ("PVA") is responsible for managing both
series' investment program and general operations. PVA serves as a manager of
managers of Janus and certain other subadvisors. In this capacity, PVA (i) sets
the series' overall investment strategies; (ii) evaluates, selects, and
recommends to the Trust board subadvisors needed to manage all or part of the
assets within a series; (iii) monitors and evaluates the subadvisors' investment
programs and results as well as the performance of subadvisors relative to the
applicable benchmark indexes; and (iv) reviews the series' compliance with their
investment objectives, policies and restrictions. PVA began operations as an
investment advisor in 1999, the same year it began serving as an investment
advisor to the Trust. PVA was established to serve as manager of managers for
those series of the Trust with unaffiliated subadvisors.
COMPARATIVE FEE TABLES
The tables below are designed to assist an investor in understanding the
various direct and indirect costs and expenses associated with an investment in
each series. Each table also includes pro forma information for the combined
Surviving Series resulting from the reorganization assuming the reorganization
took place on December 31, 2001, and after adjusting such information to reflect
current fees. The expense information for the Surviving Series and the Merging
Series is based upon expenses for the twelve months ended December 31, 2001.
As indicated in the tables below, immediately upon effectiveness of the
reorganization, the "Total Annual Fund Operating Expenses" for the combined
Surviving Series are expected to be lower than the "Total Annual Fund Operating
Expenses" for the Merging Series.
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
PRO FORMA COMBINED
SURVIVING SERIES MERGING SERIES SURVIVING SERIES
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
Annual Fund Operating Expenses
(expenses that are deducted, from series assets)
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
Management Fees 0.85% 0.85% 0.85%
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
Distribution and service (12b-1 Fees) None None None
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
Other Expenses 0.34% 0.77% 0.33%
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
Total Annual Fund Operating Expenses(1) 1.19% 1.62% 1.18%
- ------------------------------------------------------ ------------------- ------------------ ---------------------------------
The following tables show shareholder transaction expenses currently
applicable to the purchase of shares of both series. These expenses will remain
in effect as to the combined Surviving Series following the reorganization.
- ---------------------------------------------------------------------------------------------------------------------
MERGING SERIES AND SURVIVING SERIES
- ---------------------------------------------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
- -------------------------------------------------------------------------------------------- ------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
- -------------------------------------------------------------------------------------------- ------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of the lesser of the value redeemed
or the amount invested) None
- -------------------------------------------------------------------------------------------- ------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends [and other Distributions] None
- -------------------------------------------------------------------------------------------- ------------------------
Redemption Fee None
- -------------------------------------------------------------------------------------------- ------------------------
Exchange Fee None
- -------------------------------------------------------------------------------------------- ------------------------
Maximum Account Fee None
- -------------------------------------------------------------------------------------------- ------------------------
- --------------------
(1) Phoenix agreed to reimburse series expenses, other than management fees,
through December 31, 2001, to the extent that such expenses exceed 0.15% of the
series' average net assets (the "expense cap"). The expense cap was increased to
0.20% effective January 1, 2002 and may be terminated or increased at any time.
Actual total series operating expenses after reimbursement were 1.00% for the
year ended December 31, 2001.
6
EXAMPLE
The example illustrates the impact of the above fees and expenses on an
account with an initial investment of $10,000, based on the expenses shown
above. It assumes a 5% annual return, the reinvestment of all dividends and
distributions and "Annual Fund Operating expenses" remaining the same each year.
This example is hypothetical; actual fund expenses and returns vary from year to
year, and may be higher or lower than those shown.
Fees and expenses if you redeemed your shares at the end of each time period:
- ------------------------------------------------- ------------ ------------- ------------- --------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------- ------------ ------------- ------------- --------------
Surviving Series $121 $378 $654 $1,443
- ------------------------------------------------- ------------ ------------- ------------- --------------
Merging Series $165 $511 $881 $1,922
- ------------------------------------------------- ------------ ------------- ------------- --------------
Pro Forma Combined Surviving Series $120 $375 $649 $1,432
- ------------------------------------------------- ------------ ------------- ------------- --------------
[Note: Actual expenses for the Surviving Series may be lower than those shown
in the example above since the expense levels used to calculate the figures
shown do not include the reimbursement of expenses over certain levels by the
Surviving Series' advisor.]
The purpose of the tables above is to help the investor understand the
various costs and expenses that the investor will bear directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
PRINCIPAL RISK FACTORS
- --------------------------------------------------------------------------------
Because the Surviving Series' investment objective and policies are
substantially similar to those of the Merging Series, an investment in the
Surviving Series is subject to many of the same specific risks as an investment
in the Merging Series. The following highlights the principal similarities and
differences between the principal risk factors associated with an investment in
the Surviving Series as contrasted with those associated with the Merging Series
and is qualified in its entirety by the more extensive discussion of risk
factors in the Prospectuses and Statements of Additional Information of the
Surviving Series and the Merging Series, respectively.
An investment in the Surviving Series is subject to specific risks arising
from the types of securities in which the Surviving Series invests and general
risks arising from investing in any mutual fund. You can lose money by investing
in the Surviving Series. There is no assurance that the Surviving Series will
meet its investment objective.
GENERAL
The value of the investments of the Merging Series and the Surviving Series
that supports your share value can decrease as well as increase. If between the
time you purchase shares and the time you sell shares the value of your fund's
investments decreases, you will lose money.
Investment values can decrease for a number of reasons. Conditions affecting
the overall economy, specific industries or companies in which your fund invests
can be worse than expected and investments may fail to perform as the series'
investment subadvisor expects. As a result, the value of your shares may
decrease.
EQUITY SECURITIES
Both series invest in possibly under-valued equity securities of companies
with earnings growth potential, that may not be recognized by the market at
large. Eligible securities include domestic common stocks; preferred stocks;
securities convertible into common stocks or preferred stocks such as
convertible preferred stocks, bonds and debentures; and other securities with
equity characteristics. In contrast, the portfolio manager of the Surviving
Series generally seeks larger, more established companies. In general, companies
with large capitalizations go in and out of favor based on market and economic
conditions. Larger companies also tend to be less volatile than companies with
smaller market capitalizations. In exchange for this potentially lower risk, the
Surviving Series' value may not rise as much as the value of the Merging Series
or other funds that emphasize companies with smaller market capitalizations. The
value approach to investing also involves the risk that the value of the
security will not be recognized for an unexpectedly long period of time, and
that the security is not undervalued but is appropriately priced due to
fundamental problems not yet apparent.
7
FOREIGN SECURITIES
Both series may invest in foreign securities. In the both series, the
subadvisor selects foreign securities on a stock-by-stock basis without regard
to any defined allocation among countries or geographic regions. However,
certain factors such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency relationships, and
prospects for economic growth among countries, regions or geographic areas may
warrant greater consideration in selecting foreign securities in either series.
There are no limitations on the countries in which either series may invest and
the series may at times have significant foreign exposure. Three primary risks
associated with investing in foreign securities include foreign securities
themselves, emerging market risks and foreign currency risks. Foreign
investments could be more difficult to sell than U.S. investments. Investments
in foreign securities involve difficulties in receiving or interpreting
financial and economic information, possible imposition of taxes, higher
brokerage and custodian fees, possible currency exchange controls or other
government restrictions, including possible seizure or nationalization of
foreign deposits or assets. Foreign securities may also be less liquid and more
volatile than U.S. securities. There may also be difficulty in invoking legal
protections across borders. In addition, investment in emerging market countries
presents risks in greater degree than those presented by investment in foreign
issuers in countries with developed securities markets and more advanced
regulatory systems. Some foreign securities are issued by companies organized
outside the United States and are traded only or primarily in trading markets
outside the United States using foreign currency. Changes in foreign exchange
rates will affect the value of these securities. In addition, when certain
foreign countries experience economic difficulties, there is an increased risk
that the foreign government may impose restrictions on the free exchange of its
currency.
SPECIAL SITUATIONS
The Merging Series may invest in "special situations." A special situation
arises when the subadvisor believes that the securities of an issuer will be
recognized and appreciate in value due to a specific development with respect to
that issuer. Special situations may include significant changes in a company's
allocation of its existing capital, a restructuring of assets, or a redirection
of free cash flows. The Surviving Series does not intend to engage in special
situation investing beyond its customary focus on equities securities of
companies with earnings growth potential that may not be recognized by the
market at large. Special situations may involve greater risks than ordinary
investment securities. The companies involved often are smaller, unseasoned
companies and the securities may not perform as the subadvisor expects. Analysis
of special situations is more complex than for ordinary investments, making it
more difficult for the subadvisor to accurately predict risk and return.
JUNK BONDS
Both series may invest in fixed income securities including
high-yield/high-risk bonds ("junk bonds"). The Merging Series has limited its
investments in junk bonds to less than 20% of the series' assets, while the
Surviving Series may invest up to 35% of the series' assets in junk bonds.
High-yield, high-risk securities (so called "junk bonds") are securities rated
below investment grade by the primary rating agencies such as Standard & Poor's
and Moody's. Below-investment grade securities present a greater risk that the
issuer will not be able to make interest or principal payments on time. If this
happens, either series would lose income and could expect a decline in the
market value of the securities. Issuers of high-yield securities may not be as
strong financially as those issuing bonds with higher credit ratings, and are
more vulnerable to real or perceived economic changes, political changes, or
adverse developments specific to the issuer. Analysis of the creditworthiness of
issuers of below investment grade securities may be more complex than for higher
grade securities, making it more difficult to accurately predict risk. The junk
bond market can experience sudden and sharp price swings.
THE PROPOSED REORGANIZATION
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
The terms and conditions under which the proposed reorganization may be
consummated are set forth in the reorganization agreement. Significant
provisions of the reorganization agreement are summarized below. This summary,
however, is qualified in its entirety by reference to the reorganization
agreement, a form of which is attached to this Prospectus/Proxy Statement as
Appendix A.
8
The Agreement and Plan of Reorganization contemplates:
o the acquisition by the Surviving Series, on the closing date of the
reorganization, of all or substantially all of the assets of the Merging
Series in exchange solely for shares of the Surviving Series and the
assumption by the Surviving Series of all known liabilities of the
Merging Series;
o the distribution of shares of the Surviving Series to the shareholders of
the Merging Series in exchange for their respective shares of the Merging
Series; and
o the complete liquidation of the Merging Series as provided in the
Agreement and Plan of Reorganization.
The assets of the Merging Series to be acquired by the Surviving Series
include all property, including, without limitation, all cash, securities, and
dividends or interest receivables which are owned by the Merging Series and any
deferred or prepaid expenses shown as an asset on the books of the Merging
Series on the closing date of the reorganization. The Surviving Series will
assume all liabilities, accrued expenses, costs, charges, and reserves of the
Merging Series reflected on an unaudited statement of assets and liabilities as
of the closing date. The closing of the reorganization will occur following
satisfaction (or waiver) of the conditions to closing set forth in the
reorganization agreement, or such later date as the parties may agree.
The value of the Merging Series' assets to be acquired and the Merging
Series' liabilities to be assumed by the Surviving Series and the net asset
value of shares of the Surviving Series will be determined immediately after the
close of regular trading on the New York Stock Exchange on the closing date,
using the valuation procedures set forth in the series' then current Prospectus
and Statement of Additional Information. The number of shares of the Surviving
Series to be issued to the Merging Series will be determined by dividing (a) the
value of the aggregate net assets attributable to shares of the Merging Series
by (b) the net asset value per share of the Surviving Series.
On the closing date, the Merging Series will liquidate and distribute pro
rata to its shareholders of record the Surviving Series shares received by the
Merging Series in exchange for their respective shares in the Merging Series.
This liquidation and distribution will be accomplished by opening an account on
the books of the Surviving Series in the name of each shareholder of record of
the Merging Series and by crediting to each account the shares due pursuant to
the reorganization. Every Merging Series shareholder will own shares of the
Surviving Series immediately after the reorganization, the value of which will
be equal to the value of the shareholder's Merging Series shares immediately
prior to the reorganization.
At or prior to the closing date, the Merging Series will declare a dividend
or dividends which, together with all previous such dividends, will have the
effect of distributing to the Merging Series shareholders all of the Merging
Series' investment company taxable income for all taxable years ending at or
prior to the closing date and all of its net capital gains realized (after
reduction for any capital loss carry-forward) in all taxable years ending at or
prior to the closing date.
Subject to certain limitations on liability, the Surviving Series has agreed
to indemnify and hold harmless the Trustees of the Trust who are not "interested
persons" of the advisor or distributor of the Merging Series (the "Independent
Trustees") from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses and liabilities of any sort or kind
(collectively "Liability") which may be asserted against them or for which the
Independent Trustees may become liable arising out of or attributable to the
transactions contemplated by the reorganization agreement, provided that any
Independent Trustee seeking the benefit of this indemnification shall not have
materially contributed to the creation of such Liability by acting in a manner
contrary to his or her fiduciary duties as a trustee under the 1940 Act.
The consummation of the reorganization is subject to a number of conditions
set forth in the reorganization agreement. Certain of these conditions may be
waived by the Board of Trustees, or by an authorized officer of the Trust, as
appropriate.
Among the significant conditions which may not be waived are: (a) the receipt
by the Trust of an opinion of counsel that the reorganization will qualify as a
tax free reorganization as defined in section 368(a) of the Code for federal
income tax purposes and (b) the approval of the reorganization agreement by the
shareholders of the Merging Series. The Plan may be terminated and the
reorganization abandoned at any time, before or after approval by the
shareholders of the Merging Series, prior to the closing date, by either party
by resolution of its Board of Trustees. In addition, the reorganization
agreement may be amended by mutual agreement, except that no amendment may be
made to the reorganization agreement subsequent to the meeting that
9
would change the provisions for determining the number of Surviving Series
shares to be issued to shareholders of the Merging Series without their further
approval.
REASONS FOR THE REORGANIZATION
The proposed reorganization is the outcome of the deliberation by the Board
of Trustees of the Trust. Management recommended that the Trustees consider the
benefits that shareholders would realize if the Merging Series were to be
combined with the Surviving Series. In response to this recommendation, the
independent trustees of the Trust requested that management outline a specific
reorganization proposal for their consideration and provide an analysis of the
specific benefits to be realized by shareholders from the proposal.
In the course of their review, the Trustees of the Trust noted that the
reorganization would be a means of combining two series with substantially
similar investment objectives and principal investment strategies and would
permit the shareholders of the Merging Series to pursue their investment goals
in a larger fund. In reaching this conclusion, the Board considered a number of
additional factors, including, but not limited to, the following:
o the potential benefits of the reorganization to shareholders of the
Surviving Series and the Merging Series, including whether the
reorganization could result in economies of scale through the spreading
of fixed costs over a larger asset base;
o the terms and conditions of the proposed Plan, and whether the proposed
Plan will result in dilution of any shareholder interests;
o the total expense ratio of the combined Surviving Series following the
reorganization is projected to be lower than the current total expense
ratio of the Merging Series;
o the compatibility of investment objectives, policies, restrictions and
investment holdings of the corresponding Surviving Series;
o whether the terms and conditions of the Plan which might affect the price
of the outstanding shares of each series;
o whether reorganization provides for continuity of distribution and
shareholder servicing arrangements; and
o the reorganization will not result in the recognition of any gain or loss
for federal income tax purposes either to the Merging Series or the
Surviving Series and the reorganization will not adversely impact the tax
treatment of the variable contracts invested in whole or in part in
either of the series.
After considering these and other factors, the Board of Trustees of the
Trust, including the independent trustees, unanimously concluded at a meeting
held on November 13, 2001 that the reorganization is fair and reasonable and
would be in the best interests of both the Merging Series and Surviving Series
and their respective shareholders and that the interests of either series'
shareholders will not be diluted as a result of the transactions contemplated by
the reorganization. The Board of Trustees of the Trust then unanimously voted to
approve the reorganization and authorized the officers of the Trust to submit
the reorganization proposal to shareholders for consideration.
FEDERAL INCOME TAX CONSEQUENCES
McDermott, Will & Emery, is to opine, subject to customary assumptions and
representations, on the basis of the existing provisions of the Internal Revenue
Code (the "Code"), the Treasury Regulations promulgated thereunder and current
administrative and judicial interpretations thereof, that, for Federal income
tax purposes, the reorganization will qualify as a tax free reorganization
described in section 368(a) of the Code. Accordingly,;
o no gain or loss will be recognized by the Merging Series on the transfer
of the assets of the Merging Series to the Surviving Series in exchange
for Surviving Series shares and the assumption by the Surviving Series of
all known liabilities of the Merging Series or upon the distribution of
Surviving Series shares to the Merging Series shareholders in exchange
for their shares of the Merging Series;
o no gain or loss will be recognized by the Merging Series on the transfer
of the assets of the Merging Series to the Surviving Series in exchange
for Surviving Series shares and the assumption by the Surviving Series of
all known liabilities of the Merging Series or upon the distribution of
Surviving Series shares to the Merging Series shareholders in exchange
for their shares of the Merging Series;
10
o the tax basis of the Merging Series' assets acquired by the Surviving
Series will be the same to the Surviving Series as the tax basis of such
assets to the Merging Series immediately prior to the reorganization, and
the holding period of the assets of the Merging Series in the hands of
the Surviving Series will include the period during which those assets
were held by the Merging Series;
o no gain or loss will be recognized by the Surviving Series upon the
receipt of the assets of the Merging Series solely in exchange for the
Surviving Series shares and the assumption by the Surviving Series of all
known liabilities of the Merging Series;
The receipt of such an opinion, that the reorganization will qualify as a tax
free reorganization described section 368(a) of the Code, is a condition to the
consummation of the reorganization. The Trust has not obtained an Internal
Revenue Service ("IRS") private letter ruling regarding the federal income tax
consequences of the reorganization, and the IRS is not bound by advice of
counsel. You are not directly a shareholder of the Merging Series but, instead,
some of your variable life insurance or variable annuity contract is invested in
the Merging Series pursuant to your policy or contract. We also believe,
however, that the reorganization should not adversely affect the tax treatment
of your variable contract.
Shareholders of the series should consult their tax advisors regarding the
effect, if any, of the proposed reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the reorganization, shareholders of the series should also
consult tax advisors as to state and local tax consequences, if any, of the
reorganization.
CAPITALIZATION
The following table sets forth the capitalization of the Surviving Series and
the Merging Series, and on a pro forma basis for the combined Surviving Series
as of December 31, 2001 giving effect to the proposed acquisition of net assets
of the Merging Series at net asset value.
- --------------------------------------------------------------------------------------------------
SURVIVING SERIES MERGING SERIES PRO FORMA
COMBINED SERIES
- --------------------------------------------------------------------------------------------------
Net assets $68,734,189 20,809,412 89,543,601
- --------------------------------------------------------------------------------------------------
Net asset value per share $7.16 8.67 7.16
- --------------------------------------------------------------------------------------------------
Shares outstanding 9,595,784 2,399,218 12,502,127
- --------------------------------------------------------------------------------------------------
The table set forth above should not be relied on to determine the number of
Surviving Series shares to be received in the reorganization. The actual number
of shares to be received will depend upon the net asset value and number of
shares outstanding of the Merging Series and the Surviving Series at the time of
the reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The following discussion is a summary of some of the more significant
similarities and differences in the investment objectives, policies and
restrictions of the Surviving Series and the Merging Series. The discussion
below is qualified in its entirety by the discussion elsewhere in this
Prospectus/Proxy Statement, and in the fund's Prospectus and Statement of
Additional Information.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Surviving Series and the Merging Series are
substantially similar. The investment objectives of the Surviving Series and
the Merging Series are "fundamental policies" which may not be changed without
the approval of the holders of at least a "majority of the outstanding voting
shares" of the Trust. A majority of the outstanding voting shares is defined in
the 1940 Act as the lesser of (a) the vote of the holders of 67% or more of the
outstanding voting shares of the series present in person or by proxy, if the
holders of more than 50% of the outstanding voting shares are present in person
or by proxy, or represented by proxy, or (b) the vote of the holder of more than
50% of the outstanding voting shares of the series.
11
The principal investment strategies of the Surviving Series are substantially
similar to the principal investment strategies of the Merging Series.
Both series invest in possibly under-valued equity securities selected for
their growth potential. While the Merging and Surviving Series do not share the
same portfolio manager, both portfolio managers are employees of the same
subadvisor and both use the same general "bottom up" approach to selecting
companies. This means that both portfolio managers will seek to identify
individual companies with earnings growth potential that may not be recognized
by the market at large. The Surviving Series may, however, seek larger, more
established companies. Alternatively, the Merging Series may consider "special
situations" when evaluating whether to invest in particular undervalued stocks.
This approach may tend to favor smaller, less seasoned companies.
In general, both series may invest in fixed income securities such as
preferred stock, convertible securities, bonds and debentures. Prior to October
29, 2001, the Merging Series was named the "Phoenix-Janus Equity Income Series".
Accordingly, the Merging Series operated with a greater focus on income
producing investments such as foreign and domestic convertible and
non-convertible preferred stocks and bonds. On or about August, 2001, the
subadvisor informed the Trustees that because the universe of dividend-paying
stocks had been shrinking and more and more companies were deploying their free
cash flow in ways other than distributing dividends, the subadvisor believed
that it would be in the Merging Series' best interest to eliminate current
income as an element of the Merging Series' investment objective. On August 28,
2001, the Trustees voted, subject to shareholder approval, to eliminate the
income component of the Merging Series' investment objective, change the Merging
Series' name to "Phoenix-Janus Core Equity Series", and revise the Merging
Series' investment strategies accordingly. On October 29, 2001, the requisite
percentage of shareholders of the Merging Series directed Phoenix to approve the
foregoing modifications. As a result of these modifications, it would be
expected that the Merging Series' portfolio holdings would become, and remain,
substantially similar to those of the Surviving Series.
Both series also invest in foreign securities using substantially similar
investment strategies. Both series may also invest in fixed income securities
including high-yield/high-risk bonds ("junk bonds"), albeit to different degrees
(i.e., the Surviving Series may invest up to 15% more of the series' assets in
junk bonds).
The Merging Series may engage in short sales or "naked" short sales to the
extent of 8% of the series' assets while the Surviving Series has no intentions
of using this investment technique.
CERTAIN INVESTMENT RESTRICTIONS
Both series are subject to similar investment restrictions that restrict
the scope of their investments. These investment restrictions are "fundamental"
policies. A "fundamental" policy is defined in the 1940 Act to mean that the
restriction cannot be changed without the vote of a "majority of the outstanding
voting shares" of the series (as that term is defined in the 1940 Act).
Either series may not:
(1) with respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or
authorities or repurchase agreements collateralized by U.S. Government
securities and other investment companies), if: (a) such purchase would, at
the time, cause more than 5% of the series' total assets, taken at market
value, to be invested in the securities of such issuer; or (b) such
purchase would, at the time, result in more than 10% of the outstanding
voting securities of such issuer being held by the series;
(2) purchase securities in a given industry if, after giving effect to the
purchase, more than 25% of its total assets would be invested in the
securities of one or more issuers conducting business activities in the
same industry (excluding the U.S. Government or its agencies or
instrumentalities);
(3) issue senior securities in contravention of the 1940 Act. Activities
permitted by SEC exemptive orders or staff interpretations shall not be
deemed prohibited by this restriction;
12
(4) borrow money, except (i) in amounts not to exceed one third of the value of
the series' total assets (including the amount borrowed) from banks, and
(ii) up to an additional 5% of its total assets from banks or other lenders
for temporary purposes. For purposes of this restriction, (a) investment
techniques such as margin purchases, short sales, forward commitments, and
roll transactions, (b) investments in instruments such as futures
contracts, swaps, and options, and (c) short-term credits extended in
connection with trade clearances and settlement shall not constitute
borrowing;
(5) underwrite the securities issued by other persons, except to the extent
that, in connection with the disposition of portfolio securities, a series
may be deemed to be an underwriter under the applicable law;
(6) purchase or sell real estate, except that a series may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in
mortgage-related securities and other securities that are secured by real
estate or interests therein, or (iv) hold and sell real estate acquired by
the series as a result of the ownership of securities;
(7) make loans, except that a series may (i) lend portfolio securities, (ii)
enter into repurchase agreements, (iii) purchase all or a portion of an
issue of debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other
securities, whether or not the purchase is made upon the original issuance
of the securities, and (iv) participate in an interfund lending program
with other registered investment companies; and/or
(8) purchase or sell commodities or commodity contracts, except a series may
purchase and sell derivatives (including, but not limited to, options,
futures contracts and options on futures contracts) whose value is tied to
the value of a financial index or a financial instrument or other asset
(including, but not limited to, securities indices, interest rates,
securities, currencies and physical commodities).
If any percentage restriction described above for the series is adhered to at
the time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the series' assets will not constitute a
violation of the restriction.
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
The shares of the Trust are not directly offered to the public. Shares of the
Trust are currently offered to certain separate accounts to fund variable
accumulation annuity contracts or variable universal life insurance policies
("variable products") issued by Phoenix Life Insurance Company ("Phoenix"), PHL
Variable Insurance Company ("PHL Variable"), or Phoenix Life and Annuity Company
("PLAC") (collectively, "contracts" and individually, "contract"). Investments
in the Trust may occur only by buying a contract and directing the allocation of
your payment(s) to the subaccount(s) corresponding to a series. The subaccounts,
in turn, invest in shares of the Trust. Not all series may be offered through a
particular variable product.
Phoenix Equity Planning Corporation ("PEPCO"), an indirect subsidiary of
Phoenix, and a broker-dealer registered with relevant regulators, serves as
national distributor of variable products issued by these entities. Variable
products may be purchased through broker-dealers registered with applicable
regulatory authorities and who have entered into a sales agreement with PEPCO.
Sales commissions will be paid to registered representatives based on the amount
of premiums received in connection with the sale of variable products, subject
to governing law. Phoenix and its insurance company affiliates also pay
commissions to PEPCO based on the amount of premiums received in connection with
the sale of variable products, subject to governing law.
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Both series offer the same shareholder services. Both series distribute net
investment income quarterly and distribute net realized capital gains, if any,
at least annually. All dividends and distributions with respect to the shares of
the Merging Series and the Surviving Series are paid in additional shares of the
respective series. The number of shares received in connection with any
reinvestment of dividends will be based upon the net asset value per share of
the applicable series in effect on the record
13
date. Both series currently offer shareholders similar exchange privileges.
Shareholders of the either series may exchange their shares for shares of a
corresponding series of the Trust.
Shares of the Surviving Series and the Merging Series may be redeemed at a
redemption price equal to the net asset value of the shares as next determined
following the receipt of a redemption order and any other required documentation
in proper form. Payment of redemption proceeds for redeemed shares are generally
made within seven days after receipt of a redemption request in proper form and
documentation, provided that each check used for purchases of shares has been
cleared for payment.
Both series offer the same shareholder services. After the closing,
the same services will continue to be available to the shareholders of the
Merging Series but in their capacity as shareholders of the Surviving Series.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
- --------------------------------------------------------------------------------
The following is a summary of certain provisions of the Amended Declaration
of Trust of the Merging Series and the Surviving Series.
FORM OF ORGANIZATION
Both series are series of The Phoenix Edge Series Fund, a business trust
organized under the laws of the Commonwealth of Massachusetts, pursuant to a
Declaration of Trust dated February 18, 1986, as amended. The operations of
these series are governed by the Declaration of Trust and by Massachusetts law.
The shares of the Trust are registered with the SEC as open-end management
investment company and are subject to the provisions of the 1940 Act and the
rules and regulations of the SEC thereunder. The Trustees may generally
authorize mergers, consolidations, share exchanges and reorganizations of a new
fund or of each respective series with another series or other business
organization subject to shareholder approval.
SHARES
The Declaration of Trust authorizes the Trustees to create an unlimited
number of series. The Trust currently has thirty series outstanding. The Trust
may also organize other series in the future. When issued, the shares are fully
paid and non-assessable, have no preference, preemptive or similar rights unless
designated by the Trustees, and are freely transferable. The assets and proceeds
received by the Trust from the issue or sale of shares of a series are allocated
to that series and constitute the rights of that series, subject only to the
rights of creditors. Any underlying assets of a series are required to be
segregated on the books of account of the Trust. These assets are to be used to
pay the expenses of the series as well as a share of the general expenses of the
Trust.
MEETINGS
The Trustees or President of the Trust may call shareholder meetings as
necessary. To the extent required by the 1940 Act, meetings held for the purpose
of voting on the removal of any trustee shall be called by trustees upon written
request by shareholders holding at least ten percent of the outstanding shares
entitled to vote.
SHAREHOLDER LIABILITY
Unlike the stockholders of a corporation, under certain circumstances
shareholders of a business trust may be held personally liable for the debts,
claims or other obligations of a business trust. However, the Declaration of
Trust limits shareholder liability. The Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust. The Declaration of Trust provides for indemnification
for any shareholder and any former shareholder who is exposed to liability by
reason of a claim or demand relating to such person being a shareholder. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability, which is considered remote, is limited to circumstances in which the
Trust itself would be unable to meet its obligations.
LIABILITY OF TRUSTEES
The Declaration of Trust provides that trustees will generally be personally
liable only for willful misfeasance, bad faith, gross negligence or reckless
disregard of duties. The Trust may purchase insurance for trustees to cover
potential liabilities and will generally indemnify a trustee against such
claims. The Trust may also advance payments to a trustee in connection with
indemnification.
14
LIQUIDATION OR DISSOLUTION
In the event of the liquidation or dissolution of either series, the trustees
shall distribute the assets of the series to the shareholders, according to
their respective rights, after accounting for the liabilities of the Trust.
FISCAL YEAR
- --------------------------------------------------------------------------------
The series each operate on a fiscal year which ends December 31.
MANAGEMENT AND OTHER SERVICE PROVIDERS
- --------------------------------------------------------------------------------
Responsibility for the overall supervision of both series rests with Trustees
of the Trust. Phoenix Variable Advisors, Inc. serves as investment advisor to
both series, and Janus Capital Corporation serves as subadvisor to both series.
A team of managers and analysts makes investment and trading decisions for each
series. The names and general information pertaining to each portfolio manager
for both series is described above and within the Prospectus for the Trust.
Phoenix Equity Planning Corporation serves as financial agent of both series
and, as such, performs administrative, bookkeeping and pricing functions.
State Street Bank and Trust Company serves as the custodian of both series.
PricewaterhouseCoopers LLP serves as independent accountants for both series.
VOTING INFORMATION
- --------------------------------------------------------------------------------
QUORUM AND VOTING REQUIREMENTS
This Prospectus/Proxy Statement is being furnished to the shareholders of the
Merging Series in connection with the solicitation by the Board of Trustees of
the Trust of proxies to be used at the meeting. Shareholders of record of the
Merging Series at the close of business on January 15, 2002 ("Record Date") will
be entitled to vote at the meeting or at any adjournments thereof. Each of the
above shares is entitled to one vote, with proportionate voting for fractional
shares. The record owners of the shares of each separate series of the Trust
include the Phoenix Life Variable Universal Life Account, Phoenix Life and
Annuity Variable Universal Life Account and the PHL Variable Universal Life
Account (collectively, the "VUL Accounts"), which fund variable life insurance
policies, and the Phoenix Life Variable Accumulation Account and the PHL
Variable Accumulation Account (collectively, the "VA Accounts"), which fund
variable annuity contracts.
Each shareholder of record at the close of business on the Record Date is
entitled to a notice of the meeting and will be asked to instruct Phoenix how to
vote at the Special Meeting or any adjourned or postponed session. No
shareholder, to the Trust's knowledge, owns Contracts which are funded by more
than five percent of the outstanding voting shares of the Trust or of any
series. The number of votes with respect to which each shareholder will be
entitled to instruct Phoenix will be determined by applying the shareholder's
percentage interest in a subaccount to the total number of votes attributable to
the subaccount. In determining the number of votes, fractional shares will be
recognized. The number of votes for which a shareholder may provide instructions
will be determined as of the Record Date.
In accordance with its view of applicable law, Phoenix will vote the shares
of the Merging Series for which Phoenix receives voting instructions from
shareholder in accordance with those instructions. Phoenix will vote shares for
which it has not received timely voting instructions from shareholders and any
shares held by Phoenix or its affiliates for their own accounts in the same
proportion as the shares for which shareholders have provided voting
instructions to Phoenix.
In addition to the proxy solicitation by mail, officers and regular employees
of Phoenix or one of its affiliates may solicit voting instructions personally,
by telephone or telegram. Phoenix will, upon request, reimburse banks, brokers,
fiduciaries and nominees for their reasonable expenses in sending proxy
materials. The cost of solicitation of voting instructions will be borne
indirectly by Phoenix. You can provide voting instructions in any one of four
ways:
15
o THROUGH THE INTERNET - www.proxyweb.com
o BY TELEPHONE - (888) 221-0697
o BY MAIL - using the enclosed Voting Instructions Card(s) and
postage paid envelope
o IN PERSON - at the Special Meeting
Proxies executed by shareholders may be revoked at any time before they are
exercised by a written revocation received by the Secretary of the Trust, by
properly executing a later-dated proxy or by attending the meeting and voting in
person, by telephone or by the Internet.
We encourage you to vote by Internet or telephone, using the account number
that appears on your enclosed Voting Instructions Card. These voting methods
will reduce the time and costs associated with this proxy solicitation.
As of the Record Date, Phoenix owned 2,405,133 shares of the Merging Series
and 9,807,918 shares of the Surviving Series. As of the Record Date, less than
1% of the outstanding shares of beneficial interest of either series were held
of record or beneficially owned under a contract or policy by the Trustees or
nominees for election as Trustee and by the executive officers of the Trust, as
a group.
A COPY OF THE TRUST'S MOST RECENT ANNUAL REPORT, DATED DECEMBER 31, 2001 IS A
PART OF THE STATEMENT OF ADDITIONAL INFORMATION AND WILL BE FURNISHED SHORTLY
TO SHAREHOLDERS. THE TRUST WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER,
UPON REQUEST, A COPY OF THE 2001 ANNUAL REPORT AND THE 2001 SEMI-ANNUAL REPORT.
SUCH REQUESTS MAY BE DIRECTED TO DANIELLE CERRONE, PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS, P.O. BOX 8027, BOSTON, MA 02266-8027. SHAREHOLDERS MAY ALSO
CALL DANIELLE CERRONE TOLL-FREE AT (800) 541-0171.
The Board knows of no business, other than that mentioned in the Notice of
Special Meeting, that will be presented for consideration at the Special
Meeting. If any other matter is properly presented, it is the intention of the
persons named on the enclosed Voting Instructions Card(s) to vote in accordance
with their best judgment.
A majority of the shares entitled to vote shall constitute a quorum for the
meeting. The affirmative vote of a majority of the outstanding voting securities
of the Trust (i.e., the lesser of (i) 67% or more of the eligible votes of the
Merging Series represented at the meeting if more than 50% of the eligible votes
of the Merging Series are present in person or by proxy or (ii) more than 50% of
the eligible votes of the Merging Series) must approve the herein contemplated
merger. For purposes of determining the presence of a quorum for transacting
business at the meeting and for determining whether sufficient votes have been
received for approval of the proposal to be acted upon at the meeting,
abstentions and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be treated as shares that are present at the meeting, but which have not been
voted. For this reason, abstentions and broker non-votes will assist the Merging
Series in obtaining a quorum, but both have the practical effect of a "no" vote
for purposes of obtaining the requisite vote for approval of the proposal.
If either (a) a quorum is not present at the meeting or (b) a quorum is
present but sufficient votes in favor of the reorganization proposal have not
been obtained, then the persons named as proxies may propose one or more
adjournments of the meeting without further notice to shareholders to permit
further solicitation of proxies provided such persons determine, after
consideration of all relevant factors, including the nature of the proposal, the
percentage of votes then cast, the percentage of negative votes then cast, the
nature of the proposed solicitation activities and the nature of the reasons for
such further solicitation, that an adjournment and additional solicitation is
reasonable and in the interests of shareholders. The persons named as proxies
will vote those proxies that such persons are required to vote FOR the
reorganization proposal in favor of such an adjournment and will vote those
proxies required to be voted AGAINST the reorganization proposal against such
adjournment.
The meeting may be adjourned from time to time by the vote of a majority of
the shares represented at the meeting, whether or not a quorum is present. If
the meeting is adjourned to another time or place, notice need not be given of
the adjourned meeting at which the adjournment is taken, unless a new record
date of the adjourned meeting is fixed or unless the adjournment is for more
than sixty (60) days from the date set for the original meeting, in which case
the Trustees shall set a new record date. Notice of any such adjourned meeting
shall be given to each shareholder of record entitled to vote at the
16
adjourned. At any adjourned meeting, the Trust may transact any business which
might have been transacted at the original meeting.
The individuals named as proxies on the enclosed instruction card will vote
in accordance with the shareholder's direction, as indicated thereon, if the
instruction card is received and is properly executed. If the shareholder
properly executes an instruction card and gives no voting instructions with
respect to the reorganization proposal, the shares will be voted in favor of the
reorganization proposal. The individuals named as proxies, in their discretion,
may vote upon such other matters as may properly come before the meeting. The
Board of Trustees of the Trust is not aware of any other matters to come before
the meeting.
Approval of the reorganization proposal by the shareholders of the Merging
Series is a condition of the consummation of the reorganization. If the
reorganization is not approved, the Merging Series will continue as a series of
the Trust and the Board of Trustees of the Trust may consider other alternatives
in the best interests of the shareholders of the Merging Series.
REVOCATION OF PROXIES
Any shareholder who has given an instruction card has the right to revoke the
proxy any time prior to its exercise:
o by written notice of the an instruction card's revocation to the
Secretary of the Trust at the above address prior to the meeting;
o by the subsequent execution and return of another instruction card prior
to the meeting;
o by use of any electronic, telephonic or other alternative means
authorized by the Trustees for authorizing the proxy to act; or
o by being present and voting in person at the meeting and giving oral
notice of revocation to the Chairman of the meeting.
NO APPRAISAL RIGHTS
The staff of the SEC has taken the position that any rights to appraisal
arising under state law are preempted by the provisions of the 1940 Act and Rule
22c-1 thereunder, which generally requires that shares of a registered open-end
investment company be valued at their next determined net asset value.
SOLICITATION OF PROXIES
In addition to solicitation of proxies by mail, officers and employees of
Phoenix Variable Advisors, Inc., or its affiliates, may solicit proxies
personally or by telephone or telegram. Phoenix Variable Advisors, Inc., or
other representatives of the Trust may also use one or more proxy solicitation
firms to assist with the mailing and tabulation effort and any special personal
solicitation of instruction cards. Banks, brokers, fiduciaries and nominees
will, upon request, be reimbursed by Phoenix Variable Advisors, Inc. for their
reasonable expenses in sending proxy material to be beneficial owners of shares
of the Merging Series. The cost of the solicitation of proxies will be borne by
Phoenix Variable Advisors, Inc.
If a shareholder wishes to participate in the meeting, but does not wish to
authorize the execution of an instruction card by telephone, the shareholder may
still submit the instruction card form included with this proxy statement or
attend the meeting in person.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES OF THE
TRUST, RECOMMEND YOU APPROVE THE PLAN OF REORGANIZATION.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE FILL IN, DATE AND SIGN
THE ENCLOSED INSTRUCTION CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF IT IS MAILED IN THE UNITED STATES.
ADDITIONAL INFORMATION ABOUT THE SERIES
- --------------------------------------------------------------------------------
Additional information about both series is included in the series'
Prospectus accompanying this document and is incorporated by reference herein.
Further information about the both series is included in the Statement of
Additional Information, dated October 29, 2001, which has been filed with the
SEC and is incorporated by reference herein. A copy of the
17
Statement of Additional Information may be obtained without charge by contacting
Phoenix Variable Products Mail Operations, P.O. Box 8027, Boston, Massachusetts
02266-8027.
MISCELLANEOUS
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
Both series and the Trust are each registered under the 1940 Act and are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and the 1940 Act, and, in accordance therewith, file reports,
proxy materials, and other information with the SEC. Information about the Fund,
including the SAI, can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. You can obtain information on the operation of the Public
Reference Room by calling the SEC at (202) 942-8090. Reports and other
information about the Fund are available on the EDGAR Database on the SEC's
Internet site at http://www.sec.gov. Copies of the information may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov, or by writing the SEC Public Reference Section,
Washington, D.C. 20549-0102.
DISCUSSION OF PERFORMANCE FOR THE YEAR ENDED DECEMBER 31, 2001.
The following table compares investment performance for both series'
performance for the year ended December 31, 2001 and compares the same against
relevant benchmarks.
AVERAGE ANNUAL TOTAL RETURNS(1) (Period Ending 12/31/01)
- --------------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION INCEPTION DATE
- --------------------------------------------------------------------------------------
Surviving Series (23.84%) N/A (15.00%) 12/15/99
- --------------------------------------------------------------------------------------
Merging Series (11.63%) N/A (6.15%) 12/15/99
- --------------------------------------------------------------------------------------
S&P 500 Stock Index(2) (11.87%) N/A (8.58%) N/A
- --------------------------------------------------------------------------------------
GROWTH OF $10,000(3) (Periods ending 12/31/01)
- ----------------------------------------------------
YEAR SURVIVING SERIES S&P 500 STOCK INDEX
- ----------------------------------------------------
1999 $10,599.90 $10,399.96
- ----------------------------------------------------
2000 $ 9,415.93 $ 9,444.50
- ----------------------------------------------------
2001 $ 7,171.17 $ 8,322.98
- ----------------------------------------------------
- ----------------------------------------------------
YEAR MERGING SERIES S&P 500 STOCK INDEX
- ----------------------------------------------------
1999 $10,585.90 $10,399.96
- ----------------------------------------------------
2000 $ 9,936.82 $ 9,444.50
- ----------------------------------------------------
2001 $ 8,780.90 $ 8,322.98
- ----------------------------------------------------
- --------------------
(1) The series' average annual returns in this chart do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if sales charges were deducted.
(2) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance which includes net dividends reinvested. The index
is not available for direct investment.
(3) This chart assumes an initial investment of $10,000 made on the inception
dates noted above. Performance assumes dividends and capital gains are
reinvested.
18
PHOENIX-JANUS GROWTH SERIES
INVESTOR PROFILE
The Fund's investment objective is long-term growth of capital in a manner
consistent with the preservation of capital.
INVESTMENT ADVISOR'S REPORT
Volatility was prevalent throughout much of the economic landscape in 2001. With
unemployment rising to a six-year high and earnings by U.S. companies
increasingly dismal, the Federal Reserve lowered interest rates 11 times to
1.75%. This influx of liquidity helped consumer spending hold up surprisingly
well despite the terrorist attacks of September 11. In this environment, the
Portfolio underperformed its benchmark, the S&P 500 Index.
Among our top performers was Microsoft. While it may be surprising that a
technology name gained ground during the year, the software giant is often
considered a safe haven in the industry with its dominant market share and solid
cash flow. Investor perception aside, the company reported a number of positive
developments, including its antitrust settlement with the U.S. Justice
Department. Though there are still pending lawsuits with nine states, the issue
seems to be finally nearing a close. In addition, Microsoft launched Windows XP
and gaming console Xbox.
Elsewhere, one of our more defensive holdings, General Electric, ended the
period in negative territory. Nonetheless, CEO Jeffrey Immelt said the company
expects to grow earnings 17%-18% in 2002 during a recent meeting. Furthermore,
GE plans to launch an aggressive acquisition campaign as a result of its strong
balance sheet and weak economic conditions, which should enable it to take
advantage of some excellent buying opportunities.
OUTLOOK
Going forward, the economic outlook continues to be uncertain. With that in
mind, we will maintain our balanced investment approach. That is, weighing a
company's risk against its reward while being valuation sensitive.
PHOENIX-JANUS CORE EQUITY SERIES
INVESTOR PROFILE
The Fund's investment objective is long-term growth of capital.
INVESTMENT ADVISOR'S REPORT
Amid optimism for an economic recovery in 2002, the major stock indexes rallied
through the final months of 2001 and erased the losses posted immediately
following the September 11 terrorist attacks. Helping embolden the markets was
the Federal Reserve, which cut interest rates 11 times during the year to trim
the key overnight lending rate to 1.75%, a 40-year low. In this turbulent
environment, the Portfolio fell, but still beat its benchmark, the S&P 500
Index.
Minnesota Mining & Manufacturing (3M) supported our results. The company is
benefiting from new management direction from General Electric veteran Jim
McNerney, who took the helm on January 1, 2001, and immediately turned his
attention to improving the company's working capital structure, shoring up cash
flow and increasing the effectiveness of management. Another steady performer
was the world's largest brewer, Anheuser-Busch, which managed to introduce price
increases even as the economy slowed and pricing power became scarce.
On the downside, financial services giant Citigroup worked against us. The
recession hurt its corporate finance business, and the World Trade Center
disaster generated a $500 million loss for its insurance unit. Consequently, the
stock experienced some selling pressure. Exxon Mobil also disappointed as it
fell in lockstep with oil prices.
OUTLOOK
Looking ahead, I believe many issues need to be resolved before the economy
regains the solid footing necessary for a recovery. That being the case, we will
continue to focus on quality companies at attractive prices, confident that
those with the strongest fundamentals will prevail.
EQUITY SECTOR WEIGHTINGS AT 12/31/01 (as a percentage of equity holdings)
- ----------------------------------------------------------------------------------------------------------------------
SECTOR SURVIVING SERIES MERGING SERIES
- ----------------------------------------------------------------------------------------------------------------------
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Technology $13,486,102.70 20.92% $ 3,108,385.25 16.34%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Health Care $ 8,366,479.15 12.98% $ 1,650,720.95 8.68%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Financials $10,191,156.55 15.81% $ 4,464,929.17 23.47%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Consumer Cyclicals $ 2,992,105.25 4.64% $ 2,255,167.19 11.86%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Capital Goods $ 7,654,175.55 11.87% $ 2,252,091.30 11.84%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Consumer Staples $17,510,224.75 27.16% $ 2,874,466.43 15.11%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Communication Services $ 1,187,788.20 1.84% $ 515,480.64 2.71%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Energy $ 3,088,919.25 4.79% $ 752,036.70 3.95%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Transportation $ 0.0 0.00% $ 333,069.60 1.75%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Basic Materials $ 0.0 0.00% $ 683,463.60 3.59%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
Utilities $ 0.0 0.00% $ 133,083.87 0.70%
- -------------------------------------- ----------------------- ------------------ ---------------------- -------------
SUM OF EQUITY HOLDINGS $ 64,476,951.40 100.00% $19,022,894.70 100.00%
- -------------------------------------------------------------- ----------------------------------------- -------------
ASSET MIX AT DECEMBER 31, 2001 (as a percentage of total net assets)
- -----------------------------------------------------------------------
SURVIVING SERIES MERGING SERIES
- -----------------------------------------------------------------------
Common Stock 85.1% 84.6%
- -------------------------------- ------------------- ------------------
Foreign Common Stock 4.7% 9.2%
- -------------------------------- ------------------- ------------------
Convertible Preferred Stock 1.0% 0.0%
- -------------------------------- ------------------- ------------------
Convertible Bonds 0.5% 0.0%
- -------------------------------- ------------------- ------------------
Total Equity 91.4% 93.8%
- -------------------------------- ------------------- ------------------
Foreign Preferred Stock 0.9% 0.0%
- -------------------------------- ------------------- ------------------
Agency Securities 0.7% 0.0%
- -------------------------------- ------------------- ------------------
Corporate Bonds 0.4% 0.0%
- -------------------------------- ------------------- ------------------
Total Cash/Short Term 6.5% 6.2%
- -------------------------------- ------------------- ------------------
Total Fund 100.0% 100.0%
- -----------------------------------------------------------------------
TEN LARGEST HOLDINGS AT DECEMBER 31, 2001 (as a percentage of total net assets)
- ---------------------------------------------------------------------------------------------------------
SURVIVING SERIES MERGING SERIES
- ------------------------------------------------------- -------------------------------------------------
- ----------------------------------------- ------------- ---------------------------------- --------------
Microsoft Corp. 5.5% Citigroup, Inc. 5.1%
- ----------------------------------------- ------------- ---------------------------------- --------------
Citigroup, Inc. 5.4% Tyco Capital Corp. 4.3%
- ----------------------------------------- ------------- ---------------------------------- --------------
General Electric Co. 4.7% Minnesota Mining & Mfg. Co. 3.5%
- ----------------------------------------- ------------- ---------------------------------- --------------
Pfizer, Inc. 4.6% General Electric Co. 2.8%
- ----------------------------------------- ------------- ---------------------------------- --------------
Genentech, Inc. 4.4% March & Mclennan Cos, Inc. 2.7%
- ----------------------------------------- ------------- ---------------------------------- --------------
Tyco Capital Corp. 4.4% Viacom, Inc. Class B 2.6%
- ----------------------------------------- ------------- ---------------------------------- --------------
Comcast Corp. Special Class A 4.4% American International Group 2.5%
- ----------------------------------------- ------------- ---------------------------------- --------------
Viacom, Inc. Class B 4.3% AT&T Wireless Services, Inc. 2.5%
- ----------------------------------------- ------------- ---------------------------------- --------------
Liberty Media Corp. 4.2% Automatic Data Processing, Inc. 2.4%
- ----------------------------------------- ------------- ---------------------------------- --------------
Federal National Mortgage Association 4.2% Honeywell International, Inc. 2.3%
- ----------------------------------------- ------------- ---------------------------------- --------------
LEGAL MATTERS
Richard J. Wirth, Counsel of Phoenix Life Insurance Company, has passed upon
certain legal matters in connection with the issuance of the shares of the
Surviving Series.
ADDITIONAL FINANCIAL INFORMATION
The tables set forth below present certain financial information for the
Surviving Series. The financial highlights for each year ended December 31 are
derived from the Surviving Series' audited financial statements for that year.
The data should be read in conjunction with the audited financial statements and
related notes, which are included in the Statement of Additional Information
related to this Prospectus/Proxy Statement. The financial statements for the
Surviving Series for prior periods are contained in the Surviving Series' Annual
Report to Shareholders which are included in the Statement of Additional
Information related to this Prospectus Proxy/Statement.
SURVIVING SERIES FINANCIAL HIGHLIGHTS (Selected data for a share outstanding
throughout the indicated period)
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the series'
financial performance for the period of the series' operations. Certain
information reflects financial results for a single share. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in the series (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
unless otherwise noted. Their report and the series' financial statements are
included in the Annual Report and by reference in the Statement of Additional
Information.
19
-----------------------------------------
FROM
YEAR ENDED DECEMBER 31 INCEPTION
--------------------------- 12/15/99 TO
2001 2000 12/31/99
---- ---- --------
Net asset value, beginning of period................................................... $10.60 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)......................................................... [To be 0.01 0.01
Net realized and unrealized gain (loss).............................................. (1.19) 0.59
filed ----- -----
TOTAL FROM INVESTMENT OPERATIONS................................................... (1.18) 0.60
by ----- -----
LESS DISTRIBUTIONS
Dividends from net investment income................................................. amendment] (0.01) --
----- ----
TOTAL DISTRIBUTIONS................................................................ (0.01) --
----- ----
CHANGE IN NET ASSET VALUE.............................................................. (1.19) 0.60
----- -----
NET ASSET VALUE, END OF PERIOD......................................................... $ 9.41 $10.60
====== ======
Total Return........................................................................... (11.17)% 6.00%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)................................................ $69,508 $3,275
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................................................................... 1.00% 1.00%(1)
Net investment income................................................................ 0.15% 1.61%(1)
Portfolio turnover rate................................................................ 16% 0%(2)
(1) Annualized.
(2) Not annualized.
FUTURE SHAREHOLDER MEETINGS
As a Massachusetts business trust, the Trust does not hold shareholder
meetings, unless required by the 1940 Act. Other than this meeting, the Trust
does not anticipate holding a meeting of shareholders of the series in 2002.
Shareholders who wish to present a proposal for action at the next meeting
should submit the proposal to:
Richard J. Wirth
Phoenix Life Insurance Company
PO Box 5056
Hartford, CT 06102-5056
Proposals must be received a reasonable time prior to the date of the
shareholder meeting to be considered for inclusion in the proxy materials for
the meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be submitted for consideration by shareholders.
OTHER BUSINESS
- --------------------------------------------------------------------------------
The Board of Trustees of the Trust knows of no business to be brought before
the meeting other than the matters set forth in this Prospectus/Proxy Statement.
Should any other matter requiring a vote of Merging Series' shareholders arise,
however, the proxies will vote thereon according to their best judgment in the
interests of the Merging Series and the shareholders of the Merging Series.
By Order of the Board of Trustees,
RICHARD J. WIRTH
Secretary
Hartford, Connecticut
February 22, 2002
20
APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 18th day of March, 2002, by and between The Phoenix Edge Series Fund, a
Massachusetts business trust (the "Trust"), with its principal place of business
at 101 Munson Street, Greenfield, Massachusetts 01301, on behalf of both the
Phoenix-Janus Growth Series (the "Surviving Fund"), a separate series of the
Trust, and the Phoenix-Janus Core Equity Series (the "Merging Fund"), another
separate series of the Trust.
RECITALS
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Merging Fund to the Surviving Fund in exchange solely for voting shares of
beneficial interest of the Surviving Fund (the "Surviving Fund Shares"), the
assumption by the Surviving Fund of all liabilities of the Merging Fund, and the
distribution of the Surviving Fund Shares to the shareholders of the Merging
Fund in complete liquidation of the Merging Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
The Merging Fund and the Surviving Fund are separate series of the Trust,
an open-end, registered investment company of the management type. The Merging
Fund owns securities which generally are assets of the character in which the
Surviving Fund is permitted to invest.
The Trustees of the Trust have determined, with respect to the Surviving
Fund, that the exchange of all of the assets of the Merging Fund for Surviving
Fund Shares and the assumption of all liabilities of the Merging Fund by the
Surviving Fund is in the best interests of the Surviving Fund and its
shareholders and that the interests of the existing shareholders of the
Surviving Fund would not be diluted as a result of this transaction. The
Trustees of the Trust, have also determined, with respect to the Merging Fund,
that the exchange of all of the assets of the Merging Fund for Surviving Fund
Shares and the assumption of all liabilities of the Merging Fund by the
Surviving Fund is in the best interests of the Merging Fund and its shareholders
and that the interests of the existing shareholders of the Merging Fund would
not be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE MERGING FUND TO THE SURVIVING FUND IN EXCHANGE
FOR THE SURVIVING FUND SHARES, THE ASSUMPTION OF ALL MERGING FUND
LIABILITIES AND THE LIQUIDATION OF THE MERGING FUND
1.1 Subject to the requisite approval of the Merging Fund shareholders
and the other terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the
Merging Fund agrees to transfer all of the Merging Fund's assets,
as set forth in paragraph 1.2, to the Surviving Fund, and the
Surviving Fund agrees in exchange therefor: (i) to deliver to the
Merging Fund the number of full and fractional Surviving Fund
Shares, determined by dividing the value of the Merging Fund's net
assets, computed in the manner and as of the time and date set
forth in paragraph 2.1, by the net asset value of one Surviving
Fund Share, computed in the manner and as of the time and date set
forth in paragraph 2.2; and (ii) to assume all liabilities of the
Merging Fund, as set forth in paragraph 1.3. Such transactions
shall take place at the closing provided for in paragraph 3.1 (the
"Closing Date").
1.2 The assets of the Merging Fund to be acquired by the Surviving
Fund shall consist of all assets and property, including, without
limitation, all cash, securities, commodities and futures
interests and dividends or interests receivable, that are owned by
the Merging Fund, and any deferred or prepaid expenses shown as an
asset on the books of the Merging Fund, on the Closing Date
(collectively, the "Assets").
A-1
1.3 The Merging Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The
Surviving Fund shall also assume all of the liabilities of the
Merging Fund, whether accrued or contingent, known or unknown,
existing at the Valuation Date, as defined in paragraph 2.1
(collectively, "Liabilities"). On or as soon as practicable prior
to the Closing Date, the Merging Fund will declare and pay to its
shareholders of record one or more dividends and/or other
distributions so that it will have distributed substantially all
(and in no event less than 98%) of its investment company taxable
income and realized net capital gain, if any, for the current
taxable year through the Closing Date.
1.4 Immediately after the transfer of Assets provided for in paragraph
1.1, the Merging Fund will distribute to the Merging Fund's
shareholders of record, determined as of immediately after the
close of business on the Closing Date (the "Merging Fund
Shareholders"), on a pro rata basis, the Surviving Fund Shares
received by the Merging Fund pursuant to paragraph 1.1, and will
completely liquidate. Such distribution and liquidation will be
accomplished, with respect to the Merging Fund's shares, by the
transfer of the Surviving Fund Shares then credited to the account
of the Merging Fund on the books of the Surviving Fund to open
accounts on the share records of the Surviving Fund in the names
of the Merging Fund Shareholders. The aggregate net asset value of
Surviving Fund Shares to be so credited to Merging Fund
Shareholders shall be equal to the aggregate net asset value of
the Merging Fund shares owned by such shareholders on the Closing
Date. All issued and outstanding shares of the Merging Fund will
simultaneously be canceled on the books of the Merging Fund.
1.5 Ownership of Surviving Fund Shares will be shown on the books of
the Surviving Fund or its transfer agent, as defined in paragraph
3.3.
1.6 Any reporting responsibility of the Merging Fund including, but
not limited to, the responsibility for filing of regulatory
reports, tax returns, or other documents with the U.S. Securities
and Exchange Commission (the "Commission"), any state securities
commission, and any federal, state or local tax authorities or any
other relevant regulatory authority, is and shall remain the
responsibility of the Merging Fund.
2. VALUATION
2.1 The value of the Assets shall be the value computed as of
immediately after the close of business of the New York Stock
Exchange and after the declaration of any dividends on the Closing
Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures established by the Trust's
Board of Trustees, which shall be described in the then-current
prospectus and statement of additional information with respect to
the Surviving Fund.
2.2 The net asset value of Surviving Fund Shares shall be the net
asset value per share computed as of the Valuation Date, using the
valuation procedures established by the Trust's Board of Trustees
which shall be described in the Surviving Fund's then-current
prospectus and statement of additional information.
2.3 The number of Surviving Fund Shares to be issued (including
fractional shares, if any) in exchange for the Merging Fund's
Assets shall be determined by dividing the value of the net assets
with respect to the shares of the Merging Fund determined using
the same valuation procedures referred to in paragraph 2.1, by the
net asset value of a Surviving Fund Share, determined in
accordance with paragraph 2.2.
2.4 All computations of value shall be made by Phoenix Equity Planning
Corporation, in its capacity as financial agent for the Trust.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be March 22, 2002, or such other date as
the parties may agree. All acts taking place at the closing of the
transaction (the "Closing") shall be deemed to take place
simultaneously as of immediately after the close of business on
the Closing Date unless otherwise agreed to by the parties. The
close of business on the
A-2
Closing Date shall be as of 4:00 p.m., Eastern Time. The Closing
shall be held at the offices of the Trust or at such other time
and/or place as the parties may agree.
3.2 The Trust shall direct State Street Bank and Trust Company, as
custodian for the Merging Fund (the "Custodian"), to deliver on
the next business day following the Closing, a certificate of an
authorized officer stating that (i) the Assets shall have been
delivered in proper form to the Surviving Fund on the next
business day following the Closing Date, and (ii) all necessary
taxes in connection with the delivery of the Assets, including all
applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Merging
Fund's portfolio securities represented by a certificate or other
written instrument shall be presented by the Merging Fund
Custodian to the custodian for the Surviving Fund for examination
no later than on the next business day following the Closing Date,
and shall be transferred and delivered by the Merging Fund on the
next business day following the Closing Date for the account of
the Surviving Fund duly endorsed in proper form for transfer in
such condition as to constitute good delivery thereof. The
Custodian shall deliver as of the Closing Date by book entry, in
accordance with the customary practices of such depositories and
the Custodian, the Merging Fund's portfolio securities and
instruments deposited with a securities depository, as defined in
Rule 17f-4 under the Investment Company Act of 1940, as amended
(the "1940 Act"). The cash to be transferred by the Merging Fund
shall be delivered by wire transfer of federal funds on the next
business day following the Closing Date.
3.3 The Trust shall direct the Variable Products Operations unit of
Phoenix Life Insurance Company (the "Transfer Agent"), on behalf
of the Merging Fund, to deliver on the next business day following
the Closing, a certificate of an authorized officer stating that
its records contain the names and addresses of the Merging Fund
Shareholders, and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately
prior to the Closing. The Surviving Fund shall issue and deliver a
confirmation evidencing the Surviving Fund Shares to be credited
on the Closing Date to the Secretary of the Surviving Fund, or
provide evidence satisfactory to the Merging Fund that such
Surviving Fund Shares have been credited to the Merging Fund's
account on the books of the Surviving Fund. At the Closing each
party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably
request.
3.4 In the event that on the Valuation Date (a) the New York Stock
Exchange or another primary trading market for portfolio
securities of the Surviving Fund or the Merging Fund shall be
closed to trading or trading thereupon shall be restricted, or (b)
trading or the reporting of trading on such Exchange or elsewhere
shall be disrupted so that, in the judgment of the Board of
Trustees of the Trust, accurate appraisal of the value of the net
assets of the Surviving Fund or the Merging Fund, respectively, is
impracticable, the Closing Date shall be postponed until the first
Friday after the day when trading shall have been fully resumed
and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust, on behalf of the Merging Fund, represents and warrants
as follows:
(a) The Merging Fund is duly organized as a series of the Trust,
which is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts, with power under the Trust's Declaration of
Trust, as amended ("Declaration of Trust"), to own all of its
Assets and to carry on its business as it is now being
conducted;
(b) The Trust is a registered investment company classified as a
management company of the open-end type, and its registration
with the Commission as an investment company under the 1940
Act, and the registration of shares of the Merging Fund under
the Securities Act of 1933, as amended ("1933 Act"), is in
full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Merging Fund of the transactions contemplated herein, except
such as have been
A-3
obtained under the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act") and the 1940 Act and such as may be
required by state securities laws;
(d) The current prospectus and statement of additional information
of the Merging Fund and each prospectus and statement of
additional information of the Merging Fund used at all times
previous to the date of this Agreement conforms or conformed
at the time of its use in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and
the rules and regulations of the Commission thereunder; and
does not or did not at the time of its use include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not materially misleading;
(e) On the Closing Date, the Trust, on behalf of the Merging Fund,
will have good and marketable title to the Assets and full
right, power, and authority to sell, assign, transfer and
deliver such Assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such Assets;
the Trust, on behalf of the Surviving Fund, will acquire good
and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as
might arise under the 1933 Act, other than as disclosed to the
Surviving Fund;
(f) The Merging Fund is not engaged currently, and the execution,
delivery and performance of this Agreement will not result, in
(i) a material violation of the Trust's Declaration of Trust
or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust on behalf of the Merging
Fund is a party or by which it is bound, or (ii) the
acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract,
lease, judgment or decree to which the Trust on behalf of the
Merging Fund is a party or by which it is bound;
(g) All material contracts or other commitments of the Merging
Fund (other than this Agreement and certain investment
contracts, including options, futures and forward contracts)
will terminate without liability to the Merging Fund on or
prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by
the Trust, on behalf of the Surviving Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or, to its
knowledge, threatened against the Trust on behalf of the
Merging Fund or any of its properties or assets that, if
adversely determined, would materially and adversely affect
its financial condition or the conduct of its business. The
Trust, on behalf of the Merging Fund, knows of no facts which
might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated;
(i) The Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Schedule of
Investments of the Merging Fund at December 31, 2001, have
been audited by PricewaterhouseCoopers, LLP ("PWC"),
independent accountants, and are in accordance with generally
accepted accounting principles ("GAAP") consistently applied,
and such statements (copies of which have been furnished to
the Surviving Fund) present fairly, in all material respects,
the financial condition of the Merging Fund as of such date in
accordance with GAAP, and there are no known contingent
liabilities of the Merging Fund required to be reflected on a
balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(j) Since December 31, 2001, there has not been any material
adverse change in the Merging Fund's financial condition,
assets, liabilities or business, other than changes occurring
in the ordinary course of business, or any incurrence by the
Merging Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Surviving Fund. For the
A-4
purposes of this subparagraph (j), a decline in net asset
value per share of the Merging Fund due to declines in market
values of securities in the Merging Fund's portfolio, the
discharge of Merging Fund liabilities, or the redemption of
Merging Fund Shares by shareholders of the Merging Fund shall
not constitute a material adverse change;
(k) On the Closing Date, all Federal and other tax returns,
dividend reporting forms, and other tax-related reports of the
Merging Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or
will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision
shall have been made for the payment thereof, and to the best
of the Merging Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with respect
to such returns;
(l) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Merging Fund has met (or
will meet) the requirements of Subchapter M of the Code for
qualification as a regulated investment company, has been (or
will be) eligible to and has computed (or will compute) its
federal income tax under Section 852 of the Code, and will
have distributed all of its investment company taxable income
and net capital gain (as defined in the Code) that has accrued
through the Closing Date, and before the Closing Date will
have declared dividends sufficient to distribute all of its
investment company taxable income and net capital gain for the
period ending on the Closing Date;
(m) All issued and outstanding shares of the Merging Fund are, and
on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable and have been
offered and sold in every state and the District of Columbia
in compliance in all material respects with applicable
registration requirements of the 1933 Act. All of the issued
and outstanding shares of the Merging Fund will, at the time
of Closing, be held by the persons and in the amounts set
forth in the records of the Transfer Agent, on behalf of the
Merging Fund, as provided in paragraph 3.3. The Merging Fund
does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the shares of the
Merging Fund, nor is there outstanding any security
convertible into any of the Merging Fund shares;
(n) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all
necessary action, if any, on the part of the Trustees of the
Trust, on behalf of the Merging Fund, and, subject to the
approval of the shareholders of the Merging Fund, this
Agreement will constitute a valid and binding obligation of
the Merging Fund, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(o) The information to be furnished by the Merging Fund for use in
registration statements, proxy materials and other documents
filed or to be filed with any federal, state or local
regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be
accurate and complete in all material respects and shall
comply in all material respects with Federal securities and
other laws and regulations thereunder applicable thereto; and
(p) The proxy statement of the Merging Fund (the "Proxy
Statement") to be included in the Registration Statement
referred to in paragraph 5.6, insofar as it relates to the
Merging Fund, will, on the effective date of the Registration
Statement and on the Closing Date (i) not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
such statements were made, not materially misleading provided,
however, that the representations and warranties in this
subparagraph (p) shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made
in reliance upon and in conformity with information that was
furnished by the Surviving Fund for use therein, and (ii)
comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
A-5
4.2 The Trust, on behalf of the Surviving Fund, represents and
warrants as follows:
(a) The Surviving Fund is duly organized as a series of the Trust,
which is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of
Massachusetts with power under the Trust's Declaration of
Trust to own all of its Assets and to carry on its business as
it is now being conducted;
(b) The Trust is a registered investment company classified as a
management company of the open-end type, and its registration
with the Commission as an investment company under the 1940
Act and the registration of shares of the Surviving Fund under
the 1933 Act, is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Surviving Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information
of the Surviving Fund and each prospectus and statement of
additional information of the Surviving Fund used during the
three years previous to the date of this Agreement conforms or
conformed at the time of its use in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act
and the rules and regulations of the Commission thereunder and
does not or did not at the time of its use include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not materially misleading;
(e) On the Closing Date, the Trust, on behalf of the Surviving
Fund will have good and marketable title to the Surviving
Fund's assets, free of any liens of other encumbrances, except
those liens or encumbrances as to which the Merging Fund has
received notice and necessary documentation at or prior to the
Closing;
(f) The Surviving Fund is not engaged currently, and the
execution, delivery and performance of this Agreement will not
result, in (i) a material violation of the Trust's Declaration
of Trust or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Trust on behalf of the
Surviving Fund is a party or by which it is bound, or (ii) the
acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract,
lease, judgment or decree to which the Trust on behalf of the
Surviving Fund is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by
the Trust, on behalf of the Merging Fund, no litigation or
administrative proceeding or investigation of or before any
court or governmental body is presently pending or, to its
knowledge, threatened against the Trust on behalf of the
Surviving Fund or any of the Surviving Fund's properties or
assets that, if adversely determined, would materially and
adversely affect the Surviving Fund's financial condition or
the conduct of the Surviving Fund's business. The Trust on
behalf of the Surviving Fund knows of no facts which might
form the basis for the institution of such proceedings and is
not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which
materially and adversely affects the Surviving Fund's business
or the Surviving Fund's ability to consummate the transactions
herein contemplated;
(h) The Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets and Schedule of
Investments of the Surviving Fund at December 31, 2001, have
been audited by PWC, independent accountants, and are in
accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Merging Fund)
present fairly, in all material respects, the financial
condition of the Surviving Fund as of such date in accordance
with GAAP, and there are no known contingent liabilities of
the Surviving Fund required to be reflected on a balance sheet
(including the notes thereto) in accordance with GAAP as of
such date not disclosed therein;
A-6
(i) Since December 31, 2001, there has not been any material
adverse change in the Surviving Fund's financial condition,
assets, liabilities or business, other than changes occurring
in the ordinary course of business, or any incurrence by the
Surviving Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Merging Fund. For
purposes of this subparagraph (i), a decline in net asset
value per share of the Surviving Fund due to declines in
market values of securities in the Surviving Fund's portfolio,
the discharge of Surviving Fund liabilities, or the redemption
of Surviving Fund Shares by shareholders of the Surviving
Fund, shall not constitute a material adverse change;
(j) On the Closing Date, all Federal and other tax returns,
dividend reporting forms, and other tax-related reports of the
Surviving Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or
will be correct in all material respects, and all Federal and
other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision
shall have been made for the payment thereof, and to the best
of the Surviving Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect
to such returns;
(k) For each taxable year of its operation (including the taxable
year including the Closing Date), the Surviving Fund has met
(or will meet) the requirements of Subchapter M of the Code
for qualification as a regulated investment company has been
eligible to and has computed (or will compute) its federal
income tax under Section 852 of the Code;
(l) All issued and outstanding Surviving Fund Shares are, and on
the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable (recognizing that,
under Massachusetts law, it is theoretically possible that
shareholders of the Merging Fund could, under certain
circumstances, be held personally liable for obligations of
the Merging Fund) and have been offered and sold in every
state and the District of Columbia in compliance in all
material respects with applicable registration requirements of
the 1933 Act. The Surviving Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase
any Surviving Fund Shares, nor is there outstanding any
security convertible into any Surviving Fund Shares;
(m) The execution, delivery and performance of this Agreement will
have been fully authorized prior to the Closing Date by all
necessary action, if any, on the part of the Trustees of the
Trust on behalf of the Surviving Fund and this Agreement will
constitute a valid and binding obligation of the Trust on
behalf of the Surviving Fund, enforceable in accordance with
its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity
principles;
(n) Surviving Fund Shares to be issued and delivered to the
Merging Fund, for the account of the Merging Fund
Shareholders, pursuant to the terms of this Agreement, will on
the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Surviving Fund
Shares, and will be fully paid and non-assessable (recognizing
that, under Massachusetts law, it is theoretically possible
that shareholders of the Merging Fund could, under certain
circumstances, be held personally liable for obligations of
the Merging Fund);
(o) The information to be furnished by Trust for use in the
registration statements, proxy materials and other documents
that may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects
with Federal securities and other laws and regulations
applicable thereto; and
(p) That insofar as it relates to the Surviving Fund, the
Registration Statement relating to the Surviving Fund Shares
issuable hereunder, and the proxy materials of the Merging
Fund to be included in the Registration Statement, and any
amendment or supplement to the foregoing, will, from the
effective date of the
A-7
Registration Statement through the date of the meeting of
shareholders of the Merging Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading provided, however, that the representations and
warranties in this subparagraph (p) shall not apply to
statements in or omissions from the Registration Statement
made in reliance upon and in conformity with information that
was furnished by the Merging Fund for use therein, and (ii)
comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder.
5. COVENANTS OF THE TRUST ON BEHALF OF THE SURVIVING FUND AND THE MERGING FUND
5.1 The Surviving Fund and the Merging Fund each will operate its
business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of
business will include the declaration and payment of customary
dividends and distributions, and any other distribution that may
be advisable.
5.2 The Trust will call a meeting of the shareholders of the Merging
Fund to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions
contemplated herein.
5.3 The Merging Fund covenants that the Surviving Fund Shares to be
issued hereunder are not being acquired for the purpose of making
any distribution thereof, other than in accordance with the terms
of this Agreement.
5.4 Subject to the provisions of this Agreement, the Surviving Fund
and the Merging Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
5.5 As soon as is reasonably practicable after the Closing, the
Merging Fund will make a liquidating distribution to its
shareholders consisting of the Surviving Fund Shares received at
the Closing.
5.6 The Surviving Fund and the Merging Fund shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of
the conditions precedent to effect the transactions contemplated
by this Agreement as promptly as practicable.
5.7 The Trust, on behalf of the Merging Fund, covenants that it will,
from time to time, as and when reasonably requested by the Trust
on behalf of the Surviving Fund, execute and deliver or cause to
be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further
action as the Trust on behalf of the Surviving Fund may reasonably
deem necessary or desirable in order to vest in and confirm (a)
the Trust's, on behalf of the Merging Fund's, title to and
possession of the Surviving Fund Shares to be delivered hereunder,
and (b) the Trust's, on behalf of the Surviving Fund's, title to
and possession of all the assets, and to carry out the intent and
purpose of this Agreement.
5.8 The Surviving Fund will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940
Act and such of the state blue sky or securities laws as may be
necessary in order to continue its operations after the Closing
Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MERGING FUND
The obligations of the Trust, on behalf of the Merging Fund, to
consummate the transactions provided for herein shall be subject, at the
Trust's election, to the performance by the Trust, on behalf of the
Surviving Fund, of all the obligations to be performed by it hereunder on
or before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Trust, on behalf of the
Surviving Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except
as they may be affected by the
A-8
transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the
Closing Date;
6.2 The Trust, on behalf of the Surviving Fund, shall have performed
all of the covenants and complied with all of the provisions
required by this Agreement to be performed or complied with by the
Trust, on behalf of the Surviving Fund on or before the Closing
Date;
6.3 The Merging Fund and the Surviving Fund shall have agreed on the
number of full and fractional Surviving Fund Shares to be issued
in connection with the Reorganization after such number has been
calculated in accordance with paragraph 1.1.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SURVIVING FUND
The obligations of the Trust, on behalf of the Surviving Fund, to
complete the transactions provided for herein shall be subject, at the
Trust's election, to the performance by the Trust, on behalf of the Merging
Fund, of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Trust, on behalf of the
Merging Fund, contained in this Agreement shall be true and
correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date, with the same force and effect
as if made on and as of the Closing Date;
7.2 The Trust shall have delivered to the Surviving Fund a statement
of the Merging Fund's assets and liabilities, as of the Closing
Date, certified by the Treasurer of the Trust;
7.3. The Trust, on behalf of the Merging Fund, shall have performed all
of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by Trust, on
behalf of the Merging Fund, on or before the Closing Date;
7.4 The Merging Fund and the Surviving Fund shall have agreed on the
number of full and fractional Surviving Fund Shares to be issued
in connection with the Reorganization after such number has been
calculated in accordance with paragraph 1.1; and
7.5 The Merging Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all
previous distributions, shall have the effect of distributing to
its shareholders (i) all of its investment company taxable income
and all of its net realized capital gains, if any, for the period
from the close of its last fiscal year to 4:00 p.m. Eastern time
on the Closing; and (ii) any undistributed investment company
taxable income and net realized capital gains from any period to
the extent not otherwise already distributed.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SURVIVING FUND AND THE
MERGING FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Trust, on behalf of the Merging
Fund, or the Trust, on behalf of the Surviving Fund, the other party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the
outstanding shares of the Merging Fund in accordance with the
provisions of the Trust's Declaration of Trust, applicable
Massachusetts law and the 1940 Act. Notwithstanding anything
herein to the contrary, neither the Trust may waive the conditions
set forth in this paragraph 8.1;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or
governmental agency in which it is sought to restrain or prohibit,
or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
A-9
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed
necessary by the Trust to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on
the assets or properties of the Surviving Fund or the Merging
Fund, provided that either party hereto may for itself waive any
of such conditions;
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have
been instituted or be pending, threatened or contemplated under
the 1933 Act; and
8.5 The parties shall have received the opinion of McDermott, Will &
Emery, counsel to the Trust, addressed to the Trust substantially
to the effect that, based upon certain facts, assumptions, and
representations, the transaction contemplated by this Agreement
shall constitute a tax-free reorganization for Federal income tax
purposes, qualify as a tax free reorganization defined in section
368(a) of the Code. The delivery of such opinion is conditioned
upon receipt of representations it shall request of the Trust.
Notwithstanding anything herein to the contrary, the Trust may not
waive the condition set forth in this paragraph 8.5.
9. BROKERAGE FEES AND EXPENSES
9.1 The Company on behalf of the Merging Fund and the Trust on behalf
of the Surviving Fund represent and warrant to each other that
there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 The expenses relating to the proposed Reorganization will be borne
by Phoenix Life Insurance Company. The costs of the Reorganization
shall include, but not be limited to, costs associated with
obtaining any necessary order of exemption from the 1940 Act,
preparation of the Registration Statement, printing and
distributing the Surviving Fund's prospectus and the Merging
Fund's proxy materials, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders' meetings.
Notwithstanding any of the foregoing, expenses will in any event
be paid by the party directly incurring such expenses if and to
the extent that the payment by another person of such expenses
would result in the disqualification of such party as a "regulated
investment company" within the meaning of Section 851 of the Code.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust has not made any representation, warranty or covenant
not set forth herein; this Agreement constitutes the entire
agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in
connection herewith shall survive the consummation of the
transactions contemplated hereunder. The covenants to be performed
after the Closing shall survive the Closing.
11. TERMINATION
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by either party by (i) mutual agreement of the
parties, or (ii) by either party if the Closing shall not have occurred on
or before June 30, 2002, unless such date is extended by mutual
agreement of the parties, or (iii) by either party if the other party shall
have materially breached its obligations under this Agreement or made a
material and intentional misrepresentation herein or in connection
herewith. In the event of any such termination, this Agreement shall become
void and there shall be no liability hereunder on the part of any party or
their respective Trustees or officers, except for any such material breach
or intentional misrepresentation, as to each of which all remedies at law
or in equity of the party adversely affected shall survive.
A-10
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be deemed necessary or advisable by the authorized officers of the
Trust; provided, however, that following the meeting of the shareholders of
the Merging Fund called by the Merging Fund pursuant to paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Surviving Fund Shares to be
issued to the Merging Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
facsimile, personal service or prepaid or certified mail addressed to The
Phoenix Edge Series Fund, One American Row, Hartford, Connecticut
06102-5056, Attn: Richard J. Wirth, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts without regard
to its principles of conflicts of laws.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent
of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
14.5 It is expressly agreed that the obligations of the parties
hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the
Trust personally, but shall bind only the trust property of the
Surviving Fund, as provided in the Declaration of Trust of the
Trust. The execution and delivery by such officers shall not be
deemed to have been made by any of them individually or to impose
any liability on any of them personally, but shall bind only the
trust property of such party as provided in the Declaration of
Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President or Vice President and its seal to
be affixed thereto and attested by its Secretary or Assistant Secretary.
Attest: THE PHOENIX EDGE SERIES FUND ON BEHALF OF ITS
PHOENIX-JANUS CORE EQUITY SERIES
______________________________ By: _______________________________
SECRETARY
Title: _______________________________
Attest: THE PHOENIX EDGE SERIES FUND ON BEHALF OF ITS
PHOENIX-JANUS GROWTH SERIES
______________________________ By: _______________________________
SECRETARY
Title: _______________________________
A-11
PART B
B-1
ACQUISITION OF THE ASSETS OF
PHOENIX-JANUS CORE EQUITY SERIES
BY AND IN EXCHANGE FOR SHARES OF
PHOENIX-JANUS GROWTH SERIES
BOTH, A SERIES OF
THE PHOENIX EDGE SERIES FUND
101 Munson Street STATEMENT OF ADDITIONAL INFORMATION
Greenfield, Massachusetts 01301 February 22, 2002
(800) 541-0171
This Statement of Additional Information, relating specifically to the
proposed transfer of all or substantially all of the assets and all the
liabilities of Phoenix-Janus Core Equity Series (the "Merging Series"), a series
of The Phoenix Edge Series Fund, to the Phoenix-Janus Growth Series (the
"Surviving Series"), another series of The Phoenix Edge Series Fund and consists
of this cover page and the following described documents, each of which is
attached hereto and incorporated herein by reference:
(1) the Statement of Additional Information of The Phoenix Edge Series Fund
dated October 29, 2001;
(2) the Annual Report of The Phoenix Edge Series Fund for the year ended
December 31, 2001;
(3) the Pro Forma Financial Statements.
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Prospectus/Proxy
Statement dated February 22, 2002. A copy of the Prospectus/Proxy Statement may
be obtained without charge by calling Variable Products Operations at
(800)541-0171 or by writing to Phoenix Variable Products Mail Operations, PO Box
8027, Boston, Massachusetts 02266-8027.
B-2
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
101 Munson Street MAIL OPERATIONS ("VPMO"):
Greenfield, Massachusetts PO Box 8027
Boston, MA 02266-8027
STATEMENT OF ADDITIONAL INFORMATION
October 29, 2001
This Statement of Additional Information ("SAI") is not a prospectus. Much of
the information contained in this SAI expands upon subjects discussed in the
current prospectus for The Phoenix Edge Series Fund (the "Fund") dated October
29, 2001 (hereinafter called the "prospectus"). Accordingly, the SAI should be
read together with the prospectus, which may be obtained free of charge by
calling Variable Products Operations ("VPO") at 800/541-0171 or by writing to
VPMO at the address above. The financial statements can be found in the Fund's
Annual and Semiannual Reports to Shareholders, which are incorporated by
reference. Copies of the Annual and Semiannual Reports have been delivered to
shareholders and are available without charge, upon request. The contents of
this SAI are incorporated by reference in the prospectus in their entirety.
TABLE OF CONTENTS
PAGE
----
The Fund ............................................................... 1
Permitted Investments and Risk Factors ................................. 1
Investment Restrictions................................................. 24
Portfolio Turnover...................................................... 25
Management of the Fund ................................................. 26
The Investment Advisors and Subadvisors................................. 30
Custodian .............................................................. 36
Foreign Custodian ...................................................... 37
Independent Accountants ................................................ 37
Financial Agent......................................................... 37
Code of Ethics.......................................................... 37
Brokerage Allocation ................................................... 37
Determination of Net Asset Value ....................................... 39
Investing in the Fund .................................................. 39
Redemption of Shares ................................................... 39
Taxes .................................................................. 40
Disclaimer.............................................................. 40
Financial Statements ................................................... 41
Appendix................................................................ 42
THE FUND
- --------
The Fund is an open-end, management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), currently offering
thirty series. It was formed on February 18, 1986 as a Massachusetts business
trust and commenced operations on December 5, 1986. All of the series described
in this SAI are classified as diversified under the 1940 Act, except for the
following series which are non-diversified: Phoenix-Deutsche Dow 30 Series,
Phoenix-Deutsche Nasdaq-100 Index(R) Series, Phoenix-Duff & Phelps Real Estate
Securities Series, and Phoenix-Morgan Stanley Focus Equity Series. Shares in
each series of the Fund are available to the following insurance company
separate accounts:
[diamond] The Phoenix Life Variable Accumulation Account, a separate account of
Phoenix Life Insurance Company ("Phoenix") created on June 21, 1982;
[diamond] The Phoenix Life Variable Universal Life Account, a separate account
of Phoenix created on June 17, 1985;
[diamond] The PHL Variable Accumulation Account, a separate account of PHL
Variable Insurance Company ("PHL Variable") formed on December 7,
1994;
[diamond] The PHL Variable Universal Life Account, a separate account of PHL
Variable formed on September 10, 1998;
[diamond] The Phoenix Life and Annuity Variable Universal Life Account, 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, P.O. Box 5056, Hartford, Connecticut 06102-5056.
The Accounts own the majority of the shares of the Fund.
PERMITTED INVESTMENTS AND RISK FACTORS
- --------------------------------------
The investment objectives, principal investment strategies and principal
risks are set forth in the prospectus. The following supplements that
information.
All of the series described in this SAI may invest in the following
investments unless specifically noted otherwise. Additional information
detailing investment policies that apply to one or more individual series is set
forth below and is intended to supplement information in the prospectus. Any
percentage limitations noted are based on market value at the time of
investment.
Unless otherwise stated in the prospectus, many investment techniques are
discretionary. That means the advisors or subadvisors may elect to engage or not
engage in the various techniques at their sole discretion. Investors should not
assume that any particular discretionary investment technique or strategy will
be employed at all times, or ever employed.
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 6 months or less and are traded in secondary markets prior to
maturity.
BRADY BONDS
Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructurings have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Croatia, Dominican Republic, Ecuador,
Jordan, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland,
Slovenia, Uruguay and Venezuela. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in over-the-counter secondary
markets. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
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.
COMMERCIAL BANK OBLIGATIONS
For the purposes of each series' investment policies with respect to bank
obligations, obligations of foreign branches of U.S. banks and of foreign banks
are obligations of the issuing bank and may be general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a specific
obligation and by government regulation. As with investment in non-U.S.
securities in general, investments in the obligations of
1
foreign branches of U.S. banks and of foreign banks may subject the series to
investment risks that are different in some respects from those of investments
in obligations of domestic issuers. Although a series typically will acquire
obligations issued and supported by the credit of U.S. or foreign banks having
total assets at the time of purchase of $1 billion or more, this $1 billion
figure is not an investment policy or restriction of any series. For the
purposes of calculation with respect to the $1 billion figure, the assets of a
bank will be deemed to include the assets of its U.S. and non-U.S. branches.
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 9 months.
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 specific 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 then 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. (This 5% restriction does not apply to
the Phoenix-Janus Core Equity (formerly, "Phoenix-Janus Equity Income"),
Phoenix-Janus Flexible Income or Phoenix-Janus Growth Series.) 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.
CORPORATE ASSET-BACKED SECURITIES
Corporate asset-backed securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
These securities present certain risks. For instance, in the case of credit card
receivables, these securities may not have the benefit of any security interest
in the related collateral. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. The underlying assets (e.g., loans) are
also subject to prepayments which shorten the securities weighted average life
and may lower their return.
Corporate asset-backed securities are backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of
failures by obligors on underlying assets to make payments, the securities may
contain elements of credit support which fall into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default ensures
payment through insurance policies or letters of credit obtained by the issuer
or sponsor from third parties. The series will not pay any additional or
separate fees for credit support. The degree of credit support provided for each
issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in excess
of that anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.
CORPORATE SECURITIES
The series may invest in debt securities, such as convertible and
non-convertible bonds, notes and debentures, issued by corporations, limited
partnerships and other similar entities.
DEBT SECURITIES
The value of a 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
2
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.
DEPOSITARY RECEIPTS
Each series may hold foreign securities. Such investments may include
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs"),
Global Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs").
ADRs and ADSs typically are issued by an American bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
EDRs, which are sometimes referred to as Continental Depositary Receipts
("CDRs"), are issued in Europe typically by foreign banks and trust companies
and evidence ownership of either foreign or domestic securities. GDRs are
similar to EDRs and are designed for use in several international financial
markets. Generally, ADRs and ADSs in registered form are designed for use in
United States securities markets and EDRs in bearer form are designed for use in
European securities markets. For purposes of a series' investment policies, its
investments in ADRs, ADSs, GDRs and EDRs will be deemed to be investments in the
underlying foreign equity securities.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders with respect to the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
series may invest in both sponsored and unsponsored ADRs.
DOLLAR DENOMINATED FOREIGN DEBT SECURITIES
Investing in dollar-denominated foreign debt represents a greater degree of
risk than investing in domestic securities, due to less publicly available
information, less securities regulation, war or expropriation. Special
considerations may include higher brokerage costs and thinner trading markets.
Investments in foreign countries could be affected by other factors including
extended settlement periods.
EMERGING MARKET SECURITIES
"Emerging Markets" are those countries or regions with relatively low gross
national product per capita compared to the world's major economies, and those
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 advisor to be an emerging
market as defined above. The series 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
3
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.
EQUITY LINKED DERIVATIVES
The series may invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. Examples of
such products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimized Portfolios as Listed Securities
("OPALS"). Investments in equity-linked derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the equity-linked derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in equity-linked derivatives
may constitute investments in other investment companies.
EQUITY SECURITIES
Equity securities include common stocks, preferred stocks and preference
stocks; securities such as bonds, warrants or rights that are convertible into
stocks; and depositary receipts for those securities. These securities may be
listed on securities exchanges, traded in various over-the-counter markets or
have no organized market. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of convertible equity securities is also affected by prevailing interest
rates, the credit quality of the issuer and any call provisions. Fluctuations in
the value of equity securities in which a series invests will cause the net
asset value of the series to fluctuate.
FINANCIAL FUTURES AND RELATED OPTIONS
The series may enter into futures contracts on financial instruments
("financial futures") for the purchase or sale of debt obligations which are
traded on recognized exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission, and may purchase or sell
options on financial futures contracts.
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 2
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.
A public market 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 and other securities indices. A clearing corporation
associated with a board of trade on which a financial futures contract trades
assumes responsibility for the completion of transactions and guarantees that
open futures contracts will be performed.
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
4
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.
In contrast to the situation when series purchase or sell a security, no
security is delivered or received by the series upon the purchase or sale of a
financial futures contract. Initially, a 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.
A 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 denominated in a foreign currency. 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. Hedging is accomplished when an investor takes a position in the futures
market opposite to his cash market position. There are 2 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, to a considerable extent, a decline in the market value
of securities in a series' portfolio may be protected against 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 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 anticipates 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.
Except for the Phoenix-Morgan Stanley Focus Equity, Phoenix-Deutsche Dow 30,
and Phoenix-Deutsche Nasdaq-100 Index(R) Series, transactions in financial
futures contracts and related options will be primarily for hedging purposes. In
addition, each series will not purchase or sell any financial futures contract
or related option for non-bona fide hedging purposes 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 -- either 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
5
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.
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. These commissions may be higher than those which would apply to
purchases and sales of securities directly.
While financial futures would be traded to reduce certain risks, futures
trading itself entails certain other risks. One risk arises because of the
imperfect correlation between movements in the price of the futures contracts
and movements in the price of the debt securities which are the subject of such
contracts. In addition, the market price of futures contracts may be affected by
certain factors, such as the closing out of futures contracts by investors
through offsetting transactions, margin, deposit and maintenance requirements,
and the participation of speculators in the futures market. Another risk is that
there may not be a liquid secondary market on an exchange or board of trade for
a given futures contract or at a given time, and in such event it may not be
possible for the series to close a futures position. Finally, successful use of
futures contracts by a series is subject, where applicable, to the advisor's or
subadvisor'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. 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.
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.
FIXED INCOME SECURITIES
Fixed income securities are debt obligations issued by corporations,
municipalities and other borrowers. The market value of a series fixed income
investments will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Securities with longer
maturities are subject to greater fluctuations in value than securities with
shorter maturities. Fixed income securities rated in the fourth highest rating
category lack outstanding investment characteristics, and have speculative
characteristics as well. Changes by a nationally recognized statistical rating
organization in the rating of a fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of these
investments. Changes in the value of a series' securities will not affect cash
income derived from these securities but will affect the series' net asset
value.
FOREIGN SECURITIES
Each series may invest up to 25% of its total net asset value in foreign
securities unless otherwise stated in the chart below. These limitations on
investing in foreign securities do not necessarily reflect the actual percentage
of total net asset value in foreign securities by the series.
========================================================
SERIES % LIMITS
========================================================
Phoenix-Aberdeen International 100%
--------------------------------------------------------
Phoenix-Aberdeen New Asia 100%
--------------------------------------------------------
Phoenix-AIM Mid-Cap Equity 25%
--------------------------------------------------------
Phoenix-Alliance/Bernstein Growth + Value 15%
--------------------------------------------------------
Phoenix-Engemann Nifty Fifty 5%
--------------------------------------------------------
Phoenix-Engemann Small & Mid-Cap Growth 50%
--------------------------------------------------------
Phoenix-Hollister Value Equity 30%
--------------------------------------------------------
Phoenix-Janus Core Equity 100%
--------------------------------------------------------
Phoenix-Janus Flexible Income 100%
--------------------------------------------------------
Phoenix-Janus Growth 100%
--------------------------------------------------------
Phoenix-MFS Investors Growth 35%
--------------------------------------------------------
Phoenix-MFS Investors Trust 20%
--------------------------------------------------------
Phoenix-MFS Value 35%
--------------------------------------------------------
Phoenix-Oakhurst Growth and Income 20%
--------------------------------------------------------
Phoenix-Sanford Bernstein Global Value 100%
--------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value 20%
--------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth 20%
--------------------------------------------------------
Phoenix-Seneca Strategic Theme 35%
========================================================
The Phoenix-Goodwin Multi-Sector Fixed Income Series may invest up to 50% of
total net asset value in foreign debt securities. Each series, other than the
Phoenix-Aberdeen International, Phoenix-Aberdeen New Asia Series,
Phoenix-Engemann Small & Mid-Cap Growth, Phoenix-Goodwin Multi-Sector Fixed
Income, Phoenix-Janus Core Equity, Phoenix-Janus Flexible Income, Phoenix
Janus-Growth, Phoenix-Morgan Stanley Focus Equity, Phoenix-Sanford Bernstein
Global Value,
6
and Phoenix-Seneca Strategic Theme Series will purchase foreign debt securities
only if issued in U.S. dollar denominations. The Phoenix-J.P. Morgan Research
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 advisor or
subadvisor, as applicable, 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 for 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 advisor or subadvisor, as
applicable.
For the series that 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.
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
advisor believes that the applicable rate is unfavorable at the time the
currencies are received or the advisor 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 advisor, 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.
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. Unless the series already owns a security denominated in (or
otherwise exposed to) the foreign currency in the same amount as the forward
contract, 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 or exposed to a foreign currency, it may want to establish the
United States dollar cost or proceeds. 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 may be 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.
When the advisor or subadvisor 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 or exposed to 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.
7
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 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.
INDEXED SECURITIES
The series may purchase securities with principal and/or interest payments
whose prices are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The series may also purchase indexed deposits with
similar characteristics. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other. Certain indexed
securities may expose the series to the risk of loss of all or a portion of the
principal amount of its investment and/or the interest that might otherwise have
been earned on the amount invested.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government-sponsored entities.
INVERSE FLOATING RATE OBLIGATIONS
The series may invest in so-called "inverse floating rate obligations" or
"residual interest bonds" or other obligations or certificates relating thereto
structured to have similar features. In creating such an obligation, a
municipality issues a certain amount of debt and pays a fixed interest rate.
Half of the debt is issued as variable rate short term obligations, the interest
rate of which is reset at short intervals, typically 35 days. The other half of
the debt is issued as inverse floating rate obligations, the interest rate of
which is calculated based on the difference between a multiple of (approximately
two times) the interest paid by the issuer and the interest paid on the
short-term obligation. Under usual circumstances, the holder of the inverse
floating rate obligation can generally purchase an equal principal amount of the
short term obligation and link the two obligations in order to create long-term
fixed rate bonds. Because the interest rate on the inverse floating rate
obligation is determined by subtracting the short-term rate from a fixed amount,
the interest rate will decrease as the short-term rate increases and will
increase as the short-term rate decreases. The magnitude of increases and
decreases in the market value of inverse floating rate obligations may be
approximately twice as large as the comparable change in the market value of an
equal principal amount of long-term bonds which bear interest at the rate paid
by the issuer and have similar credit quality, redemption and maturity
provisions.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Investments in other investment companies may include open-end investment
companies, closed-end investment companies and unit investment trusts. Under
8
the Investment Company Act of 1940, a series may not own more than 3% of the
outstanding voting stock of an investment company, invest more than 5% of its
total assets in any one investment company, or invest more than 10% of its total
assets in the securities of investment companies. In some instances, a series
may invest in an investment company in excess of these limits; for instance,
when a series invests collateral it receives from loaning its portfolio
securities.
As the shareholder of another investment company, the series will bear its
pro rata portion of the other investment company's expenses, including advisory
fees. Such expenses are in addition to the expenses a series pays in connection
with its own operations.
JUNK BONDS
The chart below sets forth the series that are permitted to invest in junk
bonds and the percentage of total net assets each series may invest in such
securities.
======================================================
SERIES % LIMITS
======================================================
Phoenix-Aberdeen International 20%
------------------------------------------------------
Phoenix-Engemann Small & Mid-Cap Growth 5%
------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 50%
------------------------------------------------------
Phoenix-Janus Core Equity 20%
------------------------------------------------------
Phoenix-Janus Flexible Income 100%
------------------------------------------------------
Phoenix-Janus Growth 35%
------------------------------------------------------
Phoenix-MFS Value 20%
------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity 5%
------------------------------------------------------
Phoenix-Oakhurst Balanced 35%
------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation 5%
------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth 5%
======================================================
Junk bonds are 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.
LENDING OF PORTFOLIO SECURITIES
Subject to certain investment restrictions, a series (other than
Phoenix-Engemann 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 Phoenix-Aberdeen New 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.
LEVERAGE
The Phoenix-Alliance/Bernstein Growth + Value, Phoenix-Hollister Value
Equity, Phoenix-J.P. Morgan Research Enhanced Index, Phoenix-Morgan Stanley
Focus Equity, Phoenix-Seneca Mid-Cap Growth, and Phoenix-Seneca Strategic Theme
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
interests and investing the borrowed funds. The series 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 3 times the amount of funds borrowed for investment
purposes. The series, other than the Phoenix-Hollister Value Equity and the
Phoenix-Morgan Stanley Focus Equity Series, may borrow up to 25% of the net
assets of such series, not including the proceeds of any such borrowings. The
Phoenix-Morgan Stanley Focus Equity Series may borrow up to 33-1/3% of its total
assets (including the amount borrowed) less liabilities. 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 series, within three
business days, is required to reduce bank debt to the extent necessary to meet
the required 300% asset coverage The Phoenix-Hollister Value Equity Series may
borrow up to one-third of the its net assets. If the value of such series'
assets decreases, and the amount of the loans exceeds one-third of the series'
net assets, the series must reduce its outstanding loans within three business
days so that the amount of the loan does not exceed one-third of the series' net
assets.
9
The Phoenix-Engemann Nifty Fifty, Phoenix-Oakhurst Growth and Income,
Phoenix-Sanford Bernstein Global Value, and Phoenix-Sanford Bernstein Mid-Cap
Value 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 Phoenix-Oakhurst Growth and Income
Series). These series must also maintain a 300% asset coverage ratio.
Phoenix-Sanford Bernstein Mid-Cap Value Series may collateralize any such
borrowings with up to 10% of its total assets; Phoenix-Oakhurst Growth and
Income and Phoenix-Sanford Bernstein Global Value Series may collateralize any
such borrowing with up to 33-1/3% of its total assets.
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 assets 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.
LOANS AND OTHER DIRECT INDEBTEDNESS
The series may purchase loans and other direct indebtedness. In purchasing a
loan, the series acquires some or all of the interest of a bank or other lending
institution in a loan to a corporate, governmental or other borrower. Many such
loans are secured, although some may be unsecured. Such loans may be in default
at the time of purchase. Loans that are fully secured offer the series more
protection than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the corporate borrowers obligation,
or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which the
series would assume all of the rights of the lending institution in a loan or as
an assignment, pursuant to which the series would purchase an assignment of a
portion of a lenders interest in a loan either directly from the lender or
through an intermediary. The series may also purchase trade or other claims
against companies, which generally represent money owned by the company to a
supplier of goods or services. These claims may also be purchased at a time when
the company is in default.
Certain of the loans and the other direct indebtedness acquired by the
series may involve revolving credit facilities or other standby financing
commitments which obligate the series to pay additional cash on a certain date
or on demand. These commitments may have the effect of requiring the series to
increase its investment in a company at a time when the series might not
otherwise decide to do so (including at a time when the company's financial
condition makes it unlikely that such amounts will be repaid). To the extent
that the series is committed to advance additional funds, it will at all times
hold and maintain in a segregated account cash or other high grade debt
obligations in an amount sufficient to meet such commitments.
The series' ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loans and other direct
indebtedness which the series will purchase, the adviser will rely upon its own
(and not the original lending institution's) credit analysis of the borrower. As
the series may be required to rely upon another lending institution to collect
and pass onto the series amounts payable with respect to the loan and to enforce
the series' rights under the loan and other direct indebtedness, an insolvency,
bankruptcy or reorganization of the lending institution may delay or prevent the
series from receiving such amounts. In such cases, the series will evaluate as
well the creditworthiness of the lending institution and will treat both the
borrower and the lending institution as an "issuer" of the loan for purposes of
certain investment restrictions pertaining to the diversification of the series'
portfolio investments. The highly leveraged nature of many such loans and other
direct indebtedness may make such loans and other direct indebtedness especially
vulnerable to adverse changes in economic or market conditions. Investments in
such loans and other direct indebtedness may involve additional risk to the
series.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities include 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,
10
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), for 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.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans. Monthly payments of interest and principal by the
individual borrowers on mortgages are passed through to the holders of the
securities (net of fees paid to the issuer or guarantor of the securities) as
the mortgages in the underlying mortgage pools are paid off. The average lives
of mortgage pass-throughs are variable when issued because their average lives
depend on prepayment rates. The average life of these securities is likely to be
substantially shorter than their stated final maturity as a result of
unscheduled principal prepayment. Prepayments on underlying mortgages result in
a loss of anticipated interest, and all or part of a premium if any has been
paid, and the actual yield (or total return) to the series may be different than
the quoted yield on the securities. Mortgage premiums generally increase with
falling interest rates and decrease with rising interest rates. Like other fixed
income securities, when interest rates rise the value of mortgage pass-through
security generally will decline; however, when interest rates are declining, the
value of mortgage pass-through securities with prepayment features may not
increase as much as that of other fixed-income securities. In the event of an
increase in interest rates which results in a decline in mortgage prepayments,
the anticipated maturity of mortgage pass-through securities held by the series
may increase, effectively changing a security which was considered short or
intermediate-term at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short or intermediate-term securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or
guaranteed by agencies or instrumentalities of the U.S. Government (such as the
Federal National Mortgage Association "FNMA") or the Federal Home Loan Mortgage
Corporation, ("FHLMC") which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities may also be issued by non-governmental issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers). Some of these
mortgage pass-through securities may be supported by various forms of insurance
or guarantees.
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interests and principal payments
owed on the mortgages in the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration ("FHA") -- insured or Veterans
Administration ("VA") -- guaranteed mortgages. These guarantees, however, do not
apply to the market value or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages (i.e., mortgages not insured
or guaranteed by any governmental agency) from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mortgage
bankers. Pass-through
11
securities issued by FNMA are guaranteed as to timely payment by FNMA of
principal and interest.
FHLMC is also a government-sponsored corporation owned by private
stockholders. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages (i.e., not federally insured or guaranteed)
for FHLMC's national portfolio. FHLMC guarantees timely payment of interest and
ultimate collection of principal regardless of the status of the underlying
mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass
through pools of mortgage loans. Such issuers may also be the originators and/or
servicers of the underlying mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The series may also buy mortgage-related securities without
insurance or guarantees.
A particular risk associated with pass-through securities involves the
volatility of prices in response to changes in interest rates or prepayment
risk. Prepayment rates are important because of their effect on the yield and
price of securities. Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages' scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Although the
pattern of repayments 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.
MORTGAGE "DOLLAR-ROLL" TRANSACTIONS
A series may enter into mortgage "dollar roll" transactions pursuant to
which it sells mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar securities on a
specified future date. During the roll period, the series foregoes principal and
interest paid on the mortgage-backed securities. The series is compensated for
the lost interest by the difference between the current sales price and the
lower price for the future purchase (often referred to as the "drop") as well as
by the interest earned on, and gains from, the investment of the cash proceeds
of the initial sale. The series may also be compensated by receipt of a
commitment fee. If the income and capital gains from the series' investment of
the cash from the initial sale do not exceed the income, capital appreciation
and gain or loss that would have been realized on the securities sold as part of
the dollar roll, the use of this technique will diminish the investment
performance of the series compared with what the performance would have been
without the use of the dollar rolls. Dollar roll transactions involve the risk
that the market value of the securities the series is required to purchase may
decline below the agreed upon repurchase price of those securities. If the
broker/dealer to whom the series sells securities becomes insolvent, the series'
right to purchase or repurchase securities may be restricted. Successful use of
mortgage dollar rolls may depend upon the adviser's ability to correctly predict
interest rates and prepayments. There is no assurance that dollar rolls can be
successfully employed.
OPTIONS
Buying Call and Put Options. Each of the 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, 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 may invest in call and put options whenever, in the opinion of the
advisor or subadvisor, a hedging transaction is consistent with its investment
objectives. The series may sell a call option or a put option which it
12
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.
The seller of an option receives a cash payment or premium at the time of
sale which is retained by the seller whether or not the option is exercised.
This 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 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.
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 and 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 and 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.
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.
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.
Writing (Selling) Call and Put Options. Prior to the expiration of the
option, the seller of a call 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).
Upon exercise by the purchaser, the writer of a call option has the
obligation to sell the underlying security or foreign security, except that the
value of the option depends on the weighted value of the group of securities
comprising the index and all settlements are made in cash. A call option may be
terminated by the writer (seller) by entering into a closing purchase
transaction in which it purchases an option of the same series as the option
previously written.
A put option on a security or foreign currency gives the purchaser of the
option, in return for the premium paid to the writer (seller), the right to sell
the underlying security or foreign currency at the exercise price at any time
during the option period. Upon exercise by the purchaser, the writer of a put
option has the obligation to purchase the underlying security or foreign
currency at the exercise price. A put option on a securities index is similar to
a put option on an individual security, except that the value of the options
depends on the weighted value of the group of securities comprising the index
and all settlements are made in cash.
The series may write exchange-traded call options on their securities. Call
options may be written on portfolio securities, securities indices and foreign
currencies. The
13
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 may be written 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, other than the Phoenix-Morgan
Stanley Focus Equity 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 contracts.
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.
Writing Covered Call Options. The 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.
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 reflect the
current market value of the written option. Market value is the last sale price
of the options on the New York Stock Exchange ("NYSE") or other market 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 ends or the series
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 concludes.
Premium income earned with respect to a qualified covered call option which
lapses or experiences gain or loss from such an option 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 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 less than the
applicable security price (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.
Purchasing Warrants and Stock Rights. 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.
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 nonperformance 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. This information is carefully monitored or
caused to be monitored by the advisor or subadvisor 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, a 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 a 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
14
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 generally considered illiquid securities.
Although the dealers with which a series 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 series.
A series 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 advisor believe that the approved dealers present minimal
credit risks to the Fund and, therefore, should be able to enter into closing
transactions if necessary. A series currently will not engage in OTC options
transactions if the amount invested by the series in OTC options, plus a
"liquidity charge" related to OTC options written by the series in illiquid
securities plus any other portfolio securities considered to be illiquid, would
exceed 10% of the series' total assets (15% of the net assets of each of the
Phoenix-Janus Core Equity, Phoenix-Janus Flexible Income, Phoenix-Janus Growth
and Phoenix-Morgan Stanley Focus Equity Series). The "liquidity charge" referred
to above is computed as described below.
The series anticipates entering into agreements with dealers to which the
series sell OTC options. Under these agreements a series 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 a series to repurchase a specific OTC option written by the series, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
PIK BONDS
PIK bonds are debt obligations which provide that the issuer may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments benefit the issuer by mitigating its need for cash
to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments may
experience greater volatility in market value than debt obligations which make
regular payments of interest. The series will accrue income on such investments
for tax and accounting purposes, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the series' distribution
obligations.
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 a series 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 subadvisor, under procedures adopted by the
Trustees, determine the secondary market is illiquid, 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' illiquid securities to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these
15
securities. Each series may invest up to 15% of its net assets in illiquid
securities.
PRIVATIZATIONS
The governments of some foreign countries have been engaged in programs of
selling part or all of their stakes in government owned or controlled
enterprises ("privatizations"). Privatizations may offer opportunities for
significant capital appreciation. In certain foreign countries, the ability of
foreign entities to participate in privatizations may be limited by local law,
or the terms on which a series may be permitted to participate may be less
advantageous than those for local investors. There can be no assurance that
foreign governments will continue to sell companies currently owned or
controlled by them or that privatization programs will be successful.
REAL ESTATE INVESTMENT TRUSTS
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:
[diamond] 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.
[diamond] Mortgage REITs, which invest the majority of their assets in real
estate mortgages and derive their income primarily from interest
payments.
[diamond] Hybrid REITs, which combine the characteristics of both equity REITs
and mortgage REITs.
Selecting REITs requires an evaluation of the merits of each type of asset a
particular REIT owns, as well as regional and local economics. Due to the
proliferation of REITs in recent years and the relative lack of sophistication
of certain REIT managers, the quality of REIT assets has varied significantly.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying properties owned by the trusts, while mortgage REITs may
be affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent upon management skills and generally are not diversified.
Equity and mortgage REITs also are subject to potential defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free status
of income under the Code and failing to maintain exemption from the Investment
Company Act of 1940. In the event of a default by a borrower or lessee, the REIT
may experience delays in enforcing its rights as a mortgagee or lessor and may
incur substantial costs associated with protecting its investments. In addition,
investment in REITs could cause the series to possibly fail to qualify as a
regulated investment company.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments.
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 7 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.
Each series may invest in repurchase agreements. However, no more than 15%
of a series' net assets will be invested in repurchase agreements having
maturities of more than 7 days. Repurchase agreements will be entered into with
commercial banks, brokers and dealers considered by the Board of Trustees and
the advisor or subadvisor, as applicable, 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.
RESET OPTIONS
In certain instances, the series may purchase or write options on U.S.
Treasury securities which provide for
16
periodic adjustment of the strike price and may also provide for the periodic
adjustment of the premium during the term of each such option. Like other types
of options, these transactions, which may be referred to as "reset" options or
"adjustable strike" options grant the purchaser the right to purchase (in the
case of a call) or sell (in the case of a put), a specified type of U.S.
Treasury security at any time up to a stated expiration date (or, in certain
instances, on such date). In contrast to other types of options, however, the
price at which the underlying security may be purchased or sold under a "reset"
option is determined at various intervals during the term of the option, and
such price fluctuates from interval to interval based on changes in the market
value of the underlying security. As a result, the strike price of a "reset"
option, at the time of exercise, may be less advantageous than if the strike
price had been fixed at the initiation of the option. In addition, the premium
paid for the purchase of the option may be determined at the termination, rather
than the initiation, of the option. If the premium for a reset option written by
the series is paid at termination, the series assumes the risk that (i) the
premium may be less than the premium which would otherwise have been received at
the initiation of the option because of such factors as the volatility in yield
of the underlying Treasury security over the term of the option and adjustments
made to the strike price of the option, and (ii) the option purchaser may
default on its obligation to pay the premium at the termination of the option.
Conversely, where the series purchases a reset option, it could be required to
pay a higher premium than would have been the case at the initiation of the
option.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement is a borrowing transaction in which the
series transfers possession of a security to another party, such as a bank or
broker/dealer in return for cash, and agrees to repurchase the security in the
future at an agreed upon price, which includes an interest component. A series
will segregate with a custodian liquid assets in an amount sufficient to cover
its obligations under reverse repurchase agreements with broker/dealers. No
segregation is required for reverse repurchase agreements with banks. A series
may borrow through reverse repurchase agreements in connection with meeting
requests for the redemption of a series shares. Transactions involving reverse
repurchase agreements may increase fluctuations in the market value of a series'
assets and may be viewed as a form of leverage. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a series may
decline below the price at which the series is obligated to repurchase the
securities.
SHORT SALES
The series may seek to hedge investments or realize additional gains through
short sales. The series may make short sales, which are transactions in which a
series sells a security it does not own, in anticipation of a decline in the
market value of that security. To complete such a transaction, the series must
borrow the security to make delivery to the buyer. The series then is obligated
to replace the security borrowed by purchasing it at the market price at the
time of replacement. The price at such time may be more or less than the price
at which the security was sold by the series. Until the security is replaced,
the series is required to repay the lender any dividends or interest which
accrue during the period of the loan. To borrow the security, the series also
may be required to pay a premium, which would increase the cost of the security
sold. The net proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out. The series also will incur transaction costs in effecting short sales.
The series will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the series replaces the borrowed security. The series will realize a gain if the
price of the security declines between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends or interest the series may be required to pay in connection
with a short sale.
Whenever the series engages in short sales, it identifies liquid and
unencumbered assets in an amount that, when combined with the amount of
collateral deposited with the broker connection with the short sale, equals the
current market value of the security sold short.
SHORT SALES AGAINST THE BOX
The series may make short sales "against the box," i.e., when a security
identical to one owned by the series is borrowed and sold short. If the series
enters into a short sale against the box, it is required to segregate securities
equivalent in kind and amount to the securities sold short (or securities
convertible or exchangeable into such securities) and is required to hold such
securities while the short sale is outstanding. The series will incur
transaction costs, including interest, in connection with opening, maintaining,
and closing short sales against the box.
SMALL AND MID CAPITALIZATION SECURITIES
Investments in small or mid capitalization companies involve greater risk
than is generally associated with larger, more established companies. The
securities of smaller companies may be subject to more abrupt or erratic market
movements than larger companies. The securities of small or medium-sized
companies are often traded over-the-counter, and may not be traded in volumes
typical of securities traded on a national securities exchange. Consequently,
the securities of small or medium-sized companies may have limited market
stability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general.
17
SPECULATIVE BONDS
The series may invest in fixed income and convertible securities rated Baa
by Moody's or BBB by S&P, Fitch or Duff & Phelps and comparable unrated
securities. These securities, while normally exhibiting adequate protection
parameters, have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher grade securities.
STRIPPED MORTGAGE BACKED SECURITIES
Stripped mortgage-backed securities ("SMBS") are derivative multiclass
mortgage securities issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan institutions, mortgage banks, commercial banks and
investment banks. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the
interest-only or "I0" class) while the other class will receive all of the
principal (the principal-only or "P0" class). The yield to maturity on an I0 is
extremely sensitive to the rate of principal payments, including prepayments on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on such security's yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the series may fail to fully recoup its initial investment in these
securities. The market value of the class consisting primarily or entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. Because SMBS were only recently introduced, established trading
markets for these securities have not yet developed, although the securities are
traded among institutional investors and investment banking firms.
SWAP AGREEMENTS
Swap agreements are two party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. Commonly used swap
agreements include (i) interest rate caps, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap," (ii) interest rate floors, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates fall below a specified level, or "floor," and (iii)
interest rate collars, under which a party sells a cap and purchases a floor or
vice versa in an attempt to protect itself against interest rate movements
exceeding given minimum or maximum levels. The "notional amount" of the swap
agreement is only a fictive basis on which to calculate the obligations which
the parties to a swap agreement have agreed to exchange. The series' obligations
(or rights) under a swap agreement will generally be equal only to the net
amount to be paid or received under the agreement based on the relative values
of the positions held by each party to the agreement (the "net amount"). The
series' obligations under a swap agreement will be accrued daily (offset against
any amounts owing to the series) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of liquid assets to avoid any potential leveraging of the series'
holdings. The series will not enter into a swap agreement with any single party
if the net amount owed or to be received under existing contracts with that
party would exceed 5% of the series' assets.
Whether the series' use of swap agreements will be successful in furthering
its investment objective will depend on an advisor's or subadvisor's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, the series bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The advisor or
subadvisor will cause the series to enter into swap agreements only with
counterparties that would be eligible for consideration as repurchase agreement
counterparties under the series' repurchase agreement guidelines. Certain
restrictions imposed on the series by the Internal Revenue Code may limit a
series' ability to use swap agreements. The swaps market is largely unregulated.
Swaps agreements generally are exempt or excluded from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA. It is possible that developments in
the swaps market, including potential government regulation, could adversely
affect a series' ability to terminate existing swap agreements or to realize
amounts to be received under such agreements.
TEMPORARY BORROWING
The series may borrow money for temporary purposes (e.g., to meet redemption
requests or settle outstanding purchases of portfolio securities).
18
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 negotiable
certificates are not received.
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 1 to 7 years,
and Treasury bonds generally have maturity of greater than 5 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, Farmers 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.
VARIABLE AND FLOATING RATE OBLIGATIONS
Investments in variable or floating rate securities normally will involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate, such as rates on
Treasury Bonds or Bills or the prime rate at a major commercial bank, and that a
bondholder can demand payment of the obligations on behalf of the series on
short notice at par plus accrued interest, which amount may be more or less than
the amount the bondholder paid for them. The maturity of floating or variable
rate obligations (including participation interests therein) is deemed to be the
longer of (i) the notice period required before the series is entitled to
receive payment of the obligation upon demand or (ii) the period remaining until
the obligation's next interest rate adjustment. If not redeemed by the series
through the demand feature, the obligations mature on a specified date which may
range up to thirty years from the date of issuance.
WHEN-ISSUED SECURITIES
The series may purchase securities on a when-issued basis. New issues of
certain securities are offered on a when-issued basis, that is, delivery and
payment for the securities normally takes place 15 to 45 days or more after the
date of the commitment to purchase. The payment obligation and the interest
rate, if any, that will be received on the securities are each fixed at the time
the buyer enters into the commitment. The series will generally make a
commitment to purchase such securities with the intention of actually acquiring
the securities. However, the series may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
When the series purchases securities on a when-issued basis, cash or liquid
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.
"YIELD CURVE" OPTIONS
The series may enter into options on the "spread," or yield differential,
between two fixed income securities, in transactions referred to as "yield
curve" options. In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities, rather than
the prices of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, the series may purchase or write such options for
hedging purposes. For example, the series may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an adverse
change in the yield
19
spread between the two securities. The series may also purchase or write yield
curve options for other than hedging purposes (i.e., in an effort to increase
its current income) if, in the judgment of the adviser, the series will be able
to profit from movements in the spread between the yields of the underlying
securities. The trading of yield curve options is subject to all of the risks
associated with the trading of other types of options. In addition, however,
such options present risk of loss even if the yield of one of the underlying
securities remains constant, if the spread moves in a direction or to an extent
which was not anticipated. Yield curve options written by the series will be
"covered." A call (or put) option is covered if the series holds another call
(or put) option on the spread between the same two securities and owns liquid
and unencumbered assets sufficient to cover the series' net liability under the
two options. Therefore, the series' liability for such a covered option is
generally limited to the difference between the amount of the series' liability
under the option written by the series less the value of the option held by the
series. Yield curve options may also be covered in such other manner as may be
in accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded
over-the-counter and because they have been only recently introduced,
established trading markets for these securities have not yet developed.
ZERO AND DEFERRED COUPON DEBT SECURITIES
The 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.
ADDITIONAL INVESTMENT POLICIES OF CERTAIN SERIES
- --------------------------------------------------------------------------------
The following policies are non-fundamental and may be changed without
shareholder vote.
PHOENIX-ABERDEEN INTERNATIONAL SERIES
The Phoenix-Aberdeen International Series may invest up to 5% of its net
assets in warrants and stock rights, but no more than 2% of its net assets in
warrants and stock rights not listed on the NYSE or the American Stock Exchange.
This series also may hedge its foreign currency exchange rate risk by
engaging in currency financial futures and options transactions.
The series may invest in nonconvertible fixed income securities of non-U.S.
issuers when the advisor believes that such securities are appropriate for the
achievement of the series' investment objective. The nonconvertible fixed income
securities may consist of: corporate notes, bonds, debentures and other
securities (such as Euro-currency instruments) of non-U.S. issuers that are
rated within the three highest rating categories of rating services or, if
unrated, are deemed by the advisor to be of comparable credit quality; and
securities issued by foreign governments and supranational agencies (such as the
World Bank).
PHOENIX-ABERDEEN NEW ASIA SERIES
The Phoenix-Aberdeen New Asia Series may invest up to 5% of its net assets
in warrants and stock rights, but no more than 2% of its net assets in warrants
and stock rights not listed on the NYSE or the American Stock Exchange.
This series also may hedge its foreign currency exchange rate risk by
engaging in currency financial futures and options transactions.
PHOENIX-AIM MID-CAP EQUITY SERIES
To the extent that the Phoenix-AIM Mid-Cap Equity Series enters into futures
contracts, options on futures contracts, and options on foreign currencies
traded on a CFTC-regulated exchange, in each case other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money") will not exceed 5% of the total assets of the
series, after taking into account unrealized profits and unrealized losses on
contracts it has entered into. This does not limit the percentage of the series
assets at risk to 5%.
The series will not write options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the series' total assets. The series will not purchase options
if, at any time of the investment, the aggregate premiums paid for the options
exceed 5% of the series' total assets.
The series does not currently intend to invest in inverse floating rate
obligations, PIK bonds, private placements, privatizations, reset options,
variable or floating rate securities, or "yield curve" options. The series does
not invest in speculative bonds. The series also will not lend portfolio
securities with a value of more than 33% of its assets. The series will not
invest more than 25% of its net assets in REITS.
The series may participate in the initial public offering ("IPO") market,
and a portion of the series' returns could be attributable to its investments in
IPOs, which would have a magnified impact due to the series' small asset base.
20
As the series' assets grow, it is probable that the effect of the series'
investment in IPOs on its total returns will decline, which may reduce the
series' total returns.
PHOENIX-ALLIANCE/BERNSTEIN GROWTH + VALUE SERIES
The Phoenix-Alliance/Bernstein Growth + Value Series will not lend portfolio
securities with a value of more than 30% of its assets. The series will not
invest more than 25% of its net assets in REITS.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES
A shareholder in the Phoenix-Duff & Phelps Real Estate Securities 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.
The Phoenix-Duff & Phelps Real Estate Securities 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, overbuilding, 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.
The Phoenix-Duff & Phelps Real Estate Securities 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 DPIM. In choosing
debt securities for purchase by the series, DPIM will employ the same analytical
and valuation techniques utilized in managing the equity portion of the
Phoenix-Duff & Phelps Real Estate Securities Series holdings and will invest in
debt securities only of companies that satisfy DPIM's investment criteria.
PHOENIX-ENGEMANN CAPITAL GROWTH SERIES
The Phoenix-Engemann Capital Growth Series may only purchase a call option
to terminate a previously-written call option. (See "Writing Covered Call
Options.")
PHOENIX-ENGEMANN SMALL & MID-CAP GROWTH SERIES
The Phoenix-Engemann Small & Mid-Cap Growth may use financial futures
contracts and related options to hedge against changes in the market value of
the portfolio securities which it intends to purchase.
The series may also invest up to 100% of its assets in cash and certain
short- and medium-term fixed income securities for temporary defensive purposes.
PHOENIX-GOODWIN MONEY MARKET SERIES
By limiting the maturity of its investments, this 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 Phoenix-Goodwin 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 Phoenix-Goodwin 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
discussion of amortized cost is contained under "Determination of Net Asset
Value."
The Phoenix-Goodwin Money Market Series may only purchase a call option to
terminate a previously-written call option. (See "Writing Covered Call
Options.")
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES
The Phoenix-Goodwin Multi-Sector Fixed Income Series may only purchase a
call option to terminate a previously-written call option. (See "Writing Covered
Call Options.")
PHOENIX-HOLLISTER VALUE EQUITY SERIES
The series may invest in convertible securities. The series will invest only
in the four highest rating categories of convertible securities, commonly called
"investment grade" securities. If the series purchases an investment grade
security that loses its investment grade rating, the series is not required to
sell the security.
The series may lend portfolio securities in amounts up to one-third the
value of its total assets to increase its investment returns.
21
PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES
The investment strategy of the Phoenix-J.P. Morgan Research 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 325 issuers,
which securities are rated by the series' subadvisor 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 Research: The subadvisors of the series -- more than 20 domestic equity
analysts, each an industry specialist with an average of over 11 years
experience, follow over 600 predominantly large- and medium-sized U.S.
companies -- approximately 300 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 Index. The analysts' research
goal is to forecast normalized, longer-term earnings and dividends for the
companies that they cover.
o 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 Stock selection: 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 4 quintiles. Finally, the series holds
a large number of stocks to enhance its diversification.
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 capitalization 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 invest up to 5% of its 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.
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.
PHOENIX-JANUS CORE EQUITY SERIES (FORMERLY, "PHOENIX-JANUS EQUITY INCOME
SERIES")
The Phoenix-Janus Core Equity Series may hedge its foreign currency exchange
rate risk by engaging in currency financial futures and options transactions.
PHOENIX-JANUS FLEXIBLE INCOME SERIES
The Phoenix-Janus Flexible Income Series may hedge its foreign currency
exchange rate risk by engaging in currency financial futures and options
transactions.
PHOENIX-JANUS GROWTH SERIES
The Phoenix-Janus Growth Series may hedge its foreign currency exchange rate
risk by engaging in currency financial futures and options transactions.
PHOENIX-MFS INVESTORS GROWTH STOCK SERIES
The Phoenix-MFS Investors Growth Stock Series does not invest in Brady bonds,
dollar denominated foreign debt securities, indexed securities, inverse floating
rate obligations, warrants, PIK bonds, reset options, reverse repurchase
agreements, short sales against the box, speculative bonds, stripped
mortgage-backed securities, swap agreements, "yield curve" options, or zero and
deferred coupon debt securities. The series will not lend portfolio securities
with a value of more than 30% of its assets, and does not purchase loans or
other direct indebtedness.
PHOENIX-MFS INVESTORS TRUST SERIES
The Phoenix-MFS Investors Trust Series does not invest in Brady bonds,
corporate asset-backed securities, dollar denominated foreign debt securities,
indexed securities, inverse floating rate obligations, mortgage-backed
securities, options, reset options, reverse repurchase agreements, speculative
bonds, stripped mortgage-backed securities, swap agreements, or "yield curve"
options. The series will not lend portfolio securities with a value of more than
30% of its assets, and does not purchase loans or other direct indebtedness.
PHOENIX-MFS VALUE SERIES
The Phoenix-MFS Value Series does not invest in inverse floating rate
obligations, reverse repurchase
22
agreements, or short sales against the box. The series will not lend portfolio
securities with a value of more than 30% of its assets.
PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES
The Phoenix-Morgan Stanley Focus Equity series may enter into financial
futures contracts for non-hedging purposes to further the series' investment
objective and enhance returns. The series, however, will not use financial
futures contracts or other derivative products in a manner that creates
leverage, except to the extent expressly permitted by the series' investment
policies. The Phoenix-Morgan Stanley Focus Equity Series also may hedge its
foreign currency exchange rate risk by engaging in currency financial futures
and options transactions.
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 and held in a
segregated account with the custodian bank for the series in an amount
sufficient to cover the cost of purchasing the obligation.
The Phoenix-Morgan Stanley Focus Equity Series may invest up to 100% of its
assets in cash and certain short- and medium-term fixed income securities for
temporary defensive purposes.
The Phoenix-Morgan Stanley Focus Equity Series may use structured notes.
These are derivative securities for which the amount of principal repayment
and/or interest payments is based upon the movement of one or more "factors."
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and LIBOR) and stock indices, such as the
S&P 500. In some cases, the impact of the movements of these factors may
increase or decrease through the use of multipliers or deflators.
Structured notes may be designed to have particular quality and maturity
characteristics and may vary from money market quality to below investment
grade. Depending on the factor used and the use of multipliers or deflators,
however, changes in interest rates and movement of the factor may cause
significant price fluctuations or may cause particular Structured Notes to
become illiquid. The series will use Structured Notes to tailor its investments
to the specific risks and returns the subadvisor wishes to accept while avoiding
or reducing certain other risks.
PHOENIX-OAKHURST BALANCED SERIES
Immediately after entering into an opening option position, the total value
of all open option positions based on exercise price will not exceed 10% of the
Phoenix-Oakhurst Balanced Series' total assets.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES
The Phoenix-Oakhurst Growth and Income Series intends to invest up to 5% of
its net assets in warrants and stock rights, but no more than 2% of its net
assets in warrants and stock rights not listed on the NYSE or the American Stock
Exchange.
PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES
Immediately after entering into an opening option position, the total value
of all open option positions based on exercise price will not exceed 10% of the
Phoenix-Oakhurst Strategic Allocation Series' total assets.
PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES
Market Segment Investments. The Phoenix-Oakhurst Strategic Allocation Series
seeks to achieve its investment objective by investing in the 3 market segments
of stocks, bonds and money market instruments described below.
[diamond] STOCK--common stocks and other equity-type securities such as
preferred stocks, securities convertible into common stock and
warrants;
[diamond] BONDS--bonds and other debt securities with maturities generally
exceeding one year, including:
o publicly-offered straight debt securities having a rating within the 4
highest grades as determined by Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's Corporation
("Standard & Poor's") (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;
o obligations issued, sponsored, assumed or guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities;
o 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 Phoenix-Oakhurst Strategic Allocation Series' total
assets;
o 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 3 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
o 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 10% of the
Phoenix-Oakhurst Strategic Allocation Series' total assets.
23
[diamond] MONEY MARKET--money market instruments and other debt securities with
maturities generally not exceeding one year, including:
o those money market instruments described in this Statement of Additional
Information; and
o 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 asset coverage of at least 300% at all times for all
obligations under reverse repurchase agreements.
Trading. The advisor 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 advisor's ability to evaluate particular
securities and anticipate relevant market factors, including interest rate
trends and variations. If the advisor'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.
Purchases and sales of securities will be made, whenever necessary, in the
advisor'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 Phoenix-Oakhurst Strategic Allocation
Series may enter into financial futures and options contracts.
PHOENIX-SANFORD BERNSTEIN GLOBAL VALUE SERIES
The Phoenix-Sanford Bernstein Global Value Series may hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions.
PHOENIX-SENECA STRATEGIC THEME SERIES
The Phoenix-Seneca Strategic Theme Series may use financial futures
contracts and related options to hedge against changes in the market value of
the portfolio securities which it intends to purchase.
The Phoenix-Seneca Strategic Theme Series intends to invest up to 5% of its
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.
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. If a percentage restriction on investment or use
of assets set forth below is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing market values or other
circumstances will not be considered a deviation from the policy.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of the series
described in this SAI and may not be changed except as described above.
Restriction 8 does not affect the ability of each series to enter into
foreign currency transactions.
(1) A series may not, with respect to 75% of its total assets, purchase
securities of an issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities or repurchase agreements collateralized
by U.S. Government securities and other investment companies, if: (a)
such purchase would, at the time, cause more than 5% of the series' total
assets, taken at market value, to be invested in the securities of such
issuer; or (b) such purchase would, at the time, result in more than 10%
of the outstanding voting securities of such issuer being held by the
series.
This restriction does not apply to the Phoenix-Deutsche Dow 30,
Phoenix-Deutsche Nasdaq-100 Index(R), Phoenix-Duff & Phelps Real Estate
Securities or Phoenix-Morgan Stanley Focus Equity Series.
(2) A series may not purchase securities in a given industry if, after giving
effect to the purchase, more than 25% of its total assets would be
invested in the securities of one or more issuers conducting business
activities in the same industry (excluding the U.S. Government or its
agencies or instrumentalities).
24
This restriction does not apply to the Phoenix-Duff & Phelps Real Estate
Securities Series, Phoenix-Deutsche Dow 30, Phoenix-Deutsche
Nasdaq-100 Index(R) or Phoenix-Morgan Stanley Focus Equity Series.
In addition, the Phoenix-Goodwin Money Market Series and Phoenix-Oakhurst
Strategic Allocation Series may invest more than 25% of their assets in
the banking industry.
(3) A series may not issue senior securities in contravention of the 1940
Act. Activities permitted by SEC exemptive orders or staff
interpretations shall not be deemed prohibited by this restriction.
(4) A series may not borrow money, except (i) in amounts not to exceed one
third of the value of the series' total assets (including the amount
borrowed) from banks, and (ii) up to an additional 5% of its total assets
from banks or other lenders for temporary purposes. For purposes of this
restriction, (a) investment techniques such as margin purchases, short
sales, forward commitments, and roll transactions, (b) investments in
instruments such as futures contracts, swaps, and options, and (c)
short-term credits extended in connection with trade clearances and
settlement shall not constitute borrowing.
(5) A series may not underwrite the securities issued by other persons,
except to the extent that, in connection with the disposition of
portfolio securities, a series may be deemed to be an underwriter under
the applicable law.
(6) A series may not purchase or sell real estate, except that a series may
(i) acquire or lease office space for its own use, (ii) invest in
securities of issuers that invest in real estate or interests therein,
(iii) invest in mortgage-related securities and other securities that are
secured by real estate or interests therein, or (iv) hold and sell real
estate acquired by the series as a result of the ownership of securities.
(7) A series may not make loans, except that a series may (i) lend portfolio
securities, (ii) enter into repurchase agreements, (iii) purchase all or
a portion of an issue of debt securities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the
original issuance of the securities, and (iv) participate in an interfund
lending program with other registered investment companies.
(8) A series may not purchase or sell commodities or commodity contracts,
except a series may purchase and sell derivatives (including, but not
limited to, options, futures contracts and options on futures contracts)
whose value is tied to the value of a financial index or a financial
instrument or other asset (including, but not limited to, securities
indices, interest rates, securities, currencies and physical
commodities).
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 Phoenix-Goodwin Money Market Series) are set forth under
"Financial Highlights" in the prospectus. There are no financial highlights for
the Phoenix-AIM Mid-Cap Equity, Phoenix-Alliance/Bernstein Growth + Value,
Phoenix-MFS Investors Growth Stock, Phoenix-MFS Investors Trust, and Phoenix-MFS
Value Series because these series are new. The portfolio turnover rates for the
Phoenix-Deutsche Nasdaq-100 Index(R), Phoenix-Engemann Small & Mid-Cap Growth,
Phoenix-Sanford Bernstein Global Value and Phoenix-Sanford Bernstein Small-Cap
Value Series are for less than a full year.
25
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The business and affairs of the Fund are supervised by the Board of Trustees
under the laws of The Commonwealth of Massachusetts and the Declaration of
Trust. The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below.
NAME AND ADDRESS POSITION(S) WITH THE FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------- ------------------------- -------------------------------------------
Frank M. Ellmer, CPA Trustee Retired; previously Audit Partner at Ernst & Young, LLP from
704 SW Lake Charles Circle 1978-1999.
Port St. Lucie, FL 34986
Birth date: 4/11/40
John A. Fabian Trustee Retired; previously Executive Vice President of Phoenix Home
497 Hensler Lane Life Mutual Insurance Company (1992-1994).
Oradell, NJ 07649
Birth date: 2/5/34
Roger A. Gelfenbien Trustee Retired; previously Managing Partner of Andersen Consulting (now
37 Stonegate Drive Accenture) from 1989-1999.
Wethersfield, CT 06109
Birth date: 5/14/43
Eunice S. Groark Trustee Self-employed (1995-present); Columnist, Manchester Connecticut
35 Saddle Ridge Drive Journal Inquirer (1995-2000); Visiting Professor, Wesleyan
Bloomfield, CT 06002 University (1997-1999).
Birth date: 2/1/38
Frank E. Grzelecki Trustee Retired; previously Managing Director, Saugatuck Associates,
312 Greenley Road Inc. (1999-2000); Vice Chairman, (1997-1998), President/Chief
New Canaan, CT 06840 Operating Officer (1992-1997), Handy & Harman.
Birth date: 6/19/37
John R. Mallin Trustee Partner/Attorney, Cummings & Lockwood (1996-present).
Cummings & Lockwood
Cityplace I
Hartford, CT 06103
Birth date: 7/28/50
Timothy P. Shriver Trustee President and Chief Executive Officer, Special Olympics, Inc.
Special Olympics, Inc. (1996-present).
1325 G Street, N.W. #500
Washington, D.C. 20005
Birth date: 8/29/59
Simon Y. Tan* Trustee, President Various positions, including Executive Vice President, Phoenix
One American Row Life Insurance Company (1982-present). Director (1996-present)
Hartford, CT 06102 Phoenix-Aberdeen International Advisors, LLC. Director and
Birth date: 2/17/52 President (1999-present) Phoenix Variable Advisors, Inc.
Dona D. Young* Trustee Various positions, including President and Chief Operating
One American Row Officer of Phoenix Life Insurance Company. (1980-present).
Hartford, CT 06102
Birth date: 1/8/54
26
NAME AND ADDRESS POSITION(S) WITH THE FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------- ------------------------- -------------------------------------------
J. Roger Engemann Senior Vice President President and Director Roger Engemann & Associates, Inc. since
600 North Rosemead Blvd 1969. President and Director, Pasadena Capital Corporation
Pasadena, CA 91107 (1988-present) and Roger Engemann Management Co., Inc.
Birth date: 10/07/40 (1985-present). Chairman, President and Trustee (1986-present)
Phoenix-Engemann Funds; Managing Director (1998-2001) Phoenix
Investment Counsel, Inc.; Senior Vice President (1998-present)
Phoenix Series Fund; Senior Vice President (1998-2001) Phoenix
Strategic Equity Series Fund.
Michael J. Gilotti Executive Vice President Senior Vice President, Phoenix Life Insurance Company
One American Row (1999-present); Director (2000-present), Phoenix Variable
Hartford, CT 06102 Advisors, Inc.; Vice President Bank and Broker/Dealer Markets,
Birth date: 05/25/47 Aetna Retirement Services (1994-1999).
Michael E. Haylon Executive Vice President Director and Executive Vice President, Investment, Phoenix
56 Prospect Street Investment Partners, Ltd. (1995-present); Director (since 1994)
Hartford, CT 06115 and President (since 1995), Phoenix Investment Counsel, Inc.;
Birth date: 12/18/57 Director (since 1995), Phoenix Equity Planning Corp.; President
(since June 2000) PXP Securities Corp.; Executive Vice President
(since 1996); Duff & Phelps Investment Management Co.; Executive
Vice President (since 1999) Phoenix/Zweig Advisors LLC and Euclid
Advisors LLC. Director (1996 - present) Phoenix-Aberdeen
International Advisors, LLC.; Executive Vice President,
Phoenix Funds (1993-present); Phoenix-Aberdeen Series Fund
(1996-present) and Phoenix-Seneca Funds (2000-present). Executive
Vice President (1997-present), Vice President (1996-1997), Phoenix
-Duff & Phelps Institutional Mutual Funds.
Gail P. Seneca Senior Vice President President and Chief Executive and Investment Officer, Seneca
909 Montgomery Street Capital Management LLC (1996-present). Managing Director,
San Francisco, CA 94133 Equities, Phoenix Investment Counsel, Inc. (1998-present).
Birth date: 03/07/53 President and Trustee (1996-present), Phoenix-Seneca Funds.
Managing General Partner and Chief Executive and Investment
Officer, GMG/Seneca Capital Management LP (1989-present). Senior
Vice President, Phoenix Multi-Portfolio Fund (1998-present),
Phoenix Duff & Phelps Institutional Mutual Funds (1999-present)
and Phoenix Strategic Equity Series Fund (1998-present).
General Partner, Genesis Merchant Group LP (1990-1996).
President, GenCap, Inc. (1994-present).
27
NAME AND ADDRESS POSITION(S) WITH THE FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ---------------- ------------------------- -------------------------------------------
James D. Wehr Senior Vice President Senior Vice President, Fixed Income (1998-present), Managing
56 Prospect Street Director (1996-1998), Fixed Income, Vice President (1991-1996),
Hartford, CT 06115 Phoenix Investment Counsel, Inc. Senior Vice President
Birth date: 05/17/57 (1997-present), Vice President (1988-1997), Phoenix Multi-
Portfolio Fund; Senior Vice President (1997-present), Vice
President (1990-1997), Phoenix Series Fund; Senior Vice President
(1997-present), Vice President (1993-1997) Phoenix-Goodwin
California Tax Exempt Bond Fund and Senior Vice President
(1997-present), Vice President (1996-1997), Phoenix Duff & Phelps
Institutional Mutual Funds. Senior Vice President (1997-present),
Phoenix-Goodwin Multi-Sector Fixed Income Fund, Phoenix-Goodwin
Multi-Sector Short Term Bond Fund, Phoenix-Oakhurst Income &
Growth Fund and Phoenix-Oakhurst Strategic Allocation Fund. Senior
Vice President and Chief Investment Officer, Duff & Phelps
Utilities Tax Free Income, Inc. (1997-present). Vice President
(1996-present) Duff & Phelps Investment Manager Co.
Hugh Young Senior Vice President Senior Vice President, Phoenix-Aberdeen Series Fund
Aberdeen Asset Managers (1996-present); Director, Phoenix-Aberdeen International
LTD Advisors, LLC; Far East Investment Director, Aberdeen Asset
88A Circular Road Management Asia Limited (1988-present); Managing Director,
Singapore 049439 Aberdeen Asset Management Asia Limited (1992-present); Managing
Birth date: 05/21/58 Director, Aberdeen Asset Management plc (1991-present); Managing
Director, Aberdeen International Fund Managers Limited
(2000-present); Director, Aberdeen Asset Management and Aberdeen
Asset Managers (CI) Limited (2001 to 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; President, Aberdeen
Asia-Pacific Income Fund, Inc. (2001-present); Director and
President, Aberdeen Australia Equity Fund, Inc. and Aberdeen
Commonwealth Income Fund, Inc. (2001-present).
Nancy G. Curtiss Treasurer Treasurer, Phoenix funds (1994-present), Phoenix Duff & Phelps
56 Prospect Street Institutional Mutual Funds (1996-present), Phoenix-Aberdeen
Hartford, CT 06115 Series Fund (1996-present) and Phoenix-Seneca Funds
Birth date: 11/24/52 (2000-present). Vice President, Fund Accounting (1994-2000) and
Treasurer (1996-2000), Phoenix Equity Planning Corporation.
Richard J. Wirth Vice President, Secretary Counsel, Phoenix Life Insurance Company (1993-present).
One American Row and Counsel
Hartford, CT 06102
Birth date: 11/14/58
- ----------------
* 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 1940 Act.
None of the Trustees or officers directly own shares of the Fund. As of
September 30, 2001, the Trustees and officers as a group owned variable
contracts that entitled them to give voting instructions with respect to less
than 1% of the outstanding shares of the Fund.
28
Eunice S. Groark, John R. Mallin and Frank M. Ellmer serve as members of the
Executive Committee of the Board of Trustees. The Executive Committee is
responsible for authorizing management of the Fund to file amendments to the
Fund's registration statement to establish new series and to undertake any other
task or responsibility that the Board of Trustees may, from time to time, assign
to it.
COMPENSATION TABLE
Trustee costs are allocated equally to each of the series of the Fund.
Officers and employees of the advisor who are "interested persons" are
compensated by the advisor and receive no compensation from the Fund. Trustees
receive no compensation from any other fund in the complex. The Trustees
received the following compensation from the Fund for the year ended December
31, 2000:
======================================================
AGGREGATE COMPENSATION
NAME FROM FUND
---- ---------
======================================================
Frank M. Ellmer $28,000
------------------------------------------------------
John A. Fabian $30,000
------------------------------------------------------
Roger A. Gelfenbien $5,000
------------------------------------------------------
Eunice S. Groark $22,000
------------------------------------------------------
Frank E. Grzelecki $5,000
------------------------------------------------------
John R. Mallin $28,000
------------------------------------------------------
Timothy P. Shriver $16,000
------------------------------------------------------
Simon Y. Tan $0
------------------------------------------------------
Dona D. Young $0
======================================================
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of each series, each of which represents an equal
proportionate interest in that series. Each share upon liquidation entitles a
shareholder to a pro rata share in the net assets of that series. Shareholders
have no preemptive rights. The Declaration of Trust provides that the Trustees
of the Fund may create additional series of shares or separate classes of
portfolios without shareholder approval. Share certificates representing the
shares will not be issued.
VOTING
Each share of each series entitles the shareholder of record to one vote.
Where a matter pertains solely to one or more series, only the shareholders of
such series will be entitled to vote. Under the Declaration of Trust and
Massachusetts business trust law, the Fund is not required to hold annual
shareholder meetings. It is not anticipated that the Fund will hold shareholder
meetings unless required by law, although special meetings may be called for a
specific series, or for the Fund as a whole, for the election or removal of a
Trustee, changing a fundamental policy, or approving a new or amended advisory
contract or subadvisory agreement. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding voting
shares may remove a person serving as trustee either by written instrument or at
a meeting held for that purpose. The Trustees are required to call a meeting for
the purpose of considering the removal of a person serving as a Trustee, if
requested in writing by the holders of not less than 10% of the outstanding
shares of the Fund. In accordance with current laws, it is anticipated that an
insurance company issuing a variable contract that participates in the Fund will
request voting instructions from the variable contract owners and will vote the
shares in the separate account in proportion to the voting instructions
received. The Fund's shares do not have cumulative voting rights.
CONTROL PERSONS
The shares of each of the series are owned by one or more of the separate
accounts of the Phoenix family of insurance companies offering variable
insurance and annuity products. The table below shows the percentage ownership
of each series held by each separate or general account as of
September 30, 2001.
===================================================================================================================================
PHOENIX LIFE & ANNUITY
PHOENIX LIFE VARIABLE PHOENIX LIFE VARIABLE PHL VARIABLE VARIABLE UNIVERSAL
SERIES ACCUMULATION ACCOUNT UNIVERSAL LIFE ACCOUNT ACCUMULATION ACCOUNT LIFE ACCOUNT
===================================================================================================================================
Phoenix-Aberdeen International 45.8% 30.7% 23.5% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia 31.8% 26.6% 41.3% 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Deutsche Dow 30 53.7% 11.3% 34.9% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Deutsche Nasdaq-100 Index(R) 55.9% 19.0% 22.8% 2.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities 33.4% 21.3% 45.3% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth 52.1% 28.1% 19.9% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty 30.2% 25.0% 44.7% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Small & Mid-Cap Growth 37.5% 10.9% 51.5% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government Bond 52.6% 6.2% 41.2% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 34.0% 30.9% 34.9% 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 43.4% 18.0% 38.6% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity 28.7% 24.4% 46.7% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-J.P. Morgan Research Enhanced Index 28.9% 35.7% 35.3% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Core Equity 31.5% 15.7% 52.1% 0.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income 43.7% 6.4% 49.3% 0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
29
===================================================================================================================================
PHOENIX LIFE & ANNUITY
PHOENIX LIFE VARIABLE PHOENIX LIFE VARIABLE PHL VARIABLE VARIABLE UNIVERSAL
SERIES ACCUMULATION ACCOUNT UNIVERSAL LIFE ACCOUNT ACCUMULATION ACCOUNT LIFE ACCOUNT
===================================================================================================================================
Phoenix-Janus Growth 27.6% 19.4% 52.7% 0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity 49.6% 10.3% 40.1% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced 58.3% 14.9% 26.7% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth & Income 26.8% 17.1% 56.1% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation 62.3% 18.3% 19.3% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Global Value 85.2% 3.8% 10.9% 0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value 33.2% 27.8% 38.8% 0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value Equity 46.8% 13.3% 39.4% 0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth 31.2% 21.0% 47.7% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme 36.1% 20.3% 43.5% 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
PHL Variable Insurance Company and Phoenix Life and Annuity Company are
indirect, wholly-owned subsidiaries of Phoenix. No shares are held by any
advisor or subadvisor of the Fund.
THE INVESTMENT ADVISORS AND SUBADVISORS
- -----------------------------------------
THE INVESTMENT ADVISORS
The Fund has entered into Investment Advisory Agreements (each an
"Agreement" and together the "Agreements") with Phoenix Investment Counsel,
Inc., Phoenix Variable Advisors, Inc., Duff & Phelps Investment Management Co.,
and Phoenix-Aberdeen International Advisors, LLC (each an "advisor" and together
the "advisors") to serve as investment advisors to the various series of the
Fund, as described below. The Agreements provide that each advisor 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.
The Agreements remain in effect for two years following the initial
effective date with respect to a series, and continue in force from year to year
thereafter 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 (as that
term is defined in the 1940 Act). 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 1940 Act) 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 advisors, on sixty (60)
days written notice.
The Agreements provide that the advisors 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 Agreements relate, except a loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard on the part of the advisors in the performance of its duties
thereunder.
PHOENIX INVESTMENT COUNSEL, INC.
Phoenix Investment Counsel, Inc. ("PIC") is the investment advisor to the
following series of the Fund:
o Phoenix-Aberdeen International Series
o Phoenix-Engemann Capital Growth Series
o Phoenix-Engemann Nifty Fifty Series
o Phoenix-Engemann Small & Mid-Cap Growth Series
o Phoenix-Goodman Money Market Series
o Phoenix-Goodman Multi-Sector Fixed Income Series
o Phoenix-Hollister Value Equity Series
o Phoenix-Oakhurst Balanced Series
o Phoenix-Oakhurst Growth and Income Series
o Phoenix-Oakhurst Strategic Allocation Series
o Phoenix-Seneca Mid-Cap Growth Series
o Phoenix-Seneca Strategic Theme Series
The Fund pays PIC, as full compensation for the services and facilities
furnished to the Fund under the Agreement, a fee based on an annual percentage
of the average daily net assets of each of these series, as described in the
table below. There can be no assurance that a series will reach a net asset
level high enough to realize a reduction in the rate of the advisory fee.
=======================================================================
RATE FOR EXCESS
RATE FOR FIRST RATE FOR NEXT OVER
SERIES $250,000,000 $250,000,000 $500,000,000
------ ------------ ------------ ------------
=======================================================================
Phoenix-Aberdeen .75% .70% .65%
International
-----------------------------------------------------------------------
Phoenix-Engemann .70% .65% .60%
Capital Growth
-----------------------------------------------------------------------
Phoenix-Engemann
Nifty Fifty .90% .80% .70%
-----------------------------------------------------------------------
Phoenix-Goodwin Money
Market .40% .35% .30%
-----------------------------------------------------------------------
Phoenix-Goodwin
Multi-Sector Fixed
Income .50% .45% .40%
-----------------------------------------------------------------------
Phoenix-Hollister
Value Equity .70% .65% .60%
-----------------------------------------------------------------------
30
=======================================================================
RATE FOR EXCESS
RATE FOR FIRST RATE FOR NEXT OVER
SERIES $250,000,000 $250,000,000 $500,000,000
=======================================================================
Phoenix-Oakhurst
Balanced .55% .50% .45%
-----------------------------------------------------------------------
Phoenix-Oakhurst
Growth and Income .70% .65% .60%
-----------------------------------------------------------------------
Phoenix-Oakhurst
Strategic Allocation .60% .55% .50%
-----------------------------------------------------------------------
Phoenix-Seneca
Strategic Theme .75% .70% .65%
=======================================================================
===================================================
SERIES RATE
===================================================
Phoenix-Engemann Small & Mid-Cap Growth .90%
---------------------------------------------------
Phoenix-Seneca Mid-Cap Growth .80%
===================================================
PIC has been an investment advisor for over sixty years, and is an
investment advisor and subadvisor to other mutual funds and institutional
clients. PIC also is a subadvisor to the Phoenix-Aberdeen New Asia Series. All
of the outstanding stock of PIC is owned by Phoenix Equity Planning Corporation
("PEPCO"), a subsidiary of Phoenix Investment Partners, Ltd. ("PXP"). PXP is an
indirect, wholly-owned subsidiary of The Phoenix Companies, Inc. PEPCO also
performs bookkeeping, pricing and administrative services for the Fund. PIC was
originally organized in 1932 as John P. Chase, Inc. As of June 30, 2001, PIC had
approximately $23.9 billion in assets under management. PIC's offices are
located at 56 Prospect Street, Hartford, Connecticut 06115.
PHOENIX VARIABLE ADVISORS, INC.
Phoenix Variable Advisors, Inc. ("PVA") is the investment advisor to the
following series of the Fund:
o Phoenix-AIM Mid-Cap Equity Series
o Phoenix-Alliance/Bernstein Growth + Value Series
o Phoenix-Deutsche Dow 30 Series
o Phoenix-Deutsche NASDAQ-100 Index(R) Series
o Phoenix-Federated U.S. Government Bond Series
o Phoenix-J.P. Morgan Research Enhanced Index Series
o Phoenix-Janus Core Equity Series
o Phoenix-Janus Flexible Income Series
o Phoenix-Janus Growth Series
o Phoenix-MFS Investors Growth Stock Series
o Phoenix-MFS Investors Trust Series
o Phoenix-MFS Value Series
o Phoenix-Morgan Stanley Focus Equity Series
o Phoenix-Sanford Bernstein Global Value Series
o Phoenix-Sanford Bernstein Mid-Cap Value Series
o Phoenix-Sanford Bernstein Small-Cap Value Series
The Fund pays PVA, as full compensation for the services and facilities
furnished to the Fund under the Agreement, a fee based on an annual percentage
of the average daily net assets of each of these series, as described in the
table below.
===================================================
SERIES RATE
===================================================
Phoenix-AIM Mid-Cap Equity .85%
---------------------------------------------------
Phoenix-Alliance/Bernstein Growth + Value .85%
---------------------------------------------------
Phoenix-Deutsche Dow 30 .35%
---------------------------------------------------
Phoenix-Deutsche Nasdaq-100 Index(R) .35%
---------------------------------------------------
Phoenix-Federated U.S. Government Bond .60%
---------------------------------------------------
Phoenix-J.P. Morgan Research Enhanced Index .45%
---------------------------------------------------
Phoenix-Janus Core Equity .85%
---------------------------------------------------
Phoenix-Janus Flexible Income .80%
---------------------------------------------------
Phoenix-Janus Growth .85%
---------------------------------------------------
Phoenix-MFS Investors Growth Stock .75%
---------------------------------------------------
Phoenix-MFS Investors Trust .75%
---------------------------------------------------
Phoenix-MFS Value .75%
---------------------------------------------------
Phoenix-Morgan Stanley Focus Equity .85%
---------------------------------------------------
Phoenix-Sanford Bernstein Global Value .90%
---------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value 1.05%
---------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value 1.05%
===================================================
PVA began operations as an investment advisor in 1999, the same year it
began serving as an investment advisor to the Fund. PVA, an indirect,
wholly-owned subsidiary of Phoenix, was established to actively monitor and
manage subadvisor performance for those series of the Fund where the subadvisor
is not affiliated with Phoenix. This remains PVA's sole business activity. As of
June 30, 2001, PVA has approximately $318.3 million in assets under management.
PVA's offices are located at One American Row, Hartford, Connecticut 06102.
DUFF & PHELPS INVESTMENT MANAGEMENT CO.
Duff & Phelps Investment Management Co. ("DPIM") is the investment advisor to
the Phoenix-Duff & Phelps Real Estate Securities Series.
The Fund pays DPIM, as full compensation for the services and facilities
furnished to the Fund under the Agreement, a fee based on an annual percentage
of the average daily net assets of the series, as described in the table below.
There can be no assurance that a series will reach a net asset level high enough
to realize a reduction in the rate of the advisory fee.
=======================================================================
RATE FOR EXCESS
RATE FOR FIRST RATE FOR NEXT OVER
SERIES $1,000,000,000 1,000,000,000 2,000,000,000
=======================================================================
Phoenix-Duff &
Phelps Real Estate .75% .70% .65%
Securities
=======================================================================
DPIM also serves as investment advisor for other funds. DPIM is a
subsidiary of PXP, and an indirect, wholly-owned subsidiary of The Phoenix
Companies, Inc. As of June 30, 2001, DPIM had approximately $7.3 billion in
assets under management. DPIM's offices are located at 55 East Monroe Street,
Suite 3600, Chicago, Illinois 60603.
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
Phoenix-Aberdeen International Advisors, LLC ("PAIA") is the investment
advisor to the Phoenix-Aberdeen New Asia Series.
The Fund pays PAIA, as full compensation for the services and facilities
furnished to the Fund under the Agreement, a fee based on an annual percentage
of the average daily net assets of the series, as described in the table below.
31
===================================================
SERIES RATE
===================================================
Phoenix-Aberdeen New Asia 1.00%
===================================================
PAIA also serves as an investment advisor to other funds. PAIA is a Delaware
limited liability company formed in 1996 and jointly owned and managed by PM
Holdings, Inc., a wholly-owned subsidiary of Phoenix, and Aberdeen Fund
Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset Management PLC. As
of June 30, 2001, PAIA had approximately $50.9 million in assets under
management. PAIA's offices are located at One American Row, Hartford,
Connecticut 06102.
EXPENSE REIMBURSEMENT ARRANGEMENTS
The advisors have agreed to reimburse the Fund for certain operating
expenses for all series. For the year ended December 31, 2001, the portion of
these expenses to be paid by each series is listed in the following table. All
expense reimbursement arrangements may be discontinued at any time thereafter.
=========================================================================
MAXIMUM OPERATING
SERIES EXPENSE
=========================================================================
Phoenix-Aberdeen International .40%
-------------------------------------------------------------------------
Phoenix-Aberdeen New Asia .25%
-------------------------------------------------------------------------
Phoenix-AIM Mid-Cap Equity .20%
-------------------------------------------------------------------------
Phoenix-Alliance/Bernstein Growth + Value .20%
-------------------------------------------------------------------------
Phoenix-Deutsche Dow 30 .15%
-------------------------------------------------------------------------
Phoenix-Deutsche Nasdaq-100 Index .15%
-------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities .25%
-------------------------------------------------------------------------
Phoenix-Engemann Capital Growth .15%
-------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty .15%
-------------------------------------------------------------------------
Phoenix-Engemann Small & Mid-Cap Growth .25%
-------------------------------------------------------------------------
Phoenix-Federated U.S. Government Bond .25%
-------------------------------------------------------------------------
Phoenix-Goodwin Money Market .15%
-------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income .15%
-------------------------------------------------------------------------
Phoenix-Hollister Value Equity .15%
-------------------------------------------------------------------------
Phoenix-J.P. Morgan Research Enhanced Index .10%
-------------------------------------------------------------------------
Phoenix-Janus Core Equity .15%
-------------------------------------------------------------------------
Phoenix-Janus Flexible Income .15%
-------------------------------------------------------------------------
Phoenix-Janus Growth .15%
-------------------------------------------------------------------------
Phoenix-MFS Investors Growth Stock .20%
-------------------------------------------------------------------------
Phoenix-MFS Investors Trust .20%
-------------------------------------------------------------------------
Phoenix MFS Value .20%
-------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity .15%
-------------------------------------------------------------------------
Phoenix-Oakhurst Balanced .15%
-------------------------------------------------------------------------
Phoenix-Oakhurst Growth & Income .15%
-------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation .15%
-------------------------------------------------------------------------
Phoenix-Sanford Bernstein Global Value .15%
-------------------------------------------------------------------------
Phoenix-Sanford Bernstein Mid-Cap Value .15%
-------------------------------------------------------------------------
Phoenix-Sanford Bernstein Small-Cap Value .15%
-------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth .25%
-------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme .25%
=========================================================================
For the calendar year ending December 31, 2002, the portion of these
expenses paid by each series is expected to increase by 0.05%, except for the
Phoenix-Aberdeen International, Phoenix-AIM Mid-Cap Equity,
Phoenix-Alliance/Bernstein Growth + Value, Phoenix-Federated U.S. Government
Bond, Phoenix-MFS Investors Growth Stock, Phoenix-MFS Investors Trust, and
Phoenix MFS Value Series.
The Agreements also provide that the advisors will reimburse the Fund for
the amount, if any, by which the total operating expenses (including the
advisor'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 imposed on open-end investment companies by any state in which shares
of such series are then qualified.
The Agreements also provide that all costs and expenses not specifically
enumerated as payable by the advisors shall be paid by the Fund (or, in certain
cases, Phoenix). 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
advisors (or, in certain cases, Phoenix)) 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 (or, in certain cases, Phoenix) 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 advisors were compensated for the last three calendar years as follows:
=================================================================
COMPENSATION FOR THE YEAR ENDED
DECEMBER 31,
ADVISORS 2000 1999 1998
=================================================================
Duff & Phelps Investment
Management Company $ 222,041 $ 224,670 $ 350,294
-----------------------------------------------------------------
Phoenix-Aberdeen
International Advisor, LLC 48,551 39,395 28,115
-----------------------------------------------------------------
Phoenix Investment
Counsel, Inc. 21,356,000 19,654,852 17,990,609
-----------------------------------------------------------------
Phoenix Variable Advisors,
LLC 626,860 28,115 N/A
=================================================================
THE SUBADVISORS
PIC, PVA, and PAIA employ subadvisors to furnish portfolio management
services to the series, subject to Investment Subadvisory Agreements, the terms
of which are described below.
ABERDEEN FUND MANAGERS, INC.
PAIA has engaged Aberdeen Fund Managers, Inc. ("Aberdeen") as a subadvisor
to the Phoenix-Aberdeen
32
New Asia Series. PAIA has also engaged PIC to implement domestic cash management
for this series. Aberdeen provides all other day-to-day investment operations
for the series including international portfolio management. For implementing
certain portfolio transactions and providing research and other services to the
series, PAIA pays a monthly fee to Aberdeen based on an annual percentage of the
average daily net assets of the series as follows:
===================================================
SERIES RATE
===================================================
Phoenix-Aberdeen New Asia Series .40%
===================================================
PIC has engaged Aberdeen as a subadvisor to the Phoenix-Aberdeen
International Series. Aberdeen provides the day-to-day portfolio management for
the series. For implementing certain portfolio transactions and providing other
services to the series, PIC pays a monthly fee to Aberdeen based on an annual
percentage of the average daily net assets of the series as follows:
===============================================================
SERIES RATE BREAKPOINT ASSETS
===============================================================
.375% On first $250 million
--------------------------------------
Phoenix-Aberdeen .350% On next $250 million
--------------------------------------
International Series .325% On excess
---------------------------------------------------------------
Aberdeen may, as needed, use the resources of its parent, Aberdeen Asset
Management PLC and its parent's wholly-owned subsidiaries for implementing
certain portfolio transactions and for provided research services. For
implementing certain portfolio transactions, providing research and other
services with regard to investments in particular geographic areas, for example,
Aberdeen 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. Aberdeen and Aberdeen Asset Management Asia Limited have
executed an investment management agreement for the Phoenix-Aberdeen New Asia
Series. Aberdeen Asset Management Asia Limited executes far east portfolio
management on behalf of Aberdeen.
Aberdeen is a wholly-owned subsidiary of Aberdeen Asset Management PLC, and
its principal offices are located at 300 S.E. 2nd Street, Suite 820, Fort
Lauderdale, Florida 33304. Aberdeen Asset Management Asia Limited is a direct
subsidiary of Aberdeen Asset Management PLC, and its principal offices are
located at 21 Church Street, #01-01 Capital Square Two, Singapore 049480.
Aberdeen Asset Management PLC was founded in 1983 and through subsidiaries
operating from offices in Aberdeen, Scotland; London; 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 June 30, 2001, Aberdeen Asset Management PLC, and its advisory
subsidiaries, had approximately $46.6 billion in assets under management.
Aberdeen Asset Management PLC's principal offices are located at One Bow
Churchyard, Cheapside, London EC4M 9HH.
A I M CAPITAL MANAGEMENT, INC.
Pursuant to a subadvisory agreement between PVA and A I M Capital
Management, Inc. ("AIM"), AIM is the subadvisor and furnishes portfolio
management services to the Phoenix-AIM Mid-Cap Equity Series. For the services
provided, PVA pays a monthly fee to AIM based on an annual percentage of the
average daily net assets of the series as follows:
===============================================================
SERIES RATE
===============================================================
Phoenix-AIM Mid-Cap Equity Series 0.50%
===============================================================
AIM is an indirect, wholly-owned subsidiary of A I M Management Group Inc. A
I M Management Group Inc. advises approximately 135 mutual funds and separate
accounts which total approximately $171 billion in assets as of June 30, 2001.
AIM's principal offices are located at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046.
ALLIANCE CAPITAL MANAGEMENT L.P.
Pursuant to a subadvisory agreement between PVA and Alliance Capital
Management L.P. ("Alliance"), Alliance is the subadvisor and furnishes portfolio
management services to the Phoenix-Alliance/Bernstein Growth + Value Series.
Alliance will manage the portion of the series' assets invested in value stocks
through its Bernstein Investment Research and Management unit (the "Bernstein
Unit"). For the services provided through December 31, 2002, PVA pays a monthly
fee to Alliance based on an annual percentage of the average daily net assets of
the series as follows:
===============================================================
SERIES RATE
===============================================================
Phoenix-Alliance/Bernstein Growth + Value Series 0.50%
===============================================================
After December 31, 2002, the monthly fee payable to Alliance will be based
on an annual percentage of the average daily net assets of the series as
indicated in the following table:
===============================================================
SERIES BREAKPOINT ASSETS
===============================================================
0.90% On first $20 million
---------------------------------------------------------------
0.75% On next $20 million
---------------------------------------------------------------
0.60% On next $20 million
---------------------------------------------------------------
0.40% On next $40 million
---------------------------------------------------------------
0.30% On excess
===============================================================
Pursuant to subadvisory agreements between PVA and Alliance, Alliance,
through its Bernstein Unit, is the subadvisor and furnishes portfolio management
services, including effecting the purchase and sales of securities and providing
related advisory services, to the Phoenix-Sanford Bernstein Global Value,
Phoenix-Sanford Bernstein Mid-Cap Value and Phoenix-Sanford Bernstein Small-Cap
Value Series. For the services provided, PVA pays a monthly fee to Alliance
based on an annual percentage of the average daily net assets of the series as
follows:
33
===============================================================
SERIES RATE BREAKPOINT ASSETS
===============================================================
.65% On first $25 million
-----------------------------------
.50% On next $25 million
Phoenix-Sanford Bernstein -----------------------------------
Global Value .45% On next $25 million
-----------------------------------
.40% On next $100 million
-----------------------------------
.30% On excess
===============================================================
===============================================================
SERIES RATE BREAKPOINT ASSETS
===============================================================
.80% On first $25 million
Phoenix-Sanford Bernstein -----------------------------------
Mid-Cap Value .60% On excess
===============================================================
===============================================================
SERIES RATE BREAKPOINT ASSETS
===============================================================
1.00%(1) On first $10 million
Phoenix-Sanford Bernstein -----------------------------------
Small-Cap Value .875% On next $10 million
-----------------------------------
.75% On excess
===============================================================
(1) The series subadvised by the Bernstein Unit receive a 10% reduction in fees
for all or a portion of these series' assets when certain assets of the
series exceed $10 million. As a result of this reduction in fees, the
current rate for calculating subadvisory fees for the Phoenix-Sanford
Bernstein Small Cap Value Series is 0.80% of average daily net assets.
Alliance is a leading international investment advisor supervising client
accounts with assets as of June 30, 2001 totaling approximately $465 billion.
The Bernstein Unit services the former investment research and management
business of Sanford C. Bernstein & Co., Inc., a registered investment advisor
and broker/dealer acquired by Alliance in October 2000 that managed
value-oriented investment portfolios since 1967. Alliance is located at 1345
Avenue of the Americas, New York, New York 10105.
As of June 30, 2001, Alliance Capital Management Holding L.P. ("Alliance
Holding") owned approximately 29.9% of the outstanding units of limited
partnership interest in Alliance ("Alliance Units"). Alliance Capital Management
Corporation ("ACMC"), an indirect wholly-owned subsidiary of AXA Financial, Inc.
("AXA Financial"), is the general partner of both Alliance Holding, whose equity
interests are traded on the New York Stock Exchange, Inc. in the form of units
("Alliance Holding Units"), and Alliance. As of June 30, 2001, AXA Financial,
together with ACMC and certain of its other wholly-owned subsidiaries,
beneficially owned approximately 2.1% of the outstanding Alliance Holding Units
and 51.8% of the outstanding Alliance Units. AXA Financial, a Delaware
corporation, is a wholly-owned subsidiary of AXA, a French company.
DEUTSCHE ASSET MANAGEMENT, INC.
Pursuant to a subadvisory agreement between PVA and Deutsche Asset
Management, Inc. ("DAMI"), DAMI is the subadvisor and provides portfolio
management services, including effecting the purchase and sales of securities
and providing related advisory services, to the Phoenix-Deutsche Trust Dow 30
and Phoenix-Deutsche Nasdaq-100 Index(R) Series. For the services provided, PVA
pays a monthly fee to DAMI (subject to a $100,000 annual minimum for each
series) based on an annual percentage of the average daily net assets of the
series as follows:
===============================================================
SERIES RATE
===============================================================
Phoenix-Deutsche Dow 30 .10%
---------------------------------------------------------------
Phoenix-Deutsche Nasdaq-100 Index(R) .10%
===============================================================
DAMI, a Delaware banking corporation, is a wholly-owned, indirect subsidiary
of Deutsche Bank AG, and has more than 50 years of experience managing
retirement assets for the nation's largest corporations and institutions. DAMI
formally assumed responsibility for managing the series from Bankers Trust
Company on May 1, 2001. No change of actual control or management occurred as a
result of this corporate restructuring. As of June 30, 2001, DAMI had over $18
billion in assets under management globally; and in the U.S., DAMI is
responsible for over $15.8 billion in client assets. DAMI's principal offices
are located at 130 Liberty Street, New York, New York 10006.
ROGER ENGEMANN & ASSOCIATES, INC.
Pursuant to a subadvisory agreement between the Fund, PIC and Roger Engemann
& Associates ("Engemann") with respect to the Phoenix-Engemann Nifty Fifty
Series, and pursuant to subadvisory agreements between PIC and Engemann with
respect to the Phoenix-Engemann Capital Growth and Phoenix-Engemann Small &
Mid-Cap Growth Series, Engemann is the subadvisor and furnishes portfolio
management services, including effecting the purchase and sales of securities
and providing related advisory services, to these series. For the services
provided, PIC pays a monthly fee to Engemann based on an annual percentage of
the average daily net assets of the series as follows:
===================================================================
SERIES RATE BREAKPOINT ASSETS
===================================================================
.45% On first $250 million
-------------------------------------
Phoenix-Engemann Nifty Fifty .40% On next $250 million
-------------------------------------
.35% On excess
===================================================================
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.10% On first $3 billion
Phoenix-Engemann Capital Growth -------------------------------------
.30% On excess
======================================================================
===============================================================
SERIES RATE
===============================================================
Phoenix-Engemann Small & Mid-Cap Growth .45%
===============================================================
Engemann is a wholly-owned subsidiary of Pasadena Capital Corporation, which
is a wholly-owned subsidiary of PXP. 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 advisor to the Phoenix-Engemann Funds. As of June 30, 2001,
Engemann had approximately $6.5 billion in assets under management. Engemann's
principal place of business is located at 600 North Rosemead Blvd., Pasadena,
California 91107-2101.
34
FEDERATED INVESTMENT MANAGEMENT COMPANY
Pursuant to a subadvisory agreement between PVA and Federated Investment
Management Company ("Federated"), Federated is the subadvisor and furnishes
portfolio management services, including effecting the purchase and sales of
securities and providing related advisory services, to the Phoenix-Federated
U.S. Government Bond Series. For the services provided, PVA pays a monthly fee
to Federated based on an annual percentage of the average daily net assets of
the series as follows:
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.30% On first $25 million
-------------------------------------
.25% On next $25 million
Phoenix-Federated U.S. -------------------------------------
Government Bond .20% On next $50 million
-------------------------------------
negotiable On excess
======================================================================
Federated, a Delaware business trust, is a wholly-owned subsidiary of
Federated Investors, Inc. Federated and other subsidiaries of Federated
Investors Inc. advise approximately 105 mutual funds and separate accounts which
total approximately $160.7 billion in assets as of June 30, 2001. Federated's
principal offices are located at 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222.
J.P. MORGAN INVESTMENT MANAGEMENT INC.
Pursuant to a subadvisory agreement between the Fund, PVA, and J.P. Morgan
Investment Management Inc. ("J.P. Morgan"), J.P. Morgan is the subadvisor and
furnishes portfolio management services, including effecting the purchase and
sales of securities and providing related advisory services, to the Phoenix-J.P.
Morgan Research Enhanced Index Series. For the services provided, PVA pays a
monthly fee to J.P. Morgan based on an annual percentage of the average daily
net assets of the series as follows:
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.25% On first $100 million
Phoenix-J.P.Morgan Research -------------------------------------
Enhanced Index .20% On excess
======================================================================
J.P. Morgan, founded in 1984, is a wholly-owned subsidiary of J.P. Morgan
Chase & Co. 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. As of June 30, 2001, J.P. Morgan and it affiliates had over $600
billion in assets under management. J.P. Morgan's principal place of business is
located at 522 Fifth Avenue, New York, New York 10036.
JANUS CAPITAL CORPORATION
Pursuant to a subadvisory agreement between PVA and Janus Capital
Corporation ("Janus"), Janus is the subadvisor and furnishes portfolio
management services, including effecting the purchase and sales of securities
and providing related advisory services, to the Phoenix-Janus Core Equity,
Phoenix-Janus Flexible Income and Phoenix-Janus Growth Series. For the services
provided, PVA pays a monthly fee to Janus based on an annual percentage of the
average daily net assets of each of the series (calculated separately, not in
the aggregate) as follows:
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
Phoenix-Janus Core Equity .55% On first $100 million
-------------------------------------
Phoenix-Janus Flexible Income .50% On next $400 million
-------------------------------------
Phoenix-Janus Growth .45% On excess
======================================================================
Janus began serving as an investment advisor to an investment company in
1970 and currently serves as investment advisor to all of the Janus retail
funds, acts as subadvisor for a number of private label mutual funds and
provides separate account advisory services for institutional accounts.
Stillwell Financial, Inc. ("Stilwell") owns approximately 91.6% of the
outstanding voting stock of Janus. Stilwell is a publicly-traded holding company
with principal operations in financial asset management businesses. Thomas H.
Bailey, President, Chief Executive Officer and Chairman of the Board of Janus,
owns approximately 6.2% of Janus' voting stock and, by agreement with Stilwell,
selects at least a majority of Janus' Board, subject to the approval of
Stilwell, which Stilwell cannot unreasonably withhold. On October 3, 2001, Mr.
Bailey exercised certain rights under a stock purchase agreement with Stilwell
to sell his remaining stake in Janus to Stilwell. This will terminate his rights
with respect to the Janus Board. As of June 30, 2001, Janus had $210.5 billion
under management. Janus is located at 100 Fillmore Street, Denver, Colorado
80206.
MFS INVESTMENT MANAGEMENT
Pursuant to a subadvisory agreement between PVA and Massachusetts Financial
Services Company, Inc., doing business as MFS Investment Management ("MFS"), MFS
is the subadvisor and furnishes portfolio management services to the Phoenix-MFS
Investors Growth Stock Series, Phoenix-MFS Investors Trust Series, and
Phoenix-MFS Value Series. For the services provided, PVA pays a monthly fee to
MFS based on an annual percentage of the combined average daily net assets of
all three of the series as follows:
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.375% On first $500 million
Phoenix-MFS Investors Growth -------------------------------------
Stock Series .35% On next $400 million
-------------------------------------
Phoenix-MFS Investors Trust Series .325% On next $600 million
-------------------------------------
Phoenix-MFS Value Series .25% On excess
======================================================================
MFS and its predecessor organizations have a history of money management
dating from 1924 and the founding of the first mutual fund. Net assets under the
management of the MFS organization were approximately $141 billion as of
December 31, 2000. MFS is located at 500 Boylston Street, Boston, Massachusetts
02116.
Massachusetts Financial Services Company, Inc. is a subsidiary of Sun Life
of Canada (U.S.) Financial Services Holdings, Inc., which in turn is an
indirect, wholly-owned subsidiary of Sun Life Assurance Company of Canada.
35
MORGAN STANLEY ASSET MANAGEMENT
Pursuant to a subadvisory agreement between PVA and Morgan Stanley Asset
Management ("MSAM"), MSAM is the subadvisor and furnishes portfolio management
services, including effecting the purchase and sales of securities and providing
related advisory services, to the Phoenix-Morgan Stanley Focus Equity Series.
For the services provided, PVA pays a monthly fee to MSAM based on an annual
percentage of the average daily net assets of the series as follows:
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.55% On first $150 million
Phoenix-Morgan Stanley -------------------------------------
Focus Equity .45% On next $150 million
-------------------------------------
.40% On excess
======================================================================
Morgan Stanley Asset Management Inc. changed its name to Morgan Stanley
Investment Management Inc., but continues to do business in certain instances
using the name Morgan Stanley Asset Management. MSAM conducts a worldwide
portfolio management business and provides a broad range of portfolio management
services to customers in the United States and abroad. Morgan Stanley Dean
Witter & Co. ("Morgan Stanley") is the direct parent of MSAM. Morgan Stanley is
a global financial services firm that maintains leading market positions in each
of its three primary businesses -- securities, asset management and credit
services. As of June 30, 2001, MSAM, together with its affiliated institutional
and retail asset management entities, managed assets of approximately $432
billion, including assets under fiduciary advice. MSAM has its principal offices
at 1221 Avenue of the Americas, New York, New York 10020.
PHOENIX INVESTMENT COUNSEL, INC.
PAIA has engaged PIC as a subadvisor to the Phoenix-Aberdeen New Asia Series
to implement domestic cash management for this series. Aberdeen Fund Managers,
Inc. provides all other day-to-day investment operations for the series
including international portfolio management. For providing research and other
domestic advisory services to the series, PAIA pays a monthly fee to PIC based
on an annual percentage of the average daily net assets of the series as
follows:
================================================
SERIES RATE
================================================
Phoenix-Aberdeen New Asia .30%
================================================
SENECA CAPITAL MANAGEMENT, LLC
Pursuant to a subadvisory agreement between the Fund, PIC and Seneca Capital
Management, LLC ("Seneca") with respect to the Phoenix-Seneca Mid-Cap Growth
Series, and pursuant to a subadvisory agreement between PIC and Seneca with
respect to the Phoenix-Seneca Strategic Theme Series, Seneca is the subadvisor
and furnishes portfolio management services, including effecting the purchase
and sales of securities and providing related advisory services, to the
Phoenix-Seneca Mid-Cap Growth and Phoenix-Seneca Strategic Theme Series. For the
services provided, PIC pays a monthly fee to Seneca based on an annual
percentage of the average daily net assets of the series as follows:
================================================
SERIES RATE
================================================
Phoenix-Seneca Mid-Cap Growth .40%
================================================
======================================================================
SERIES RATE BREAKPOINT ASSETS
======================================================================
.100% On first $201 million
-------------------------------------
.375% On next $799 million
Phoenix-Seneca Strategic Theme -------------------------------------
.350% On next $1 billion
-------------------------------------
.325% On excess
======================================================================
PXP 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 advisor since 1989, managing equity and fixed-income securities
portfolios primarily for institutions and individuals. As of June 30, 2001,
Seneca had approximately $13.7 billion in assets under management. Seneca's
principal offices are located at 909 Montgomery St., San Francisco, California
94133.
SUBADVISOR COMPENSATION
The subadvisors were compensated for the last three calendar years as
follows:
=============================================================================
COMPENSATION FOR THE YEAR ENDED
DECEMBER 31,
SUBADVISORS 2000 1999 1998
=============================================================================
Aberdeen Fund Managers, Inc. $1,069,776 $1,010,212 $111,255
-----------------------------------------------------------------------------
Alliance Capital Management,
L.P. 24,408 N/A N/A
-----------------------------------------------------------------------------
Deutsche Asset Management,
Inc. 4,913 78 N/A
-----------------------------------------------------------------------------
Federated Investment
Management Company 22,647 650 N/A
-----------------------------------------------------------------------------
J.P. Morgan Investment
Management, Inc. 306,609 261,940 121,194
-----------------------------------------------------------------------------
Janus Capital Corporation 315,667 1,880 N/A
-----------------------------------------------------------------------------
Morgan Stanley Asset
Management 34,047 1,063 N/A
-----------------------------------------------------------------------------
Phoenix Investment Counsel,
Inc. 48,551 39,394 28,115
-----------------------------------------------------------------------------
Roger Engemann & Associates,
Inc. 1,675,958 1,362,941 24,098
-----------------------------------------------------------------------------
Seneca Capital Management,
LLC 373,540 44,468 15,506
-----------------------------------------------------------------------------
Schafer Capital Management,
Inc. 65,671 73,461 37,759
=============================================================================
CUSTODIAN
- --------------------------------------------------------------------------------
The securities and cash of the series are held by custodians under the terms
of a custodian agreement. The custodians are:
[diamond] The Chase Manhattan Bank, N.A., located at 1 Chase Manhattan Plaza,
Floor 13B, New York, NY 10081.
36
[diamond] Brown Brothers Harriman & Co., located at 40 Water Street, Boston,
Massachusetts 02109
[diamond] State Street Bank and Trust Company, located at 1 Heritage Drive,
P2N, North Quincy, Massachusetts 02171.
The following tables list the custodians and the series for which they hold
cash and securities:
=============================================================================
CHASE MANHATTAN BANK
=============================================================================
Phoenix-Engemann Capital Growth
Phoenix-Goodwin Money Market
Phoenix-Goodwin Multi-Sector Fixed Income
Phoenix-Oakhurst Balanced
Phoenix-Oakhurst Strategic Allocation
Phoenix-Seneca Strategic Theme
=============================================================================
=============================================================================
BROWN BROTHERS HARRIMAN & CO.
=============================================================================
Phoenix-Aberdeen International
Phoenix-Aberdeen New Asia
Phoenix-Sanford Bernstein Global Value
=============================================================================
=============================================================================
STATE STREET BANK AND TRUST COMPANY
=============================================================================
Phoenix-AIM Mid-Cap Equity
Phoenix-Alliance/Bernstein Growth + Value
Phoenix-Deutsche Dow 30
Phoenix-Deutsche Nasdaq-100 Index(R)
Phoenix-Duff & Phelps Real Estate Securities
Phoenix-Engemann Nifty Fifty
Phoenix-Engemann Small & Mid-Cap Growth
Phoenix-Federated U.S. Government Bond
Phoenix-Hollister Value Equity
Phoenix-J.P. Morgan Research Enhanced Index
Phoenix-Janus Core Equity
Phoenix-Janus Flexible Income
Phoenix-Janus Growth
Phoenix-MFS Investors Growth Stock
Phoenix-MFS Investors Trust
Phoenix-MFS Value
Phoenix-Morgan Stanley Focus Equity
Phoenix-Oakhurst Growth and Income
Phoenix-Sanford Bernstein Mid-Cap Value
Phoenix-Sanford Bernstein Small-Cap Value
Phoenix-Seneca Mid-Cap Growth
=============================================================================
The Fund permits the custodians 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 PricewaterhouseCoopers 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 AGENT
- --------------------------------------------------------------------------------
Under a Financial Agent Agreement, Phoenix Equity Planning Corporation
("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. PEPCO is an indirect, wholly-owned subsidiary of The Phoenix
Companies, Inc. 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 of $600 per each $1,000,000. PFPC, Inc. has been retained by PEPCO to
perform certain administrative and pricing services for the Fund for which PEPCO
pays PFPC Inc. a fee. While PEPCO has delegated certain responsibilities to PFPC
Inc., PEPCO retains full responsibility for the performance of all duties of the
financial agent.
CODE OF ETHICS
- --------------------------------------------------------------------------------
The Fund and each of its advisors and subadvisors have adopted codes of
ethics. Subject to certain limitations and procedures, these codes permit
personnel that they cover, including employees of the advisors or subadvisors
who regularly have access to information about securities purchased for the
Fund, to invest in securities for their own accounts. This could include
securities that may be purchased by a series of the Fund. The codes are intended
to prevent these personnel from taking inappropriate advantage of their
positions and to prevent fraud upon the Fund.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
In effecting portfolio transactions for the Fund, the advisors and
subadvisors adhere to the Fund's policy of seeking best execution and price,
determined as described below, except to the extent the Fund is permitted to pay
higher brokerage commissions for "brokerage and research services" as defined
herein. An advisor or
37
subadvisor may cause a series 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 advisor or subadvisor determines 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 series or to the
advisors or subadvisors are considered to be in addition to and not in lieu of
services required to be performed by the advisors or subadvisors under their
advisory contracts, and research services may benefit both the series and other
clients of the advisors or subadvisors. Conversely, research services provided
by brokers to other clients of the advisors or subadvisors may benefit the
series.
If the securities in which a particular series of the Fund invests are
traded primarily in the over-the-counter market, it is 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 series (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 advisors or
subadvisors in determining the overall reasonableness of brokerage commissions
paid by the Fund.
For the fiscal years ended December 31, 1998, 1999 and 2000 brokerage
commissions paid by the series on portfolio transactions totaled $4,487,103,
$4,927,539 and $4,757,882, respectively. None of the commissions in 1998 or 1999
were paid to a broker who was an affiliated person of the series or an
affiliated person of such a person or, to the knowledge of the series, to a
broker an affiliated person of which was an affiliated person of the Fund or the
advisor or subadvisor. Of the commissions paid in the year 2000, $486,020 was
paid to brokers of affiliated persons of the series as follows:
=============================================================================
SANFORD PXP
BERNSTEIN SECURITIES
=============================================================================
Commissions Paid $132,078 $353,942
-----------------------------------------------------------------------------
Percent of aggregate commissions paid
to affiliated brokers 2.78% 7.44%
-----------------------------------------------------------------------------
Percent of aggregate dollar amount of
transactions involving commissions 2.28% 8.39%
effected through affiliated brokers
=============================================================================
Sanford Bernstein is an affiliate of Alliance. PXP Securities is an
affiliate of PIC, PAIA, DPIM, AND PVA. Total brokerage commissions paid during
the fiscal year ended December 31, 2000 included brokerage commissions of
$654,455 on portfolio transactions aggregating $622,689,419 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 account managed by an advisor ("Managed Account"). Simultaneous
transactions are inevitable when several Managed Accounts are managed by the
same investment advisor or subadvisor, particularly when the same security is
suited for the investment objectives of more than one Managed Account. When two
or more series advised by an advisor or subadvisor are simultaneously engaged in
the purchase or sale of the same security, the transactions are allocated among
the series in a manner equitable to each series. 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 a series is concerned. In other cases, however, it is
believed that the ability of the series to participate in volume transactions
will produce better executions for the series. It is the opinion of the Board of
Trustees of the Fund that the desirability of utilizing the advisors and
subadvisors as investment advisors of securities owned by the series 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 advisor or subadvisor, as applicable, shall aggregate
transactions unless it believes in its sole discretion that such aggregation is
inconsistent with its duty to seek best execution (which shall include the duty
to seek best price) for the series. No advisory account of the advisor or
subadvisor, as applicable, 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 advisor or subadvisor, as
applicable, in that security on a given
38
business day, with all transaction costs shared pro rata based on the series'
participation in the transaction. If the aggregated order is filled in its
entirety, it shall be allocated among the advisor's or subadvisor's accounts, as
applicable, in accordance with the allocation order, and if the order is
partially filled, it will generally 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 advisor or subadvisor, as applicable, whose orders are allocated receive
fair and equitable treatment. Some of the subadvisors use different allocation
procedures for allocating securities of initial public offerings.
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, Presidents' 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.
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 assets of the Phoenix-Goodwin Money Market Series are valued on the
basis of amortized cost absent extraordinary or unusual market conditions. Under
the amortized cost method of valuation, securities are valued at cost on the
date of purchase. Thereafter the value of a security is increased or decreased
incrementally each day so that at maturity any purchase discount or premium is
fully amortized and the value of the security is equal to its principal amount.
Due to fluctuations in interest rates, the amortized cost value of the
Phoenix-Goodwin Money Market Series securities may at times be more or less than
their market value. By using amortized cost valuation, the Phoenix-Goodwin Money
Market Series seeks to maintain a constant net asset value of $10.00 per share
despite minor shifts in the market value of its portfolio securities.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary exchange for such
security by the Trustees or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place for any series which invests
in foreign securities contemporaneously with the determination of the prices of
the majority of the portfolio securities of such series. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair 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 policy owners 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 contract prospectuses, as are other charges.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem any shares presented by the shareholder accounts for
redemption. The account's
39
policies on when and whether to buy or redeem Fund shares are described in the
contract prospectuses.
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 SEC) exists, or during any period when the
SEC 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 contract prospectuses.
DISCLAIMER
- --------------------------------------------------------------------------------
PHOENIX-DEUTSCHE DOW 30 SERIES
"Dow Jones," "Dow Jones Industrial Average(SM)" and "DJIA(SM)" are service
marks of Dow Jones & Company, Inc. and have been licensed for use for certain
purposes by the Fund. The Phoenix-Deutsche Dow 30 Series, while based on the Dow
Jones Industrial Average(SM), is not sponsored, endorsed, sold or promoted by
Dow Jones, and Dow Jones makes no representation regarding the advisability of
investing in such product(s).
This series is not sponsored, endorsed, sold or promoted by Dow Jones. Dow
Jones makes no representation or warranty, express or implied, to actual or
potential investors in the series or to any member of the public regarding the
advisability of investing in securities generally or in this series
particularly. Dow Jones' only relationship to the Fund is the licensing of
certain trademarks, trade names and service marks of Dow Jones and of the Dow
Jones Industrial Average(SM), which is determined, composed and calculated by
Dow Jones without regard to the Fund or the series. Dow Jones has no obligation
to take the needs of the Fund or the investors in the series into consideration
in determining, composing or calculating the Dow Jones Industrial Average(SM).
Dow Jones is not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the series to be issued or in the
determination or calculation of the equation by which shares of the series may
be redeemed. Dow Jones has no obligation or liability in connection with the
administration, marketing or trading of the series.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW
JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND,
INVESTORS IN THE SERIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW
JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY
LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES,
EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND THE FUND.
PHOENIX-DEUTSCHE NASDAQ-100 INDEX(R) SERIES
The Phoenix-Deutsche Nasdaq-100 Index(R) Series is not sponsored, endorsed,
sold or promoted by The Nasdaq Stock Market, Inc. (including its affiliates)
(Nasdaq, with its affiliates, are referred to as the "Corporations"). The
Corporations have not passed on the legality or suitability of, or the accuracy
or adequacy of descriptions and disclosures relating to, the series. The
40
Corporations make no representation or warranty, express or implied to the
owners of the series or any member of the public regarding the advisability of
investing in securities generally or in the series particularly, or the ability
of the Nasdaq-100 Index(R) to track general stock market performance. The
Corporations' only relationship to The Phoenix Edge Series Fund (Licensee) is in
the licensing of the Nasdaq-100(R), Nasdaq-100 Index(R) and Nasdaq(R) trademarks
or service marks, and certain trade names of the Corporations and the use of the
Nasdaq-100 Index(R) which is determined, composed and calculated by Nasdaq
without regard to Licensee or the series. Nasdaq has no obligation to take the
needs of the Licensee or the owners of the series into consideration in
determining, composing or calculating the Nasdaq-100 Index(R). The Corporations
are not responsible for and have not participated in the determination of the
timing of, prices of, or quantities of the series to be issued or in the
determination or calculation of the equation by which the series is to be
converted into cash. The Corporations have no liability in connection with the
administration, marketing or trading of the series.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION
OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE SERIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES,
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and the notes thereto relating to the Fund and the
report of PricewaterhouseCoopers LLP with respect thereto for the fiscal year
ended December 31, 2000 are contained in the Fund's annual report and are
incorporated herein by reference. The unaudited financial statements and the
notes thereto relating to the Fund with respect to the six-month period ending
June 30, 2001 are contained in the Fund's semiannual report and are incorporated
herein by reference. The annual and semiannual reports are available by calling
Variable Products Operations at 800/541-0171 or writing to Phoenix Variable
Products Mail Operations, PO 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 policy owner having an interest in the accounts.
41
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
CORPORATE AND MUNICIPAL 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 edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the 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.
Moody's assigns ratings to individual debt securities issued from medium-term
note (MTN) programs, in addition to indicating ratings to MTN programs
themselves. Notes issued under MTN programs with such indicated ratings are
rated at issuance at the rating applicable to all pari passu notes issued under
the same program, at the program's relevant indicated rating, provided such
notes do not exhibit any of the characteristics listed below. For notes with any
of the following characteristics, the rating of the individual note may differ
from the indicated rating of the program:
1) Notes containing features which link the cash flow and/or market value to the
credit performance of any third party or parties.
2) Notes allowing for negative coupons, or negative principal.
3) Notes containing any provision which could obligate the investor to make any
additional payments.
Market participants must determine whether any particular note is rated, and
if so, at what rating level. Moody's encourages market participants to contact
Moody's Ratings Desks directly if they have questions regarding ratings for
specific notes issued under a medium-term note program.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classified from Aa through Caa. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
midrange ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
MUNICIPAL SHORT-TERM LOAN RATINGS
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt
instruments in this category lack margins of protection.
42
CORPORATE SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME 3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
STANDARD & POOR'S
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
LONG-TERM ISSUER CREDIT RATINGS
AAA: An obligor rated 'AAA' has EXTREMELY STRONG capacity to meet its
financial commitments. 'AAA' is the highest Issuer Credit Rating assigned by
Standard & Poor's.
AA: An obligor rated 'AA' has VERY STRONG capacity to meet its financial
commitments. It differs from the highest rated obligors only in small degree.
A: An obligor rated 'A' has STRONG capacity to meet its financial commitments
but is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligors in higher-rated categories.
BBB: An obligor rated 'BBB' has ADEQUATE capacity to meet its financial
commitments. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitments.
Obligors rated 'BB', 'B', 'CCC', and 'CC' are regarded as having significant
speculative characteristics. 'BB' indicates the least degree of speculation and
`CC' the highest. While such obligors will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: An obligor rated 'BB' is LESS VULNERABLE in the near term than other
lower-rated obligors. However, it faces major ongoing uncertainties and exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitments.
B: An obligor rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligor rated 'CCC' is CURRENTLY VULNERABLE, and is dependent upon
favorable business, financial, and economic conditions to meet its financial
commitments.
CC: An obligor rated 'CC' is CURRENTLY HIGHLY-VULNERABLE.
Plus (+) or minus(-) The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
C: A subordinated debt or preferred stock obligation rated 'C' is CURRENTLY
HIGHLY VULNERABLE to nonpayment. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A 'C' also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.
R: An obligor rated 'R' is under regulatory supervision owing to its
financial condition. During the pendency of the regulatory supervision the
regulators may have the power to favor one class of obligations over others or
pay some obligations and not others. Please see Standard & Poor's issue credit
ratings for a more detailed description of the effects of regulatory supervision
on specific issues or classes of obligations.
SD AND D: An obligor rated 'SD' (Selective Default) or 'D' has failed to pay
one or more of its financial
43
obligations (rated or unrated) when it came due. 'A 'D' rating is assigned when
Standard & Poor's believes that the default will be a general default and that
the obligor will fail to pay all or substantially all of its obligations as they
come due. An 'SD' rating is assigned when Standard & Poor's believes that the
obligor has selectively defaulted on a specific issue or class of obligations
but it will continue to meet its payment obligations on other issues or classes
of obligations in a timely manner. Please see Standard & Poor's issue credit
ratings for a more detailed description of the effects of a default on specific
issues or classes of obligations.
N.R.: An issuer designated N.R. is not rated.
PUBLIC INFORMATION RATINGS
Ratings with a 'pi' subscript are based on an analysis of an issuer's
published financial information, as well as additional information in the public
domain. They do not, however, reflect in-depth meetings with an issuer's
management and are therefore based on less comprehensive information than
ratings without a 'pi' subscript. Ratings with a 'pi' subscript are reviewed
annually based on a new year's financial statements, but may be reviewed on an
interim basis if a major event occurs that may affect the issuer's credit
quality.
Outlooks are not provided for ratings with a 'pi' subscript, nor are they
subject to potential CreditWatch listings. Ratings with a 'pi' subscript
generally are not modified with '+' or '-' designations. However, such
designations may be assigned when the issuer's credit rating is constrained by
sovereign risk or the credit quality of a parent company or affiliated group.
SHORT-TERM RATING DEFINITIONS
A-1: A short-term obligation rated 'A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B: A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C: A short-term obligation rated 'C' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
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 or the taking
of a similar action if payments on an obligation are jeopardized. of a similar
action if payments on an obligation are jeopardized.
44
THE PHOENIX EDGE SERIES FUND ANNUAL REPORT
DECEMBER 31, 2001
[To be filed by amendment]
B-3
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2001
C-1
Phoenix-Janus Growth Series / Phoenix-Janus Core Equity Series
Pro Forma Combining Schedule of Investments
December 31, 2001 (Unaudited)
[To be filed by Amendment]
Phoenix-Janus Core Equity Series / Phoenix-Janus Growth Series
Pro Forma Combining Statement of Assets and Liabilities
December 31, 2001 (Unaudited)
============== ================= ============ ====================
Phoenix Edge Phoenix Edge Pro Forma
Janus Growth Janus Core Equity Adjustments Combining Portfolios
Fund Fund Janus Growth
============== ================= ============ ====================
ASSETS
Investment securities at value
(Identified cost $78,453,067, $20,136,929 and
$98,589,996) $ 68,876,744 $ 20,754,841 $ $ 89,631,585
Cash 2,675 65,222 67,897
Receivables -
Investment securities sold - 34,227 34,227
Fund shares sold - - -
Interest and dividends 21,534 24,964 46,498
Prepaid expenses 626 160 786
------------- ------------ ----------- ------------
Total assets 68,901,579 20,879,414 - 89,780,993
------------- ------------ ----------- ------------
LIABILITIES
Payables
Investment advisory fee 45,410 5,286 50,696
Financial agent fee 7,464 4,423 11,887
Printing fee 80,454 25,901 106,354
Professional fee 27,912 27,499 55,411
Trustees' fee 3,262 3,262 6,524
Accrued expenses 2,890 3,632 6,521
------------- ------------ ----------- ------------
Total liabilities 167,390 70,002 - 237,392
------------- ------------ ----------- ------------
NET ASSETS $ 68,734,189 $ 20,809,412 $ - $ 89,543,601
============= ============ =========== ============
Shares of beneficial interest outstanding, $1 par
value, unlimited authorization 9,595,784 2,399,218 507,125 (a) 12,502,127
Net assets $ 68,734,189 $ 20,809,412 $ $ 89,543,601
Net asset value and offering price per share $ 7.16 $ 8.67 $ $ 7.16
(a) Adjustment reflects additional shares issued in
conversion.
See Notes to Pro Forma Financial Statements.
Phoenix-Janus Core Equity Series / Phoenix-Janus Growth Series
Pro Forma Combining Statement of Operations
December 31, 2001 (Unaudited)
============ ============ =========== ====================
Phoenix Edge Phoenix Edge Pro Forma
Janus Growth Janus Core Adjustments Combining Portfolios
Fund Equity Fund Janus Growth
============ ============ =========== ====================
INVESTMENT INCOME
Interest $ 141,518 $ 118,968 $ $ 260,485
Dividends 375,190 204,196 579,386
Foreign Tax Withheld (4,101) (1,382) (5,483)
------------ ----------- ---------- -------------------
Total investment income 512,607 321,781 839,871
------------ ----------- ---------- -------------------
EXPENSES
Investment advisory fee 586,240 159,545 - 745,785
Financial agent fee 91,833 50,167 (31,421) 110,579
Printing 84,271 29,116 (10,788) 102,599
Professional 29,584 29,482 (31,689) 27,376
Custodian 12,475 19,695 (8,042) 24,129
Trustees 8,766 8,430 (9,049) 8,148
Miscellaneous 7,912 7,620 (1,275) 14,257
------------ ----------- ---------- -------------------
Total expenses 821,081 304,055 (92,264) 1,032,872
Custodian fees paid indirectly - - - -
Less expenses borne by investment advisor (131,384) 116,357) 92,264 (155,477)
------------ ----------- ---------- -------------------
Net expenses 689,697 187,698 - 877,395
------------ ----------- ---------- -------------------
NET INVESTMENT INCOME (LOSS) (177,090) 134,084 - (37,523)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on securities (19,633,207) (3,016,911) - (19,633,207)
Net change in unrealized appreciation (depreciation)
on investments 53,121 (724,670) - 53,121
Net gain (loss) on investments (19,580,087) (3,741,581) - (19,580,087)
------------ ----------- ---------- -------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (19,757,176) $ (3,607,498) $ - $ (19,617,610)
============ =========== ========== ===================
Adjustments:
(a) Fees were adjusted to reflect the application of the fee schedule put into
effect at 7/01/00.
(b) Reflects elimination of target fund contract.
Note: The expenses for Engemann Small & Mid-Cap Growth are based on the
expense schedule which became effective 7/1/00.
See Notes to Pro Forma Financial Statements.
PHOENIX-JANUS GROWTH SERIES/ PHOENIX-JANUS CORE EQUITY SERIES
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 2001 (UNAUDITED)
1. BASIS OF COMBINATION
The Pro Forma Statement of Assets and Liabilities, including the Pro Forma
Schedule of Investments, and the related Pro Forma Statement of Operations ("Pro
Forma Statements") reflect the accounts of Phoenix-Janus Growth Series
("Growth") and Phoenix-Janus Core Equity Series ("Core Equity") as if the
reorganization occurred as of and for the year ended December 31, 2001. These
statements have been derived from the books and records utilized in calculating
daily net asset value of each fund at December 31, 2001 and for the year then
ended.
The Pro Forma Statements give effect to the proposed transfer of the assets and
stated liabilities of Core Equity in exchange for shares of Growth. Phoenix Life
Insurance Co. ("PLIC") will bear all costs and expenses of the reorganization.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of the funds incorporated by reference in the Statement of
Additional Information.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of additional
shares of Growth which would have been issued at December 31, 2001 in connection
with the proposed reorganization. The amount of additional shares assumed to be
issued was calculated based on the net assets, as of December 31, 2001, of Core
Equity of $20,809,412 and the net asset value of Growth of $7.16. The Pro Forma
Statement of Assets & Liabilities reflects the combined Pro Forma shares
outstanding as calculated above.
3. PRO FORMA OPERATIONS
Pro Forma operating expenses include the expenses of Growth restated to reflect
the expense schedule which became effective January 1, 2002, the actual expenses
of each Core Equity and the combined Fund, with certain expenses adjusted to
reflect the expected expenses of the combined entity. The investment advisory
and financial agent fees have been calculated for the combined Fund based on the
fee schedule in effect for Growth at the combined level of average net assets
for the year ended December 31, 2001.
4. PORTFOLIO 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 fair value as determined
in good faith by or under the direction of the Trustees.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated by reference to Part A of the
Prospectus/Proxy Statement in this Registration Statement under the caption
"Comparative Information on Shareholder Rights-Liability of Trustees."
ITEM 16. EXHIBITS
(1) Amended Declaration of Trust of the Trust (Nos. 1-16).
(2) Not Applicable.
(3) Not Applicable.
(4) Agreement and Plan of Reorganization (included as Addendum A to the
Prospectus/Proxy Statement contained in Part A of this Registration
Statement).
(5) Reference is hereby made to Registrant's Amended Declaration of Trust
referenced in Exhibit 1 above.
(6) (a) Investment Advisory Agreement between Registrant and Phoenix
Variable Advisors, Inc. dated December 14, 1999 (pertaining to the
Phoenix-Sanford Bernstein Mid-Cap Value Series (f/k/a Phoenix-Schafer
Mid-Cap Value Series), Phoenix-J.P. Morgan Research Enhanced Index
Series (f/k/a Phoenix Research Enhanced Index Series),
Phoenix-Deutsche Dow 30 Series (f/k/a Phoenix-Bankers Trust Dow
Series), Phoenix-Federated U.S. Government Bond Series, Phoenix-Janus
Core Equity Series (f/k/a Phoenix-Janus Equity Income Series),
Phoenix-Janus Flexible Income Series, Phoenix-Janus Growth Series,
and Phoenix-Morgan Stanley Focus Equity Series).*
1. First Amendment dated July 5, 2000 (pertaining to the
Phoenix-Deutsche Nasdaq 100(R) Index Series (f/k/a
Phoenix-Bankers Trust Nasdaq 100(R) Index Series).*
2. Second Amendment dated September 28, 2000 (pertaining to
Phoenix-Sanford Bernstein Global Value Series and Phoenix-Sanford
Bernstein Small Cap Value Series).*
3. Third Amendment dated October 29, 2001 (pertaining to Phoenix-AIM
Mid-Cap Equity Series, Phoenix-Alliance/Bernstein Growth + Value
Series, Phoenix-MFS Investors Growth Stock Series, Phoenix-MFS
Investors Trust Series and Phoenix-MFS Value Series).*
(b) Sub-Investment Advisory Agreement by and between Phoenix Variable
Advisors, Inc. and Janus Capital Corporation dated December 15, 1999
(pertaining to the Phoenix-Janus Core Equity Series (f/k/a
Phoenix-Janus Equity Income Series), Phoenix-Janus Flexible Income
Series, and Phoenix-Janus Growth Series).*
(7) Not Applicable.
(8) Not Applicable.
(9) Custodian Agreement (No. 17).
(10) Not Applicable.
(11) Opinion and consent of Richard J. Wirth, to be filed by Amendment.
(12) Draft Opinion and Consent of McDermott, Will & Emery, to be filed by
Amendment.
C-2
(13) (a) Material Contract - Financial Agent Agreement (Nos. 18(a) and 18(b)).
(b) Material Contract - Second Amendment to Financial Agent Agreement
between the Registrant and Phoenix Equity Planning Corporation
effective June 1, 1998.*
(c) Material Contract - Third Amendment to Financial Agent Agreement
between the Registrant and Phoenix Equity Planning Corporation
effective October 29, 2001.*
(14) Consent of PricewaterhouseCoopers LLP.*
(15) Not Applicable.
(16) Powers of Attorney (No. 19).
(17) (a) Form of Voting Instructions Card and Proxy Card for Phoenix-Janus
Core Equity Series.*
(b) Current Prospectus of The Phoenix Edge Series Fund.*
*Filed herewith.
Documents Incorporated by Reference
- ----------------------------------------------
(1) Declaration of Trust of the Registrant dated February 18, 1986,
previously 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.
(2) Amendment to Declaration of Trust, establishing the International
Series, previously 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.
(3) Amendment to Declaration of Trust, conforming the Fund's borrowing
restrictions to California Department's Borrowing Guidelines,
previously 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.
(4) Amendment to Declaration of Trust, establishing the Balanced Series,
previously 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.
(5) Amendment to Declaration of Trust, establishing the Real Estate
Securities Series, previously 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.
(6) Amendment to Declaration of Trust, establishing the Strategic Theme
Series, previously filed via Edgar with Post-Effective Amendment No. 16
on January 29, 1996.
(7) Amendment to Declaration of Trust, changing the name of the Series
currently designated "Bond Series" to the "Multi-Sector Fixed Income
Series," previously filed via Edgar with Post-Effective Amendment No.
17 on April 17, 1996.
(8) Amendment to Declaration of Trust, establishing the Aberdeen New Asia
Series, previously filed via Edgar with Post-Effective Amendment No. 19
on September 3, 1996.
(9) Amendment to Declaration of Trust, establishing the Research Enhanced
Index Series, previously filed via Edgar with Post-Effective Amendment
No. 22 on July 15, 1997.
(10) Amendment to Declaration of Trust, establishing five new Series
previously filed via Edgar with Post-Effective Amendment No. 25 on
April 29, 1998.
C-3
(11) Amendment to Declaration of Trust, establishing the Phoenix-Bankers
Trust Dow 30, Phoenix-Federated U.S. Government Bond, Phoenix-Janus
Equity Income, Flexible Income and Growth and Phoenix-Morgan Stanley
Focus Equity Series, previously filed via Edgar with Post-Effective
Amendment No. 35 on November 15, 2000.
(12) Amendment to Declaration of Trust, changing names of 4 Series to the
Phoenix-Engemann Capital Growth, Phoenix-Seneca Strategic Theme,
Phoenix-Oakhurst Balanced, Phoenix-Oakhurst Strategic Allocation
Series, previously filed via Edgar with Post-Effective Amendment No. 35
on November 15, 2000.
(13) Amendment to Declaration of Trust, establishing the Phoenix-Bankers
Trust Nasdaq-100 (R) Index and Phoenix-Engemann Small & Mid-Cap Growth
Series, previously filed via Edgar with Post-Effective Amendment No. 35
on November 15, 2000.
(14) Amendment to Declaration of Trust, establishing the Phoenix-Sanford
Bernstein Global Value and Phoenix-Sanford Bernstein Small-Cap Value
Series, previously filed via Edgar with Post-Effective Amendment No. 35
on November 15, 2000.
(15) Amendment to Declaration of Trust, changing the name of 1 Series to the
Phoenix-Sanford Bernstein Mid-Cap Value Series, previously filed via
Edgar with Post-Effective Amendment No. 35 on November 15, 2000.
(16) Form of Amendment to Declaration of Trust establishing the Phoenix-AIM
Mid-Cap Equity, Phoenix-Alliance/Bernstein Growth + Value, Phoenix-MFS
Investors Growth Stock, Phoenix-MFS Investors Trust and Phoenix-MFS
Value Series, previously filed via Edgar with Post-Effective Amendment
No. 38 on August 13, 2001.
(17) Custodian Contract between Registrant and State Street Bank and Trust
Company dated May 1, 1997, previously filed with Post-Effective
Amendment No. 23 on December 12, 1997.
(18)(a) Financial Agent Agreement between the Registrant and Phoenix Equity
Planning Corporation dated December 11, 1996, previously filed via
Edgar with Post-Effective Amendment No. 20 on April 29, 1997.
(b) First Amendment to Financial Agent Agreement between the Registrant and
Phoenix Equity Planning Corporation effective February 27, 1998,
previously filed via Edgar with Post-Effective Amendment No. 25 on
April 29, 1998.
(19) Powers of Attorney dated February 20, 2001 and February 22, 2001,
respectively, previously filed with Post-Effective Amendment No. 37 on
April 30, 2001.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a
part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment,
an Opinion of Counsel or a copy of an IRS ruling supporting the tax
consequences of the Reorganization within a reasonable time after
receipt of such opinion or ruling.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of the Registrant in the City
of Hartford and State of Connecticut on the 18th day of January, 2002.
THE PHOENIX EDGE SERIES FUND
Attest: /s/ Richard J. Wirth By:/s/ Simon Y. Tan
---------------------------- -----------------------------------
Richard J. Wirth Name: Simon Y. Tan
Secretary Title: President
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities indicated on this
18th day of January, 2002.
Signature Title
- --------- -----
/s/Nancy G. Curtiss
- --------------------------------
Nancy G. Curtiss Treasurer
(Principal Financial and Accounting Officer)
- --------------------------------
Frank M. Ellmer* Trustee
- --------------------------------
John Fabian* Trustee
- --------------------------------
Roger A. Gelfenbien* Trustee
- --------------------------------
Eunice S. Groark* Trustee
- --------------------------------
Frank E. Grzelecki* Trustee
- --------------------------------
John R. Mallin* Trustee
- --------------------------------
Timothy P. Shriver* Trustee
S-1
/s/Simon Y. Tan
- --------------------------------
Simon Y. Tan Trustee and President
(Principal Executive Officer)
- --------------------------------
Dona D. Young* Trustee
By:/s/ Simon Y. Tan
- -------------------
Simon Y. Tan
*Pursuant to powers of attorney previously filed via Edgar with Post-Effective
Amendment No. 37 on April 30, 2001 and incorporated by reference therein.
S-2