PHOENIX TOTAL RETURN FUND, INC.
Supplement dated October 20, 1995 to
Prospectus dated May 1, 1995
Management of the Fund
The following should be substituted under the heading "The Portfolio Manager" on
page 14:
Mr. C. Edwin Riley, Jr. serves as portfolio manager of the Fund and as
such is primarily responsible for the day-to-day management of the Fund's
investments. Mr. Riley is also the portfolio manager of the Balanced Series and
Total Return Series of The Phoenix Edge Series Fund. From 1988 to 1995, Mr.
Riley served as Senior Vice President, Director of Equity Management for
Nationsbank Investment Management.
How to Buy Shares
The following should be inserted following the first full paragraph under the
heading "How to Buy Shares" on page 16:
Completed applications for the purchase of shares should be mailed to
the Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box 8301,
Boston MA 02266-8301.
Initial Sales Charge Alternative- Class A Shares
The following should be inserted following the first footnote on page 17:
** In connection with Class A Share purchases by accounts held in the
name of qualified benefit plans with at least 100 eligible employees,
Equity Planning may pay broker/dealers, from its own resources, an amount
equal to 1% on the first $3 million of purchases, 0.50% on the next $3
million, plus 0.25% on the amount in excess of $6 million.
The following replaces the chart on the top of page 18 and applies to purchases
excluding purchases by qualified employee benefit plans as described above:
Purchase Amount Payment to Broker-Dealer
$1,000,000 to $3,000,000 1%
$3,000,001 to $6,000,000 0.50 of 1%
$6,000,001 or more 0.25 of 1%
How to Obtain Reduced Sales Charges - Class A Shares
The following should be substituted in the first paragraph under "Qualified
Purchasers" on page 18:
In (9) the words "100 eligible employees" are substituted for the words
"200 participant employees."
<PAGE>
PHOENIX TOTAL RETURN FUND, INC.
101 Munson Street
Greenfield, Massachusetts 01301
Statement of Additional Information
May 1, 1995
As Supplemented October 20, 1995
This Statement of Additional Information is not a prospectus, but expands
upon and supplements the information contained in the current Prospectus of
Phoenix Total Return Fund, Inc. (the "Fund"), dated May 1, 1995, and should be
read in conjunction with it. The Fund's Prospectus may be obtained by calling
Phoenix Equity Planning Corporation ("Equity Planning") at (800) 243-4361 or by
writing to Equity Planning at 100 Bright Meadow Boulevard, P.O. Box 2200,
Enfield, Connecticut 06083-2200.
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Table of Contents*
THE FUND AND ITS SHARES 2
INVESTMENT OBJECTIVE AND POLICIES (8) 2
INVESTMENT RESTRICTIONS (13) 10
PERFORMANCE (7) 12
PERFORMANCE COMPARISONS 13
PORTFOLIO TURNOVER 14
DIRECTORS AND OFFICERS 14
THE INVESTMENT ADVISER (13) 19
PORTFOLIO TRANSACTIONS 20
NET ASSET VALUE 21
HOW TO BUY SHARES (16) 23
DISTRIBUTOR AND DISTRIBUTION PLANS (15) 21
SHAREHOLDER SERVICES 27
EXCHANGE PRIVILEGE 28
HOW TO REDEEM SHARES (25) 30
TAXES 33
ADDITIONAL INFORMATION 34
FINANCIAL STATEMENTS 34
APPENDIX 35
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Phoenix Equity Planning Corporation
Distributor
Customer Service: (800) 243-1574
Marketing: (800) 243-4361
Telephone Orders/Exchanges: (800) 367-5877
Telecommunications Device (TTY): (800) 243-1926
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*Numbers in parentheses are cross-references to pages on which related sections
appear in the Prospectus.
PEP 458 (10/95)
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THE FUND AND ITS SHARES
Phoenix Total Return Fund, Inc. was organized as a corporation under the
laws of The Commonwealth of Massachusetts on November 22, 1966. Originally a
closed-end dual purpose investment company known as Income and Capital Shares,
Inc., its authorized capital stock consisted of two classes of shares,
Cumulative Income Shares, $1 par value, and Capital Shares, $1 par value.
In accordance with the provisions of the Fund's Restated Articles of
Organization, all outstanding Cumulative Income Shares were called for
retirement on March 31, 1982 at a cash call price consisting of $10 per share
plus accrued and unpaid dividends.
At a meeting of the Capital Shareholders held on March 31, 1982 the holders
of a majority of the outstanding Capital Shares approved a proposal to change
the subclassification of the Fund from a closed-end dual purpose investment
company to an open-end investment company with a single class of redeemable
shares and also approved a proposal to amend the Fund's Restated Articles of
Organization to change the name of the Fund from Income and Capital Shares, Inc.
to P-C Capital Fund, Inc. Both the change in the subclassification of the Fund
and the name change became effective March 31, 1982.
At the July 2, 1986 adjourned session of the May 22, 1986 special meeting
of the Fund's shareholders, the holders of a majority of the outstanding shares
approved amendments to the Fund's Restated Articles of Organization (i) to
change the name of the Fund to Phoenix Total Return Fund, Inc. and (ii) to
change the total number of shares which the Fund is authorized to issue (a) by
eliminating the authorized number of Cumulative Income Shares, $1 par value, and
(b) by increasing the authorized number of Capital Shares, $1 par value, from
3,521,000 to 5,000,000 and reclassifying such Capital Shares as Common Stock, $1
par value. The name change became effective July 9, 1986 and the change in
authorized shares became effective July 22, 1986. At the August 20, 1987
adjourned session of the August 13, 1987 special meeting of the Fund's
shareholders, shareholders voted to amend the Fund's Restated Articles of
Organization to increase the authorized number of shares of Common Stock, $l par
value, from 5,000,000 to 15,000,000. The amendment became effective September
15, 1987.
At a special meeting of the Fund's shareholders held on June 24, 1994, the
holders of the requisite percentages of outstanding shares approved further
amendment to the Fund's Restated Articles of Organization to increase the number
of authorized shares of the Fund's Common Stock, $1 par value, from 15,000,000
to 50,000,000. On September 30, 1994, the holders of the requisite percentages
of outstanding shares approved further amendment to the Fund's Restated Articles
of Organization to (i) to redesignate the Common Stock as Class A Common Stock,
$1 par value; (ii) to authorize the Directors to designate additional classes of
Common Stock; and (iii) to authorize an additional 50,000,000 shares of
undesignated Common Stock, $1 par value.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes the investment objective of the Fund and
summarizes the investment policies and techniques the Fund will employ in
seeking to achieve its objective. The following discussion supplements the
description of the Fund's investment policies and techniques in the Prospectus.
2
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Writing and Purchasing Options
Call options written by the Fund normally will have expiration dates
between three and nine months from the date written. During the option period
the Fund may be assigned an exercise notice by the broker-dealer through which
the call option was sold, requiring the Fund to deliver the underlying security
(or cash in the case of securities index calls) against payment of the exercise
price. This obligation is terminated upon the expiration of the option period or
at such earlier time as the Fund effects a closing purchase transaction. A
closing purchase transaction cannot be effected with respect to an option once
the Fund has received an exercise notice.
The exercise price of a call option written by the Fund may be below, equal
to or above the current market value of the underlying security or securities
index at the time the option is written.
A multiplier for an index option performs a function similar to the unit of
trading for an option on an individual security. It determines the total dollar
value per contract of each point between the exercise price of the option and
the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Securities indices for which options are currently traded include the
Standard & Poor's 100 and 500 Composite Stock Price Indices, Computer/Business
Equipment Index, Major Market Index, Amex Market Value Index, Computer
Technology Index, Oil and Gas Index, NYSE Options Index, Gaming/Hotel Index,
Telephone Index, Transportation Index, Technology Index, and Gold/Silver Index.
The Fund may write call options and purchase call and put options on any other
indices traded on a recognized exchange.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option written by the Fund, to prevent an
underlying security from being called, or to enable the Fund to write another
call option with either a different exercise price or expiration date or both.
The Fund may realize a net gain or loss from a closing purchase transaction,
depending upon whether the amount of the premium received on the call option is
more or less than the cost of effecting the closing purchase transaction. If a
call option written by the Fund expires unexercised, the Fund will realize a
gain in the amount of the premium on the option less the commission paid.
The option activities of the Fund may increase its portfolio turnover rate
and the amount of brokerage commissions paid. The Fund will pay a commission
each time it purchases or sells a security in connection with the exercise of an
option. These commissions may be higher than those which would apply to
purchases and sales of securities directly.
Limitations on Options
The Fund may write call options only if they are covered and remain covered
so long as the Fund is obligated as a writer. If the Fund writes a call option
on an individual security, the Fund will own the underlying security at all
times during the option period. The Fund will write call options on indices only
to hedge in an economically appropriate way portfolio securities which are not
otherwise hedged with options or financial futures contracts. Call options on
securities indices written by the Fund will be "covered" by identifying the
specific portfolio securities being hedged.
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<PAGE>
To secure the obligation to deliver the underlying security, the writer of
a covered call option on an individual security is required to deposit the
underlying security or other assets in escrow with the broker in accordance with
clearing corporation and exchange rules. In the case of an index call option
written by the Fund, the Fund will be required to deposit qualified securities.
A "qualified security" is a security against which the Fund has not written a
call option and which has not been hedged by the Fund by the sale of a financial
futures contract. If at the close of business on any day the market value of the
qualified securities falls below 100% of the current index value times the
multiplier times the number of contracts, the Fund will deposit an amount of
cash or liquid assets equal in value to the difference. In addition, when the
Fund writes a call on an index which is "in-the-money" at the time the call is
written, the Fund will segregate with its custodian bank cash or liquid assets
equal in value to the amount by which the call is "in-the-money" times the
multiplier times the number of contracts. Any amount segregated may be applied
to the Fund's obligation to segregate additional amounts in the event that the
market value of the qualified securities falls below 100% of the current index
value times the multiplier times the number of contracts.
The Fund may invest up to 5% of its total assets in exchange-traded call
and put options. The Fund may sell a call option or a put option which it has
previously purchased prior to the purchase (in the case of a call) or the sale
(in the case of a put) of the underlying security. Any such sale of a call
option or a put option 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.
In connection with the Fund's qualifying as a regulated investment company
under the Internal Revenue Code, other restrictions on the Fund's ability to
enter into option transactions may apply from time to time. See "Taxes."
Risks Relating to Options
During the option period, the writer of a call option has, in return for
the premium received on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline. The writer has no control over the time when it may
be required to fulfill its obligation as a writer of the option.
The risk of purchasing a call option or a put option is that the Fund may
lose the premium it paid plus transaction costs. If the Fund does not exercise
the option and is unable to close out the position prior to expiration of the
option, it will lose its entire investment.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will write
and purchase options only when the Adviser believes that a liquid secondary
market will exist for options of the same series, there can be no assurance that
a liquid secondary market will exist for a particular option at a particular
time and that the Fund, if it so desires, can close out its position by
effecting a closing transaction. If the writer of a covered call option is
unable to effect a closing purchase transaction, it cannot sell the underlying
security until the option expires or the option is exercised. Accordingly, a
covered call writer may not be able to sell the underlying security at a time
when it might otherwise be advantageous to do so.
4
<PAGE>
Possible reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (iv) inadequacy of the
facilities of an exchange or the clearing corporation to handle trading volume;
and (v) a decision by one or more exchanges to discontinue the trading of
options or impose restrictions on orders.
Each exchange has established limitations governing the maximum number of
call options, whether or not covered, which may be written by a single investor
acting alone or in concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers). An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The Adviser believes that the position limits
established by the exchanges will not have any adverse impact upon the Fund.
Risks of Options on Indices
Because the value of an index option depends upon movements in the level of
the index rather than movements in the price of a particular security, whether
the Fund will realize a gain or loss on the purchase or sale of an option on an
index depends upon movements in the level of prices in the market generally or
in an industry or market segment rather than upon movements in the price of an
individual security. Accordingly, successful use by the Fund of options on
indices will be subject to the Adviser's ability to predict correctly movements
in the direction of the market generally or in the direction of a particular
industry. This requires different skills and techniques than predicting changes
in the prices of individual securities.
Index prices may be distorted if trading of certain securities included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities included in the index. If this occurred, the Fund would not be able
to close out options which it had written or purchased and, if restrictions on
exercise were imposed, might be unable to exercise an option it purchased, which
would result in substantial losses to the Fund. However, it is the Fund's policy
to write or purchase options only on indices which include a sufficient number
of securities so that the likelihood of a trading halt in the index is
minimized.
Because the exercise of an index option is settled in cash, an index call
writer cannot determine the amount of its settlement obligation in advance and,
unlike call writing on portfolio securities, cannot provide in advance for its
potential settlement obligation by holding the underlying securities.
Consequently, the Fund will write call options on indices only subject to the
limitations described above.
Price movements in securities in the Fund's portfolio will not correlate
perfectly with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the level of the index. In this event, the Fund would bear a
loss on the call which would not be completely offset by movements in the prices
of the Fund's portfolio securities. It is also possible that the index may rise
when the value of the Fund's portfolio securities does not. If this occurred,
the Fund would experience a loss on the call which would not be offset by an
increase in the value of its portfolio and might also experience a loss in the
market value of portfolio securities.
5
<PAGE>
Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call on an index, the Fund will be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be settled
within hours after receiving the notice of exercise, if the Fund fails to
anticipate an exercise, it may have to borrow from a bank (in an amount not
exceeding 5% of the Fund's total assets) pending settlement of the sale of
securities in its portfolio and pay interest on such borrowing.
When the Fund has written a call on an index, there is also a risk that the
market may decline between the time the Fund has the call exercised against it,
at a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell securities in its portfolio. As
with options on portfolio securities, the Fund will not learn that a call has
been exercised until the day following the exercise date but, unlike a call on a
portfolio security where the Fund would be able to deliver the underlying
security in settlement, the Fund may have to sell part of its portfolio
securities in order to make settlement in cash, and the price of such securities
might decline before they could be sold.
If the Fund exercises a put option on an index which it has purchased
before final determination of the closing index value for that day, it runs the
risk that the level of the underlying index may change before closing. If this
change causes the exercised option to fall "out-of-the-money" the Fund will be
required to pay the difference between the closing index value and the exercise
price of the option (multiplied by the applicable multiplier) to the assigned
writer. Although the Fund may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
times for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.
Financial Futures Contracts and Related Options
The Fund may use financial futures contracts and related options to hedge
against changes in the market value of its portfolio securities or securities
which it intends to purchase. Hedging is accomplished when an investor takes a
position in the futures market opposite to his cash market position. There are
two types of hedges - long (or buying) and short (or selling) hedges.
Historically, prices in the futures market have tended to move in concert with
cash market prices, and prices in the futures market have maintained a fairly
predictable relationship to prices in the cash market. Thus, a decline in the
market value of securities in the Fund's portfolio may be protected against to a
considerable extent by gains realized on futures contracts sales. Similarly, it
is possible to protect against an increase in the market price of securities
which the Fund may wish to purchase in the future by purchasing futures
contracts.
The Fund may purchase or sell any financial futures contracts which are
traded on a recognized exchange or board of trade. Financial futures contracts
consist of interest rate futures contracts and securities index futures
contracts. A public market presently exists in interest rate futures contracts
covering long-term U.S. Treasury bonds, U.S. Treasury notes, three-month U.S.
Treasury bills and GNMA certificates. Securities index futures contracts are
currently traded with respect to the Standard & Poor's 500 Composite Stock Price
Index and such other broad-based stock market indices as the New York Stock
Exchange Composite Stock Index and the Value Line Composite Stock Price Index. A
clearing corporation associated with the exchange or board of trade on which a
financial futures contract trades assumes responsibility for the completion of
transactions and also guarantees that open futures contracts will be performed.
6
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In contrast to the situation when the Fund purchases or sells a security,
no security is delivered or received by the Fund upon the purchase or sale of a
financial futures contract. Initially, the Fund will be required to deposit in a
segregated account with its custodian bank an amount of cash or U.S. Treasury
bills. 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
margin deposit required per contract is approximately 5% of the contract amount.
Brokers may establish deposit requirements higher than this minimum. Subsequent
payments of cash or U.S. Treasury bills, called variation margin, will be made
to and from the account on a daily basis as the price of the futures contract
fluctuates. This process is known as marking to market.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
is accomplished by effecting an offsetting transaction. A futures contract sale
is closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Fund will pay commissions on financial futures contract and related
options transactions. These commissions may be higher than those which would
apply to purchases and sales of securities directly.
Limitations on Futures Contracts and Related Options
The Fund may not engage in transactions in financial futures contracts or
related options for speculative purposes but only as a hedge against anticipated
changes in the market value of its portfolio securities or securities which it
intends to purchase. The Fund may not purchase or sell financial futures
contracts or related options if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures and related options
positions and the premiums paid for related options would exceed 2% of the
market value of the Fund's total assets after taking into account unrealized
profits and losses on any such contracts. At the time of purchase of a futures
contract or a call option on a futures contract, an amount of cash, U.S.
Government securities or other appropriate high-grade debt obligations equal to
the market value of the futures contract minus the Fund's initial margin deposit
with respect thereto will be deposited in a segregated account with the Fund's
custodian bank to collateralize fully the position and thereby ensure that it is
not leveraged.
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The extent to which the Fund may enter into financial futures contracts and
related options also may be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company. See "Taxes."
Risks Relating to Futures Contracts and Related Options
Positions in futures contracts and related options may be closed out only
on an exchange which provides a secondary market for such contracts or options.
The Fund will enter into an option or futures position only if there appears to
be a liquid secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
specific time. Thus, it may not be possible to close out a futures or related
option position. In the case of a futures position, in the event of adverse
price movements the Fund would continue to be required to make daily margin
payments. In this situation, if the Fund has insufficient cash to meet daily
margin requirements it may have to sell portfolio securities at a time when it
may be disadvantageous to do so. In addition, the Fund may be required to take
or make delivery of the securities underlying the futures contracts it holds.
The inability to close out futures positions also could have an adverse impact
on the Fund's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as
a hedging device. While hedging can provide protection against an adverse
movement in market prices, it can also preclude a hedger's opportunity to
benefit from a favorable market movement. In addition, investing in futures
contracts and options on futures contracts will cause the Fund to incur
additional brokerage commissions and may cause an increase in the Fund's
portfolio turnover rate.
The successful use of futures contracts and related options also depends on
the ability of the Adviser to forecast correctly the direction and extent of
market movements within a given time frame. To the extent market prices remain
stable during the period a futures contract or option is held by the Fund or
such prices move in a direction opposite to that anticipated, the Fund may
realize a loss on the hedging transaction which is not offset by an increase in
the value of its portfolio securities. As a result, the Fund's total return for
the period may be less than if it had not engaged in the hedging transaction.
Utilization of futures contracts by the Fund involves the risk of imperfect
correlation in movements in the price of futures contracts and movements in the
price of the securities which are being hedged. If the price of the futures
contract moves more or less than the price of the securities being hedged, the
Fund will experience a gain or loss which will not be completely offset by
movements in the price of the securities. It is possible that, where the Fund
has sold futures contracts to hedge its portfolio against decline in the market,
the market may advance and the value of securities held in the Fund's portfolio
may decline. If this occurred, the Fund would lose money on the futures contract
and would also experience a decline in value in its portfolio securities. Where
futures are purchased to hedge against a possible increase in the prices of
securities before the Fund is able to invest its cash (or cash equivalents) in
securities (or options) in an orderly fashion, it is possible that the market
may decline; if the Fund then determines not to invest in securities (or
options) at that time because of concern as to possible further market decline
or for other reasons, the Fund will realize a loss on the futures that would not
be offset by a reduction in the price of the securities purchased.
The market prices of futures contracts may be affected if participants in
the futures market elect to close out their contracts through offsetting
transactions rather than to meet margin deposit
8
<PAGE>
requirements. In such case, distortions in the normal relationship between the
cash and futures markets could result. Price distortions could also result if
investors in futures contracts opt to make or take delivery of the underlying
securities rather than to engage in closing transactions due to the resultant
reduction in the liquidity of the futures market. In addition, due to the fact
that, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of market trends may still not result in a successful hedging
transaction.
Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk for the Fund
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities.
Repurchase Agreements
Repurchase agreements are described in the Fund's Prospectus. Repurchase
agreements will be entered into only with commercial banks, brokers and dealers
considered by the Fund to be creditworthy. The Directors of the Fund will
monitor the Fund's repurchase agreement transactions periodically and with the
Adviser will consider standards which the Adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with the Fund. No more
than an aggregate of 10% of the Fund's total assets, at the time of investment,
will be invested in repurchase agreements having maturities longer than seven
days and other investments subject to legal or contractual restrictions on
resale, or for which there are not readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if
the seller under a repurchase agreement defaults on its obligation to repurchase
the underlying instrument at a time when the value of the instrument has
declined, the Fund may incur a loss upon its disposition. If the seller becomes
insolvent and subject to liquidation or reorganization under bankruptcy or other
laws, a bankruptcy court may determine that the underlying instrument is
collateral for a loan by the Fund and therefore is subject to sale by the
trustee in bankruptcy. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying instrument. While the Fund's
Directors acknowledge these risks, it is expected that they can be controlled
through careful monitoring procedures.
Lending Portfolio Securities
The Fund may lend portfolio securities to broker-dealers and other
financial institutions in amounts up to 25% of the market or other fair value of
its total assets, provided that such loans are callable at any time by the Fund
and are at all times secured by collateral held by the Fund at least equal to
the market value, determined daily, of the loaned securities. The Fund will
continue to receive any income on the loaned securities, and at the same time
will earn interest on cash collateral (which will be invested in short-term debt
obligations) or a securities lending fee in the case of collateral in the form
of U.S. Government securities. A loan may be terminated at any time by either
the Fund or the borrower. Upon termination of a loan, the borrower will be
required to
9
<PAGE>
return the securities to the Fund, and any gain or loss in the market price
during the period of the loan would accrue to the Fund. If the borrower fails to
maintain the requisite amount of collateral, the loan will automatically
terminate, and the Fund may use the collateral to replace the loaned securities
while holding the borrower liable for any excess of the replacement cost over
the amount of the collateral.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund may pay reasonable finders,
administrative and custodial fees in connection with loans of its portfolio
securities.
As with any extension of credit, there are risks of delay in recovery of
the loaned securities and in some cases loss of rights in the collateral should
the borrower of the securities fail financially. However, loans of portfolio
securities will only be made to firms considered by the Fund to be creditworthy
and when the consideration to be earned justifies the attendant risks.
Foreign Securities
The Fund may purchase foreign securities, including those issued by foreign
branches of U.S. banks. In any event, such investments in foreign securities
will be less than 25% of the total net asset value of The Fund. Investments in
foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investing in domestic
issues. These considerations include changes in currency rates, currency
exchange control regulations, the possibility of expropriation, the
unavailability of financial information, the difficulty of interpreting
financial information prepared under foreign securities markets, the impact of
political, social or diplomatic developments, difficulties in invoking legal
process abroad and the difficulty of assessing economic trends in foreign
countries.
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 invokes 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.
INVESTMENT RESTRICTIONS
The following information supplements the information included in the
Prospectus with respect to the investment restrictions to which the Fund is
subject. The investment restrictions described below are fundamental policies
and may not be changed without the approval of the lesser of (i) a majority of
the Fund's outstanding shares and (ii) 67% of the shares represented at a
meeting of Fund shareholders at which the holders of 50% or more of the Fund's
outstanding shares are represented. The Fund may not:
(1) Make short sales of securities, unless at the time of sale the Fund
owns an equal amount of such securities.
10
<PAGE>
(2) Purchase securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities. The deposit or payment by the Fund of initial
or maintenance margin in connection with financial futures contracts
or related options transactions is not considered the purchase of a
security on margin.
(3) Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may (a) write exchange-traded covered call options on
portfolio securities and enter into closing purchase transactions with
respect to such options, (b) purchase exchange-traded call options and
put options, provided that the premiums on all outstanding call and
put options would not exceed 5% of its total assets, and enter into
closing sale transactions with respect to such options, and (c) engage
in financial futures contracts and related options transactions,
provided that the sum of the initial margin deposits on the Fund's
existing futures and related options positions and the premiums paid
for related options would not exceed 5% of its total assets.
(4) Borrow in excess of 5% of the market or other fair value of its total
assets, or pledge its assets to an extent greater than 5% of the
market or other fair value of its total assets. Any such borrowings
shall be from banks and shall be undertaken only as a temporary
measure for extraordinary or emergency purposes. Deposits in escrow in
connection with the writing of covered call options or in connection
with the purchase or sale of financial futures contracts and related
options are not deemed to be a pledge or other encumbrance.
(5) Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities the Fund
may be deemed to be an underwriter.
(6) Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry. This
restriction does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(7) Make any investment in real estate, real estate limited partnerships,
commodities or commodities contracts, except that the Fund may (a)
purchase or sell readily marketable securities which are secured by
interests in real estate, or issued by companies which deal in real
estate including real estate investment and mortgage investment
trusts, and (b) engage in financial futures contracts and related
options transactions, provided that the sum of the initial margin
deposits on the Fund's futures and related options positions and the
premiums paid for related options would not exceed 5% of the Fund's
total assets.
(8) Make loans, except that the Fund may (a) invest up to 10% of its total
assets in repurchase agreements of a type regarded as "liquid" which
are fully collateralized as to principal and interest and which are
entered into only with commercial banks, brokers and dealers
considered by the Fund to be creditworthy and (b) loan its portfolio
securities in amounts up to one-third of the market or other fair
value of its total assets.
(9) Purchase securities of other investment companies, except that the
Fund may make such a purchase (a) in the open market involving no
commission or profit to a sponsor or dealer (other than the customary
broker's commission), provided that
11
<PAGE>
immediately thereafter (i) not more than 10% of the Fund's total
assets would be invested in such securities and (ii) not more than 3%
of the voting stock of another investment company would be owned by
the Fund, or (b) as part of a merger, consolidation, or acquisition of
assets.
(10) Invest more than 5% of its total assets in the securities of any one
issuer (except the U.S. Government) or purchase more than 10% of the
outstanding voting securities or more than 10% of the securities of
any class of any one issuer.
(11) Invest in securities of any issuer if any officer or director of the
Fund or of the Fund's investment adviser owns more than 1/2 of 1% of
the outstanding securities of such issuer and such officers and
directors own in the aggregate more than 5% of the securities of such
issuer.
(12) Invest in the aggregate more than 5% of its total assets in the
securities of any issuers which have (with predecessors) a record of
less than three years of continuous operations.
(13) Invest in warrants or rights except where acquired in units or
attached to other securities.
(14) Purchase an illiquid security such as a restricted security (including
repurchase agreements of a type regarded as "illiquid") or a security
for which market value quotations are not readily available if as a
result of such purchase more than 15% of the Fund's net assets would
be invested in such securities.
(15) Invest in interests in oil, gas, or other mineral exploration or
development programs.
(16) Issue senior securities.
If a percentage restriction on investment or utilization of assets as set
forth is adhered to at the time an investment is made, a later change in the
percentage resulting from a change in the values or costs of the Fund's assets
will not be considered violative of the restriction.
PERFORMANCE
Performance information for the Fund may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual total return" and "total return".
The average annual total return for Class A and Class B shares is computed
in accordance with a standardized method prescribed by rules of the Securities
and Exchange Commission. The average annual total return for a specific period
is found by first taking a hypothetical $1,000 investment ("initial investment")
in the Fund's shares on the first day of the period, adjusting to deduct the
maximum sales charge, and computing the "redeemable value" of that investment at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period.
12
<PAGE>
The manner in which total return will be calculated for public use is
described above. The following table summarizes the calculation of total return
for Class A shares of the Fund, through December 31, 1994.
AVERAGE ANNUAL TOTAL RETURN AS OF
DECEMBER 31, 1994
Periods ended
1 Year 5 Years 10 Years*
------ ------- --------
-6.89% 8.81% 10.75%
* This information should not be considered to be representative of the future
investment performance of the Fund; the Fund's investment objective and certain
fundamental policies were changed on July 2, 1986.
NOTE: Average annual total return for Class A shares assumes a hypothetical
initial payment of $1,000. At the end of each period, a total redemption
is assumed. The ending redeemable value is divided by the original
investment to calculate total return.
Performance information reflects only the performance of a hypothetical
investment in the Class A or Class B shares of the Fund during the particular
time period on which the calculations are based. Performance information should
be considered in light of the investment objectives and policies,
characteristics and quality of the portfolio, and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
PERFORMANCE COMPARISONS
The Fund may from time to time include in advertisements containing total
return the ranking of those performance figures relative to such figures for
groups of mutual funds having similar investment objectives as categorized by
mutual fund performance measurement services such as Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Weisenberger Financial Services, Inc.,
Morningstar, Inc., and Moody's Investors Service, Inc. Additionally, the Fund
may compare its performance results to other investment or savings vehicles
(such as certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barrons, Business
Week, Investor's Daily, Stanger's Mutual Fund Monitor, The Stanger Register,
Stanger's Investment Adviser, The Wall Street Journal, The New York Times,
Consumer Reports, Registered Representative, Financial Planning, Financial
Services Weekly, Financial World, U.S. News and World Report, Standard and
Poor's The Outlook, and Personal Investor. The Fund may, from time to time,
illustrate the benefits of tax deferral by comparing taxable investments to
investments made through tax-deferred retirement plans. The total return may
also be used to compare the performance of the Fund against certain widely
acknowledged outside standards or indices for stock and bond market performance,
such as the Standard & Poor's 500 Stock Index (the "S&P 500"), Dow Jones
Industrial Average, Europe Australia Far East Index (EAFE), Consumer Price
Index, Shearson Lehman Corporate Index and Shearson Lehman T-Bond Index. The S&P
500 is a commonly quoted market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the New York Stock Exchange, although the common stocks of a few
companies listed on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.
13
<PAGE>
PORTFOLIO TURNOVER
Portfolio turnover rates for the fiscal years ended December 31, 1993 and
December 31, 1994 were 246% and 225%, respectively. Relatively high portfolio
turnover rates were attributed in part to the necessity of maintaining cash
reserves to meet redemptions of Fund shares and in part to the restructuring of
the Fund's portfolio at such times as a change in investment approach was, in
the judgment of the Adviser, necessary to achieve the Fund's investment
objective. The Fund also engages in portfolio trading as described in the
Prospectus.
The rate of portfolio turnover is not a limiting factor when the Adviser
deems changes appropriate. Although the portfolio turnover rate of the Fund
cannot be accurately predicted, it is anticipated that the annual turnover rate
will exceed 200%. Portfolio turnover 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 Fund's securities (excluding short-term securities).
However, the turnover rate may vary greatly from year to year and may be
affected by cash requirements for redemptions of Fund shares and by compliance
with provisions of the Internal Revenue Code relieving investment companies
which distribute substantially all of their net income from Federal income tax
on the amounts distributed.
A high rate of portfolio turnover involves a correspondingly greater amount
of brokerage commissions and other costs which must be borne directly by the
Fund and thus indirectly by its shareholders. It may also result in the
realization of larger amounts of short-term capital gains, which are taxable to
shareholders as ordinary income.
DIRECTORS AND OFFICERS
The following table sets forth information concerning the directors and
executive officers of the Fund, including their principal occupations during the
past five years. Unless otherwise noted, the address of each executive officer
and director is One American Row, Hartford, Connecticut, 06115. On June 24, 1994
the shareholders elected to fix the number of directors at ten and to elect such
number of directors. On February 15, 1995, the directors voted to increase the
number of directors from ten to eleven and to appoint Lowell P. Weicker, Jr. to
fill the vacancy caused by the increase,
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name and Address With the Fund During the Past 5 Years
<S> <C> <C>
C. Duane Blinn Director Partner in the law firm of Day, Berry & Howard.
Day, Berry & Howard Director/Trustee, Phoenix Funds (1980-present).
CityPlace Director/Trustee, the National Affiliated Investment
Hartford, CT 06103 Companies (until 1993).
Robert Chesek Director Trustee/Director, Phoenix Funds (1981-present)
49 Old Post Road and Chairman (1989-1994). Director/Trustee, the
Wethersfield, CT 06109 National Affiliated Investment Companies (until 1993).
Vice President, Common Stock, Phoenix Home Life Mutual
Insurance Company (1980-1994).
E. Virgil Conway Director Trustee/Director, Consolidated Edison Company
9 Rittenhouse Road of New York, Inc. (1970-present), Pace University
Bronxville, NY 10708 (1978-present), Atlantic Mutual Insurance Company
(1974-present), HRE Properties
14
<PAGE>
(1989-present), Greater New York Councils, Boy Scouts of
America (1985-present), Union Pacific Corp. (1978-present),
Atlantic Reinsurance Company (1986-present), Blackstone Fund
for Fannie Mae Mortgage Securities (Advisory Director)
(1989-present), Centennial Insurance Company, Josiah Macy, Jr.,
Foundation, and The Harlem Youth Development Foundation. Board
Member, Metropolitan Transportation Authority (1992-present).
Chairman, Audit Committee of the City of New York
(1981-present). Chairman, Financial Accounting Standards
Advisory Council (1992-present). Director/Trustee, the National
Affiliated Investment Companies (until 1993). Director/Trustee,
Phoenix Funds (1993-present). Director, Realty Foundation of
New York (1972-present) and the New York Housing Partnership
Development Corp. (1981-present). Former Director, New York
Chamber of Commerce and Industry (1974-1990).
Harry Dalzell-Payne Director Director/Trustee, Phoenix Funds (1983-present). 330 East 39th
Street Director, Farragut Mortgage Co., Inc. (1991-
Apartment 29G 1994). Director/Trustee, the National Affiliated
New York, NY 10016 Investment Companies (1983-1993). Consultant,
The Levett Group Holding, Inc. (1989-1990). Independent real
estate market consultant (1982-1990). Formerly a Major General
of the British Army.
Leroy Keith, Jr. Director Director/Trustee, Phoenix Funds (1980-present).
Chairman and Chief Director Equifax Corp. (1991-present), and
Executive Officer Keystone International Fund, Inc. (1989-present).
Keith Ventures Trustee, Keystone Liquid Trust, Keystone Tax 1729
Wood Nymph Trail Exempt Trust, Keystone Tax Free Fund, Master
Lookout Mountain, GA 30750 Reserves Tax Free Trust, and Master Reserves Trust.
Director/Trustee, the National Affiliated Investment
Companies (until 1993). Director, Blue Cross/Blue Shield
(1989-1993) and First Union Bank of Georgia (1989-1993).
President, Morehouse College (1987-1994).
*Philip R. McLoughlin Director and Director (1994-present) and Executive Vice
President President, Investments, Phoenix Home Life Mutual Insurance
Company (1987-present). Director/Trustee and President, Phoenix
Funds (1989-present). Director, Phoenix Investment Counsel,
Inc. (1983-present). Director (1984-present) and President
(1990-present), Phoenix Equity Planning Corporation. Director,
Phoenix Realty Group, Inc. (1994-present), Phoenix Realty
Advisors, Inc. (1987-present), Phoenix Realty Investors, Inc.
(1994-present), Phoenix Realty Securities, Inc. (1994-present),
Phoenix Re
15
<PAGE>
Corporation (Delaware) (1985-present), and World Trust Fund
(1991-present). Director/ Trustee, the National Affiliated
Investment Companies (until 1993). Director, Chairman and Chief
Executive Officer, National Securities & Research Corporation
(1993-present) and Director and President, Phoenix Securities
Group, Inc., (1993-present). Director (1992-present) and
President, (1992-1994) W.S. Griffith & Co., Inc. (1992-present)
and Director (1992-present) and President (1992-1994) Townsend
Financial Advisers, Inc. Director and Vice President, PM
Holdings, Inc. (1985-present).
James M. Oates Director Director/Trustee, Phoenix Funds (1987-present).
Managing Director Director, Govett Worldwide Opportunity Funds,
The Wydown Group Inc. (1991-present), Stifel Financial Corporation
50 Congress Street. (1986-present), and Savings Bank Life Insurance
Suite 1000 Company (1988-present). Director/Trustee, the
Boston, MA 02109 National Affiliated Investment Companies (until 1993). Director
and President (1984-1994) and Chief Executive Officer
(1986-1994), Neworld Bank.
Philip R. Reynolds Director Director/Trustee, Phoenix Funds (1984-present).
43 Montclair Drive Director, Vestaur Securities, Inc. (1972-present).
West Hartford, CT 06107 Director/Trustee, the National Affiliated Investment Companies
(until 1993).
Herbert Roth, Jr. Director Director/Trustee, Phoenix Funds (1980-present).
134 Lake Street Director, Boston Edison Company (1978-present),
P. O. Box 909 Phoenix Home Life Mutual Insurance Company
Sherborn, MA 01770 (1972-present), Landauer, Inc. (medical services)
(1970-present), Tech
Ops./Sevcon, Inc.
(electronic
controllers)
(1987-present), Key
Energy Group (oil rig
service) (1988-1993),
and Mark IV Industries
(diversified
manufacturer)
(1985-present).
Director/Trustee, the
National Affiliated
Investment Companies
(until 1993).
Richard E. Segerson Director Director/Trustee, Phoenix Funds, (1993-present).
102 Valley Road Consultant, Tootal Group, (1989-1991). Vice
New Canaan, CT 06840 President and General Manager, Coats &
Clark, Inc. (previously Tootal American, Inc.) (1991-1993).
Director/Trustee, the National Affiliated Investment Companies
(1984-1993).
Lowell P. Weicker, Jr. Director Trustee/Director, the Phoenix Funds (1995-present). Former
Governor of the State of Connecticut (1991-1995). President and
Chief Executive Officer, Research! America (1989-1990).
16
<PAGE>
James M. Dolan Vice Vice President and Compliance Officer (1994-
100 Bright Meadow Blvd. President present), and Assistant Secretary (1981-present),
P.O. Box 2200 Phoenix Equity Planning Corporation. Vice
Enfield, CT 06083-2200 President, Phoenix Funds, (1989-present). Vice President
(1991-present), Assistant Clerk and Assistant Secretary
(1982-present), Phoenix Investment Counsel, Inc. Vice President
and Chief Compliance Officer (1994-present), Phoenix Realty
Advisors, Inc. and Chief Compliance Officer (1995-present),
Phoenix Realty Securities, Inc. Vice President, the National
Affiliated Investment Companies (until 1993). Various other
positions with Phoenix Equity Planning Corporation (1978-1994).
Robert J. Milnamow Vice Portfolio Manager, Common Stock, Phoenix
President Home Life Mutual Insurance Company (1991-
present). Vice President, Phoenix Investment
Counsel, Inc. (1991-present), The Phoenix Edge Series Fund
(1991-present), Phoenix Equity Opportunities Fund
(1993-present), and National Securities & Research Corporation
(1993-present). Vice President and Portfolio Manager, Phoenix
Total Return Fund, Inc. (1991-present).
William R. Moyer Vice Vice President, Investment Products Finance,
100 Bright Meadow Blvd. President Phoenix Home Life Mutual Insurance Company
P. O. Box 2200 (1990-present). Senior Vice President, Finance, Enfield, CT
06083-2200 (1990-present), and Treasurer (1994-present), Phoenix Equity
Planning Corporation and Phoenix Investment Counsel, Inc. Vice
President, Phoenix Funds (1990-present). Vice President, the
National Affiliated Investment Companies (1993); Senior Vice
President, Finance, Phoenix Securities Group, Inc.
(1993-present), and Treasurer (1994-present), National
Securities & Research Corporation. Senior Vice President and
Chief Financial Officer (1993-present) and Treasurer
(1994-present), W.S. Griffith & Co., Inc. and Townsend
Financial Advisers, Inc. Senior Manager, Price Waterhouse
(1983-1990).
Leonard J. Saltiel Vice Vice President, Investment Operations, Phoenix
President Home Life Mutual Insurance Company (1994-present).
Senior Vice President, Phoenix Equity Planning Corporation
(1994-present). Vice President, Phoenix Funds (1994-present)
and National Securities & Research Corporation (1994-present),
Various positions with Home Life Insurance Company and Phoenix
Home Life Mutual Insurance Company (1987-1994).
17
<PAGE>
Philip Stekl Vice Research Analyst, Phoenix Home Life Mutual
President Insurance Company (1992-present). Director,
Research, Travelers Corporation (1987-1992).
G. Jeffrey Bohne Secretary Vice President and General Manager,
101 Munson Street and Clerk Phoenix Home Life Mutual Insurance Company
Greenfield, MA 01301 (1993-present). Vice President, Transfer Agent Operations,
Phoenix Equity Planning Corporation (1993-present). Secretary,
Phoenix Funds (1993-present). Vice President, Home Life of New
York Insurance Company (1984-1992). Assistant Vice President,
Phoenix Home Life Insurance Company (1992-1993).
Nancy G. Curtiss Treasurer Second Vice President and Treasurer, Fund Accounting, Phoenix
Home Life Mutual Insurance Company (1994-present). Treasurer,
Phoenix Funds (1994-present). Vice President, Fund Accounting,
Phoenix Equity Planning Corporation (1994-present). Various
positions with Phoenix Home Life Insurance Company (1987-1994).
</TABLE>
- ----------
*Indicates that the Director is an "interested person" of the Fund within the
meaning of the definition set forth in Section 2(a)(19) of the Investment
Company Act of 1940.
No person listed in the foregoing table has any immediate family
relationship (as that term is defined for the purposes of this Statement of
Additional Information) with any other person listed in the table.
At December 31, 1994, the Directors and officers as a group owned less
than 1% of the outstanding shares of the Fund.
For services rendered to the Fund during the fiscal year ended December
31, 1994, the Directors received an aggregate of $13,527 from the Fund as
Directors' fees. For his services on the Boards of the Phoenix Funds and the
mutual funds managed by National Securities & Research Corporation, an affiliate
of the Adviser, each Director who is not a full-time employee of the Adviser or
any of its affiliates currently receives a retainer at the annual rate of
$30,000 and $2,000 per joint meeting of the Boards. Each Director who serves on
the Audit Committee receives a retainer at the annual rate of $2,000 and $2,000
per joint Audit Committee meeting attended. Each Director who serves on the
Nominating Committee receives a retainer at the annual rate of $1,000 and $1,000
per joint Nominating Committee meeting attended. Each Director who serves on the
Executive Committee and who is not an interested person of the Fund receives a
retainer at the annual rate of $1,000 and $1,000 per Executive Committee meeting
attended. For the Fund alone, each Director who is not a full-time employee of
the Adviser or any of its affiliates receives for his services a retainer at the
annual rate of $3,000 and a fee of $200 per meeting attended; each Director who
serves on the Audit Committee of the Fund receives a retainer at the annual rate
of $200 and $200 per Audit Committee meeting attended, and each Director who
serves on the Nominating Committee of the Fund receives a retainer at the annual
rate of $100 and $1,000 per joint Nominating Committee meeting attended; and
each Director who serves on the Executive Committee and who is not an interested
person of the Fund receives a retainer at the annual rate of $100 and $1000 per
joint Executive Committee meeting attended. Officers are compensated for their
services by the Adviser and receive no compensation from the Fund.
18
<PAGE>
THE INVESTMENT ADVISER
The offices of the Adviser, Phoenix Investment Counsel, Inc., are located
at One American Row, Hartford, Connecticut 06115. The Adviser was organized in
1932 as John P. Chase, Inc. and has been engaged in the management of the Fund
since 1967. In addition to the Fund, the Adviser also serves as investment
adviser to Phoenix Series Fund, The Phoenix Edge Series Fund and the Phoenix
Multi-Portfolio Fund and as sub-adviser to the Cambridge Series Trust, Chubb
America Fund, Inc., SunAmerica Series Trust and American Skandia Trust, among
other investment adviser clients.
All of the outstanding stock of the Adviser is owned by Phoenix Equity
Planning Corporation ("Equity Planning"), an indirect subsidiary of Phoenix Home
Life Mutual Insurance Company ("Phoenix Home Life") of Hartford, Connecticut.
Phoenix Home Life is in the business of writing ordinary and group life and
health insurance and annuities. It was founded in 1851 and at December 31, 1994
had total assets of approximately $12 billion and net insurance in force of
approximately $123 billion. Equity Planning, a mutual fund distributor, acts as
the Distributor of the Fund's shares and as Financial Agent for the Fund.
Philip R. McLoughlin, a director and officer of the Fund, is also a
director of the Adviser. James M. Dolan, Robert J. Milnamow and William R.
Moyer, officers of the Fund, are officers of the Adviser.
The contract between the Fund and the Adviser provides that the Adviser
shall furnish the Fund investment advice, certain administrative services,
office space and facilities, and shall pay the compensation of all officers and
employees of the Fund. All expenses (other than those specifically referred to
as being borne by the Adviser) incurred in the operation of the Fund, including,
among others, taxes, brokerage fees and commissions, fees of Directors who are
not full time employees of the Adviser or any of its affiliates, charges of
custodians, transfer and dividend disbursing agents and registrars, bookkeeping,
auditing and legal expenses, expenses of insurance premiums for fidelity and
other coverage and extraordinary expenses and expenses of a non-recurring nature
which may include, but not be limited to, the reasonable and proportionate cost
of any reorganization or acquisition of assets and the cost of legal proceedings
to which the Fund is a party, will be borne by the Fund.
The contract between the Fund and the Adviser provides that, as
compensation for its services to the Fund, the Adviser is entitled to a fee,
payable within five days after the end of each fiscal month, at the annual rate
of 0.65% of the average of the aggregate daily net asset values of the Fund up
to $1 billion; 0.60% of such value between $1 billion and $2 billion; and 0.55%
of such value in excess of $2 billion. It also provides that the Fund will
reimburse the Adviser on a cost basis in the event the Adviser provides any
services (excluding printing) involved in maintaining registrations of the Fund
and of its shares with the Securities and Exchange Commission or involved in the
preparation of shareholder reports. The Adviser has agreed to reimburse the Fund
for the amount, if any, of the expenses of the Fund (including the Adviser's
compensation but excluding interest, brokerage cost, taxes and extraordinary
expenses) for any fiscal year which exceeds the level of expenses which the Fund
is permitted to bear under the most restrictive expense limitation imposed (and
not waived) on the Fund by any state in which shares of the Fund are then
qualified for sale. Currently, the most restrictive state expense limitation
provisions limit such expenses of the Fund to 2 1/2% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1 1/2% of
such net assets in excess of $100 million. For the fiscal years ended
19
<PAGE>
December 31, 1992, 1993 and 1994 the Adviser received fees totalling, $236,299,
$510,775 and $2,276,834 respectively and it was not necessary that the Adviser
reimburse ordinary operating expenses of the Fund.
The contract between the Fund and the Adviser continues from year to year
so long as (1) such continuance is specifically approved at least annually by
the Board of Directors of the Fund or by a vote of a majority of the outstanding
shares of the Fund and (2) such continuance or any renewal and the terms of such
contract have been approved by the vote of a majority of Directors of the Fund
who are not interested persons, as that term is defined in the Investment
Company Act of 1940, of the Fund or the Adviser, cast in person at a meeting
called for the purpose of voting on such approval. It may be terminated without
penalty at any time on sixty days' written notice, either by the Board of
Directors of the Fund, by a vote of a majority of the outstanding shares of the
Fund or by the Adviser, and automatically terminates upon its assignment (within
the meaning of said Investment Company Act).
PORTFOLIO TRANSACTIONS
In effecting portfolio transactions for the Fund, the Adviser adheres to
the Fund's policy of seeking best execution and price, determined as described
below, except to the extent it is permitted to pay higher brokerage commissions
for "brokerage and research services" as defined herein. The Adviser may cause
the Fund to pay a broker an amount of commission for effecting a securities
transaction in excess of the amount of commission which another broker or dealer
would have charged for effecting that transaction if the Adviser 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 advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, the availability of securities
or purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). Brokerage and research services provided by brokers to the Fund or
the Adviser are considered to be in addition to and not in lieu of services
required to be performed by the Adviser under its contract with the Fund and may
benefit both the Fund and other accounts of the Adviser. Conversely, brokerage
and research services provided by brokers to other accounts of the Adviser may
benefit the Fund. Where transactions are made in the over-the-counter market,
the Adviser will cause the Fund to deal with the primary market makers, unless
more favorable prices are otherwise obtainable.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
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 Adviser in
determining the overall reasonableness of brokerage commissions paid by the
Fund.
The policy of the Fund with respect to brokerage is and will be reviewed
by the Board of Directors of the Fund from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
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For the fiscal years ended December 31, 1992, 1993, and 1994 brokerage
commissions paid by the Fund on portfolio transactions totalled $238,212,
$277,283 and $889,406 respectively. None of such commissions was paid to a
broker who was an affiliated person of the Fund or an affiliated person of such
a person or, to the knowledge of the Fund, to a broker an affiliated person of
which was an affiliated person of the Fund or the Adviser. Total brokerage
commissions paid during the fiscal year ended December 31, 1994 included
brokerage commissions of $869,827 on portfolio transactions aggregating
$630,048,548 executed by brokers who provided research and other statistical and
factual information.
Investment decisions for the Fund are made independently from those of the
other investment companies advised by the Adviser. It may frequently happen that
the same security is held in the portfolio of more than one fund. Simultaneous
transactions are inevitable when several funds are managed by the same
investment adviser, particularly when the same security is suited for the
investment objectives of more than one fund. When two or more funds advised by
the Adviser are simultaneously engaged in the purchase or sale of the same
security, the transactions are allocated among the funds in a manner equitable
to each fund. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. In other cases, however, it is believed that the ability of the Fund
to participate in volume transactions will produce better executions for the
Fund. It is the opinion of the Board of Directors of the Fund that the
desirability of utilizing the Adviser as investment adviser to the Fund
outweighs the disadvantages that may be said to exist from simultaneous
transactions.
DETERMINATION OF NET ASSET VALUE
As described under the caption "Net Asset Value" in the Prospectus,
current value for the Fund's investments is determined as follows: investments
listed or traded on a national securities exchange are valued at the last sale
price or, if there has been no recent sale, at the last bid price; investments
traded in the over-the-counter market are valued at the last bid price; and
short-term obligations maturing in less than sixty days are valued at amortized
cost, which the Board has determined approximates market. If at any time the
Fund has other investments, such investments would be valued at the fair value
thereof as determined in good faith by the Directors.
DISTRIBUTOR AND DISTRIBUTION PLANS
Equity Planning, a registered broker-dealer which is an indirect
subsidiary of Phoenix Home Life Mutual Insurance Company, serves as exclusive
distributor of the Fund's shares.
The Fund and Equity Planning have entered into distribution agreements
under which Equity Planning has agreed to use its best efforts to find
purchasers for Fund shares and the Fund has granted to Equity Planning the
exclusive right to purchase from the Fund and resell, as principal, shares
needed to fill unconditional orders for Fund shares. Equity Planning may sell
Fund shares through its registered representatives or through securities dealers
with whom it has sales agreements. Equity Planning may also sell Fund shares
pursuant to sales agreements entered into with bank affiliated securities
brokers who, acting as agent for their customers, place orders for Fund shares
with Equity Planning. Although the Glass-Steagall Act prohibits banks and bank
affiliates from engaging in the business of underwriting, distributing or
selling securities (including mutual fund shares), banking regulators have not
indicated that such institutions are prohibited from purchasing mutual fund
shares upon the order and for the account of their customers. If, because of
changes in law or regulations, or because of new interpretations of existing
law, it is determined
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that agency transactions of banks or bank affiliated securities brokers are not
permitted under the Glass-Steagall Act, the Directors will consider what action,
if any, is appropriate. It is not anticipated that termination of sales
agreements with banks or bank affiliated securities brokers would result in a
loss to their customers or a change in the net asset value per share of the
Fund.
For its services under the Class A and Class B share distribution
agreements, Equity Planning receives sales charges on transactions in Fund
shares (see "Purchase of Shares" in the Prospectus) and retains such charges
less the portion thereof allowed to its registered representatives and to
securities dealers and securities brokers with whom it has sales agreements. In
addition, Equity Planning may receive payments from the Fund pursuant to the
Distribution Plan described below. For the fiscal year ended December 31, 1993
and 1994 Equity Planning's gross commissions on sales of Fund shares totalled
$189,938 and $130,398 respectively. Of this amount, $46,281 and $34,850,
respectively were paid to dealers with whom Equity Planning had sales
agreements.
Equity Planning also acts as Financial Agent of the Fund and as such
performs bookkeeping and pricing services and certain other administrative
functions for the Fund. As compensation for its services during any fiscal year
of the Fund, the Financial Agent is entitled to a quarterly fee based on the
average of the aggregate daily net asset values of the Fund at an annual rate of
$300 per $1 million, which is expected to approximate the cost to Equity
Planning of providing such services. For services to the Fund during the fiscal
years ended December 31, 1992, 1993 and 1994, the Financial Agent received fees
of $18,904, $40,862 and $105,085 respectively.
Equity Planning also acts as Transfer Agent of the Fund. As compensation,
Equity Planning receives a fee equivalent to $14.95 for each designated
shareholder account. Transfer Agent fees are also utilized to offset costs and
fees paid to subtransfer agents employed by Equity Planning. State Street Bank
and Trust Company serves as a subtransfer agent pursuant to a Subtransfer Agency
Agreement effective June 1, 1994.
Philip R. McLoughlin, a director and officer of the Fund, is a director
and officer of Equity Planning; G. Jeffrey Bohne, Nancy G. Curtiss, James M.
Dolan, William R. Moyer and Leonard J. Saltiel are officers of the Fund and
officers of Equity Planning.
Distribution Plans
To permit the use of Fund assets to encourage activities primarily
intended to result in the sale of Fund shares, the Fund has adopted Distribution
Plans (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. The Class A and Class B Plans have been approved by the Board of Directors
of the Fund, including a majority of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
Plan or any agreement related thereto (the "Rule 12b-1 Directors"), and by the
shareholders of the Fund.
The Class A Plan provides that the Fund may pay to its Distributor (i)
amounts not exceeding 0.25% annually of its average daily net asset value for
each year elapsed after the inception of the Plan and (ii) amounts not exceeding
0.25% of the amount of any investment in Fund shares equal to $1,000,000 or more
made in a lump sum or pursuant to an authorized letter of intent. However, the
Fund presently intends to limit payments under the Plan for any fiscal year to
0.25% of the Fund's average net assets for such fiscal year. The Class B Plan
authorizes the payment by the Fund to the National Distributor of accounts not
exceeding 1.00% annually of the Fund's average daily net assets for each year
elapsed after the inception of the Plan. Although under no
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contractual obligation to do so, the Fund intends to make such payments to the
Distributor (i) as commissions for shares sold, all or any part of which
commissions may be paid by the Distributor to others (who may be other dealers
or registered representatives of the Distributor), (ii) to enable the
Distributor to pay to such others maintenance or other fees in respect of shares
sold by them and remaining outstanding on the Fund's books during the period in
respect of which the fee is paid and (iii) to enable the Distributor to pay to
bank-affiliated securities brokers maintenance or other fees with respect to
Fund shares purchased by their customers and remaining outstanding on the Fund's
books during the period with respect to which the fee is paid; provided however,
that payments under (ii) and (iii) are subject to limits of 0.25% and 1.00%
annually of the average daily net assets of the Class A or Class B shares
respectively to which the payments relate. Payments, less the portion thereof
paid by the Distributor to others, may be used by the Distributor for its
expenses of distribution of Fund shares. If expenses of distribution exceed
payments and any sales charges retained by the Distributor, the Fund is not
required to reimburse the Distributor for excess expenses; if payments and any
sales charges retained by the Distributor exceed expenses of distribution, the
Distributor may realize a profit.
Each Plan requires that at least quarterly the Directors of the Fund
review a written report with respect to the amounts expended under the Plan and
the purposes for which such expenditures were made. While each Plan is in
effect, the Fund will be required to commit the selection and nomination of
candidates for Directors who are not interested persons of the Fund to the
discretion of other Directors who are not interested persons. Each Plan
continues in effect from year to year only provided such continuance is approved
annually in advance by votes of the majority of both (a) the Board of Directors
of the Fund and (b) the Rule 12b-1 Directors, cast in person at a meeting called
for the purpose of voting on the Plan and any agreements related to each Plan.
For the fiscal year ended December 31, 1994, the Fund paid Rule 12b-1 Fees in
the amount of $876,594 of which Equity Planning received $39,215 and
unaffiliated broker/dealers received $837,379. Of this amount: (1) $837,379
represented compensation to dealers; (2) $31,658 represented compensation to
sales personnel and (3) $7,557 was utilized for compensation for marketing
material. No interested person of the Fund and no Director who is not an
interested person of the Fund, as that term is defined in the Investment Company
Act of 1940, had any direct or indirect financial interest in the operation of
the Plan.
HOW TO BUY SHARES
The Prospectus includes information as to the offering price of Class A
and Class B Fund shares, the sales charge included in the offering price, and
the minimum initial and subsequent investments which may be made in Fund shares.
Sales of shares are made through registered representatives of the Distributor,
Equity Planning, or through securities brokers or dealers with whom Equity
Planning has sales agreements. Dealers purchase shares at a discount from the
applicable offering price. Dealers receiving such discounts may be deemed
"underwriters" within the meaning of that term under the Securities Act of 1933.
Sales of shares are also made to customers of banks or bank-affiliated
securities brokers with whom Equity Planning has sales agreements. Customers
purchase shares at the applicable offering price.
Alternative Purchase Arrangements
The Fund is authorized to offer two classes of shares. Shares may be
purchased from investment dealers at a price equal to their net asset value per
share, plus a sales charge which, at the election of the purchaser, may be
imposed either (i) at the time of the purchase (the "initial sales charge
alternative"), or (ii) on a contingent deferred basis (the "deferred sales
charge alternative").
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Class A Shares
An investor who pays an initial sales charge or purchases at net asset
value acquires Class A shares. Class A shares are subject to an ongoing
distribution fee at an annual rate of up to 0.25% of the Fund's aggregate
average daily net assets attributable to Class A shares. Certain purchases of
Class A shares qualify for reduced initial sales charges.
Class B Shares
An investor who elects the deferred sales charge alternative acquires
Class B shares. Class B shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if they are redeemed within six
years of purchase. The deferred sales charge may be waived in connection with
certain qualifying redemptions.
Class B shares are subject to an ongoing distribution fee at an annual
rate of up to 1.00% of the Fund's aggregate average daily net assets
attributable to Class B shares. Class B shares permit the investor's payment to
be invested in full from the time the investment is made. The higher ongoing
distribution fee paid by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those related to Class A shares.
Class B shares will automatically convert to Class A shares eight years after
the end of the calendar month in which the shareholder's order to purchase was
accepted. The purpose of the conversion feature is to eliminate the higher
distribution fee after the National Distributor has been compensated for
distribution expenses related to the Class B shares. See "Conversion Feature"
below.
The alternative purchase arrangement permits an investor to choose the
method of purchasing shares that is more beneficial given such factors as the
amount of the purchase, the length of time the investor expects to hold the
shares, and whether the investor wishes to receive distributions in cash or to
reinvest them in additional shares. Investors should consider whether, during
the anticipated term of their investment in the Fund, the accumulated continuing
distribution fees and contingent deferred sale charges on Class B shares prior
to conversion would be less than the initial sales charge and accumulated
distribution fees on Class A shares purchased at the same time, and the extent
to which such differential would be offset by the lower expenses attributable to
Class A shares.
Class A shares are subject to a lower distribution fee and, accordingly,
pay correspondingly higher dividends. However, because initial sales charges are
deducted at the time of purchase, Class A investors do not have all their funds
invested initially and initially own fewer shares. Investors not qualifying for
reduced initial sales charges who expect to maintain their investment for an
extended period of time should consider purchasing Class A shares because the
accumulated continuing distribution charges on Class B shares may exceed the
initial sales charge on Class A shares during the term of the investment.
However, such investors must weigh this consideration against the fact that,
because of the initial Class A sales charges, not all of their funds will be
invested initially.
The distribution expenses incurred by the Distributor in connection with
the sale of the shares will be paid, in the case of Class A shares, from the
proceeds of the initial sales charge and the ongoing distribution fees and, in
the case of Class B shares, from the proceeds of the ongoing distribution fees
and the contingent deferred sales charge imposed upon redemptions within six
years of purchase. Sales personnel of broker-dealers distributing shares may
receive differing compensation for selling Class A or Class B shares. The
purpose and function of the contingent
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deferred sales charge and ongoing distribution fees with respect to the Class B
shares are the same as those of the initial sale charge and ongoing distribution
fees with respect to the Class A shares.
Dividends paid with respect to Class A and Class B shares will be
calculated in the same manner, at the same time and on the same day, except that
the higher distribution fees and any incremental transfer agency costs relating
to Class B shares will be borne exclusively by that Class and will result in a
lower dividend.
The Directors of the Fund have determined that no conflict of interest
will exist between the Class A and Class B shares. The Directors shall, pursuant
to their fiduciary duties under the Investment Company Act of 1940 and state
law, monitor the question of Class A and Class B shares and seek to ensure that
no such conflict arises.
Conversion Feature
Class B shares include all shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period ending
eight years after the end of the month in which the shares were purchased. At
the end of this period, Class B shares will automatically convert to Class A
shares and will no longer be subject to the higher distribution fees. Such
conversion will be on the basis of the relative net asset value of the two
classes without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to eliminate the higher distribution fee
after the National Distributor has been compensated for distribution expenses
related to the Class B shares.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares
will be considered to be held in a separate sub-account. Each time any Class B
shares in the shareholder's account (other than those in the sub-account)
convert to Class A, an equal pro rata portion of the Class B shares in the
sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel or a ruling of the Internal
Revenue Service to the effect that (i) the assessment of the higher distribution
fees and transfer agency costs with respect to Class B shares does not result in
any dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) that the
conversion of shares does not constitute a taxable event under federal income
tax law. The Fund has not sought opinions of counsel as to these matters but has
instead applied to the Internal Revenue Service (the "IRS") for, but has not yet
received, such a ruling. While rulings similar to the one sought by the Fund as
to preferential dividends have been issued previously by the IRS, complete
assurance cannot be given that the Fund will receive a favorable ruling. While
an adverse determination by the IRS is not expected, the Fund may be required to
reassess the alternative purchase arrangement structure if the IRS does not rule
favorably. In addition, were the IRS not to rule favorably, the Fund might make
additional distributions if doing so would assist in complying with the Fund's
general practice of of distributing sufficient income to reduce or eliminate
U.S. federal taxes. The conversion of Class B shares to Class A shares may be
suspended if such an opinion or ruling is no longer available. In that event,
no further conversions of Class B shares would occur, and shares might continue
to be subject to the higher distribution fee for an indefinite period which may
extend beyond the period ending eight years after the end of the month in which
the shares were purchased.
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Immediate Investment
In order to obtain immediate investment of funds, initial and subsequent
purchases of shares of the Fund may also be made by wiring Federal Funds
directly pursuant to the following instructions. (Federal Funds are monies held
in a bank account with a Federal Reserve Bank.)
1. For initial investments, telephone the Fund at 800-367-5877. Certain
information will be requested from you regarding the account, and an
account number will be assigned.
2. Once an account has been assigned, direct your bank to wire the
Federal Funds to State Street Bank and Trust Company ("State
Street"), Custody & Shareholder Services Division, Boston,
Massachusetts 02105, attention of the Fund. Your bank must include
the account number and the name(s) in which your account is
registered in its wire and also request a telephone advice. Your
bank may charge a fee to you for transmitting funds by wire.
Payment in Federal Funds must be received by 4:00 p.m. for an order to be
accepted on that day. If payment is received after that time, the order will not
be accepted until the next business day. You should bear in mind that wire
transfers may take two or more hours to complete.
Promptly after an initial purchase by wire, the investor should complete
an Account Application and mail it to Equity Planning.
Invest by Phone
This expedited investment service allows a shareholder to purchase shares
for his account by requesting a transfer of funds from the balance of his bank
account. Once a request is phoned in, State Street will initiate the transaction
by wiring a request for monies to the shareholder's commercial bank, savings
bank or credit union via Automated Clearing House (ACH). The shareholder's bank,
which must be an ACH member, will in turn forward the monies to State Street for
credit to the shareholder's account. ACH is a computer based clearing and
settlement operation established for the exchange of electronic transactions
among participating depository institutions.
To establish this service, please complete an Invest-by-Phone Application
and attach a voided check if applicable. Upon State Street's acceptance of the
authorization form (usually two weeks) the shareholder may call toll free
800-367-5877 prior to 3:00 p.m. (New York time) to place his purchase request.
Instructions as to the account number and amount to be invested must be
communicated to State Street. State Street will then contact the shareholder's
bank via ACH with appropriate instructions. The purchase is normally credited to
the shareholder's account the day following receipt of the verbal instructions.
The Fund may delay the mailing of a check for redemption proceeds of Fund shares
purchased with a check or via Invest-by-Phone service until the Fund has assured
itself that good payment has been collected for the purchase of the shares,
which may take up to 15 days.
The Fund and State Street reserve the right to modify or terminate the
Invest-by-Phone service for any reason or to institute charges for maintaining
an Invest-by-Phone account.
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SHAREHOLDER SERVICES
Any shareholder desiring additional information concerning the Fund or any
services offered by the Fund may call Equity Planning at 800-243-1574.
Open Account
As a convenience to the shareholder, all shares of the Fund registered in
his name are automatically credited to an Open Account maintained for him on the
books of the Fund by its transfer agent or State Street Bank and Trust Company.
An Open Account offers the shareholder ready access to the following options and
services:
Record of Share Transactions. Each time shares are credited to or
withdrawn from his Open Account the shareholder will receive a statement showing
the details of the transaction and the then current balance of shares owned by
him. Shortly after the end of each calendar year he will receive information as
to the Federal tax status of dividends and any capital gain distribution paid by
the Fund during the year.
Safekeeping of Shares. All shares acquired by the shareholder will be
credited to his Open Account and share certificates will not be issued unless
requested. In no event will certificates representing fractional shares be
issued. Certificates previously acquired may be surrendered to the transfer
agent; the surrendered certificates will be canceled and the shares represented
thereby will continue to be credited to the Open Account of the shareholder.
Investing by Mail. An Open Account provides a simple and convenient way of
setting up a flexible investment program for the accumulation of shares of the
Fund. At any time the shareholder may send a check to Equity Planning, 100
Bright Meadow Blvd., P.O. Box 2200, Enfield, Connecticut 06083-2200, payable to
the order of "Phoenix Total Return Fund, Inc." for the minimum investment amount
(usually $25) or more, to be used to purchase additional shares for his Open
Account at the applicable offering price next determined after the check is
received. Information as to the shareholder's account registration and account
number should accompany each such investment.
Bank Draft Investing Program (Investo-Matic Plan). By completing the
Investo-Matic section of the New Account Application, a shareholder may
authorize the bank (the "Bank") named in the Application to draw $25 or more
from his personal checking account monthly to be used to purchase additional
shares for his Open Account. The amount the shareholder designates will be made
available, in form payable to the order of Equity Planning, to State Street Bank
and Trust Company by the Bank on the date the Bank draws on the shareholder's
account and will be used to purchase shares at the applicable offering price.
The shareholder or his or her registered representative may, by telephone or
written notice, cancel or change the dollar amount being invested pursuant to
the Investo-Matic Plan unless the shareholder has notified the Fund or Transfer
Agent that his or her registered representative shall not have this authority.
Distribution Option. The Fund currently declares all income dividends
and all capital gain distributions payable in shares of the Fund or, at the
option of the shareholder, in cash. By exercising his distribution option the
shareholder may elect (1) to receive both dividends and capital gain
distributions in additional shares or (2) to receive dividends in cash and
capital gain distributions in additional shares or (3) to receive both dividends
and capital gain distributions in
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cash. If a shareholder elects to receive dividends and/or distributions in cash
and the check cannot be delivered or remains uncashed by the shareholder due to
an invalid address, then the dividend and/or distribution will be reinvested
after the Transfer Agent has been informed that the proceeds are undeliverable.
Additional shares will be purchased for the shareholder's account at the then
current net asset value. Shareholders who maintain an account balance in the
Fund of at least $5,000, or $2,000 for tax qualified retirement benefit plans
(calculated on the basis of the net asset value of the shares held in a single
account), may direct that any dividends and distributions paid with respect to
shares in that account be automatically reinvested in another single account in
shares of any other Phoenix Fund at net asset value. Shareholders should obtain
a current prospectus and consider the objectives and policies of each Fund
carefully before directing dividends and distributions to another Fund. A
shareholder who elects to receive all distributions in cash may also elect to
have distribution checks mailed to another address or made payable to a payee
other than the shareholder. However, if the check cannot be delivered due to
invalid address information, the distribution option will be changed to share
reinvestment. Dividends and distributions received in shares are credited to the
shareholder's Open Account in full and fractional shares computed at the closing
net asset value on the business day following the record date. A shareholder may
change his distribution option at any time by notifying the transfer agent,
either by calling 800-243-1574 or by sending a letter signed by the registered
owner(s) of the Account to Equity Planning, 100 Bright Meadow Blvd., P.O. Box
2200, Enfield, Connecticut 06083-2200. Requests for directing distributions to
someone other than the shareholder must be made in writing with all signatures
guaranteed. To be effective with respect to a particular dividend or
distribution, the new distribution option must be received by the transfer agent
at least 3 days prior to the record date of such dividend or distribution. If
all shares in the shareholder's account are repurchased or redeemed or
transferred between the record date and the payment date for a dividend or
distribution, he will receive cash for the dividend or distribution regardless
of the distribution option selected.
The cost of administering Open Accounts is borne by the Fund. The options
and services available to shareholders under the Open Account may be changed or
discontinued at any time by the Fund. An Open Account cannot, of course, assure
a profit or protect against loss. The transfer agent acts as agent for the
shareholder and the dealer designated by the shareholder in executing purchase
transactions for the shareholder's Open Account.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of shares
of any other Phoenix Fund except shares of Phoenix Asset Reserve Class A Fund
held less than 6 months on the basis of the relative net asset values per share
at the time of the exchange. As described in the Prospectus, a Telephone
Exchange Privilege is also available.
Subject to the above requirements for an exchange, a shareholder may elect
to have shares of the Fund exchanged for shares of any other Phoenix Fund
automatically on a monthly, quarterly, semi-annual, or annual basis ("Systematic
Exchange").
Shareholders who maintain an account balance in the Fund of at least
$5,000, or $2,000 for tax qualified retirement benefit plans, (calculated on the
basis of the net asset value of the shares held in a single account) may direct
that shares of the Fund be automatically exchanged at predetermined intervals
for shares of the same class of any other Phoenix Fund. If the shareholder is
participating in the Self Security program offered by Phoenix Home Life Mutual
Insurance Company, it is not necessary to maintain the above account balances in
order to use the Systematic Exchange privilege.
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Such exchanges will be executed upon the close of business on the 10th of
a month and if the 10th falls on a holiday or weekend, then at the close of
business on the next succeeding business day. The minimum initial and subsequent
amount that may be exchanged under the Systematic Exchange is $25. Systematic
Exchanges are available from Equity Planning.
Unless a Shareholder elects in writing not to participate in the Telephone
Exchange Privilege, shares for which certificates have not been issued may be
exchanged by calling 800-367-5877, provided that the exchange is made between
accounts with identical registrations. Under the Telephone Exchange Privilege,
telephone exchange orders may also be entered on behalf of the shareholder by
his or her registered representative. Equity Planning and the Fund will employ
reasonable procedures to confirm that telephone instructions are genuine. In
addition to requiring identical registrations on both accounts, Equity Planning
will record telephone instructions on tape. All exchanges will be confirmed in
writing to the shareholder. To the extent that procedures reasonably designed to
prevent unauthorized telephone exchanges are not followed, Equity Planning
and/or the Fund may be liable for following telephone instructions for exchange
transactions that prove to be fraudulent. Broker/dealers other than Equity
Planning have agreed to bear the risk of any loss resulting from any
unauthorized telephone exchange instruction from the firm or its registered
representatives. However, the shareholder would bear the risk of loss resulting
from instructions entered by an unauthorized third party that Equity Planning
and/or the Fund reasonably believe to be genuine. The Telephone Exchange
Privilege may be modified or terminated at any time on 60 days' notice to
shareholders. In addition, during times of drastic economic or market changes,
the Telephone Exchange Privilege may be difficult to exercise or may be
suspended temporarily. In such event, an exchange may be effected by following
the procedure outlined for tendering for exchange of shares represented by
certificate(s). The Telephone Exchange Privilege is available only in States
where the shares being acquired may be legally sold.
If a shareholder elects not to use the Telephone Exchange Privilege or if
the shares being exchanged are represented by a certificate or certificates, the
shareholder must submit a written request for an exchange to Equity Planning,
100 Bright Meadow Blvd., P.O.Box 2200, Enfield, Connecticut 06083-2200. If the
shares are being exchanged between accounts that are not registered identically,
the signature on such request must be guaranteed by an eligible guarantor
institution as defined by the Fund's transfer agent in accordance with its
signature guarantee procedures. Currently, such procedures generally permit
guarantees by banks, broker/dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. Any outstanding certificate or certificates for the tendered
shares must be duly endorsed and submitted.
All exchanges except Systematic Exchanges are subject to the designated
Phoenix Fund's minimum initial investment requirement. Shareholders should
obtain a current prospectus of the Fund and read it carefully before requesting
an exchange. Prospectuses are available from Equity Planning.
All exchanges are effected by Equity Planning through the repurchase of
the shares tendered for exchange and the purchase of shares being acquired at
their respective closing net asset values on the date of receipt by Equity
Planning, 100 Bright Meadow Blvd., P.O.Box 2200, Enfield, Connecticut 06083-2200
of proper instructions and any necessary supporting documents in acceptable
form. Shares acquired in an exchange will be credited to an Open Account
established for the shareholder on the books of the Fund. The new account will
carry the distribution option previously in effect with respect to Fund shares,
and any telephone exchange or telephone redemption authorization previously in
effect with respect to Fund shares will be deemed to apply
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<PAGE>
to the shares credited to the new account. However, the new account will carry
no other option unless it is requested on a written exchange request or a new
account application or when the Telephone Exchange Privilege is used. Because an
exchange is considered a redemption, a gain or loss for Federal tax purposes
will be realized by the shareholder in connection with the repurchase of the
shares tendered for exchange.
The Telephone Exchange Privilege may only be used for shares for which
certificates have not been issued. For further information, call Equity Planning
toll free at (800) 243-1574.
HOW TO REDEEM SHARES
Systematic Withdrawal Program. The Systematic Withdrawal Program allows
shareholders to periodically redeem a portion of their account on a
predetermined monthly or quarterly, semiannual or annual basis. A sufficient
number of full and fractional shares shall be redeemed so that the designated
payment is made on or about the 20th day of the month. Shares are tendered for
redemption by the Transfer Agent, as agent for the shareowner, on or about the
15th of the month at the closing net asset value on the date of redemption. The
Systematic Withdrawal Program also provides for redemptions to be tendered on or
about the 10th, 15th or 25th of the month with proceeds to be directed through
Automated Clearing House (ACH) to the shareholder's bank account. In addition to
the limitations stated below, withdrawals may not be less than $25 and minimum
account balance requirements shall continue to apply. See "Redemption of Small
Accounts."
Class A shareholders participating in the Systematic Withdrawal Program
must own shares of the Fund worth $5,000 or more, as determined by the
then-current net asset value per share. The purchase of shares while
participating in the withdrawal program will ordinarily be disadvantageous to
the Class A shareholder since a sales charge will be paid by the investor on the
purchase of Class A Shares at the same time other shares are being redeemed. For
this reason, investors in Class A Shares may not participate in an automatic
investment program while participating in the Systematic Withdrawal Program.
To participate in the Systematic Withdrawal Program, Class B shareholders
must initially own shares of the Fund worth $5,000 or more and elect to have all
dividends reinvested in additional Class B Shares of the Fund. Through the
Program, Class B shareholders may withdraw up to 1% of their aggregate net
investments (purchases, at initial value, to date net of non-Program
redemptions) each month or up to 3% of their aggregate net investments each
quarter without incurring the otherwise applicable contingent deferred sales
charges.
Class B shareholders redeeming more shares than the percentage permitted
under the Program shall be subject to any applicable contingent deferred sales
charge. Accordingly, the purchase of Class B Shares will generally not be
suitable for an investor who anticipates withdrawing sums in excess of the above
limits, shortly after purchase.
By Mail. Non-certificated shares registered on the books of the Fund may
be redeemed by submitting a written request for redemption to Equity Planning,
100 Bright Meadow Blvd., P.O.Box 2200, Enfield, Connecticut 06083-2200. The
redemption request must contain the
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shareholder(s)' account name(s) and number(s), the number of shares to be
redeemed and the signature(s) of the registered shareholder(s). If the shares
are registered in the names of individuals, singly, jointly or as custodian
under the Uniform Gifts to Minors Act, and the proceeds of the redemption do not
exceed $50,000 and are to be paid to the registered owner(s) at the address of
record, the signature(s) on the redemption request need not be guaranteed.
Otherwise, the signature(s) must be guaranteed by an eligible guarantor
institution as defined by the Fund's transfer agent in accordance with its
signature guarantee procedures. Currently, such procedures generally permit
guarantees by banks, broker/dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. Shares represented by certificates in the possession of the
shareholder may be redeemed by submitting a written request for the redemption
to Equity Planning, 100 Bright Meadow Blvd., P.O.Box 2200, Enfield, Connecticut
06083-2200, together with the certificates, duly endorsed by all persons in
whose names the shares are registered, with signatures guaranteed, if required,
in the manner described above. Signatures must also be guaranteed on any change
of address request submitted in conjunction with a redemption request.
The redemption price is the net asset value next determined following the
receipt of a duly executed request for redemption of shares, together with any
outstanding certificate or certificates for such shares, duly endorsed, with
signatures guaranteed in the manner described above. Class B shares are subject
to a contingent deferred sales charge upon a redemption of shares within six
years of the date of purchase.
Additional documentation may be required where shares are held by a
corporation, partnership, trustee or executor. Therefore, it is suggested that
shareholders holding shares registered in other than individual names contact
Equity Planning prior to redemption to ensure that all necessary documents
accompany the redemption request.
By Telephone. Unless a shareholder elects in writing not to participate in
the Telephone Redemption Privilege, shares for which certificates have not been
issued may be redeemed by calling (800) 367-5877 and telephone redemptions will
also be accepted on behalf of the shareholder from his or her registered
representative as described in the Prospectus. Address and bank account
information will be verified, telephone redemption instructions will be recorded
on tape, and all redemptions will be confirmed in writing to the shareholder. If
there has been an address change within the past 60 days, a telephone redemption
will not be authorized. Equity Planning and the Fund will employ reasonable
procedures to confirm that telephone instructions are genuine. To the extent
that procedures reasonably designed to prevent unauthorized telephone
redemptions are not followed, Equity Planning and/or the Fund may be liable for
following telephone instructions for redemption transactions that prove to be
fraudulent. Broker/dealers other than Equity Planning have agreed to bear the
risk of any loss resulting from any unauthorized telephone redemption
instruction from the firm or its registered representatives. However, the
shareholder would bear the risk of loss resulting from instructions entered by
an unauthorized third party that Equity Planning and/or the Fund reasonably
believe to be genuine.
The redemption price is the net asset value next determined following the
receipt of the telephone redemption request. If the proceeds of the redemption
are less than $500, the redemption will normally be paid on the first business
day following receipt of the request and sent by mail to the address of record
on the shareholder's account. If the proceeds of the redemption are $500 or
more, the redemption will be wired to the designated U.S. commercial bank
account. (The Telephone Redemption Privilege is not available to HR-10, IRA or
403(b)(7) Plans.) Telephone redemption requests must be received by State Street
Bank and Trust Company by the close of
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trading on the New York Stock Exchange on a day when State Street Bank and Trust
Company is open for business. Requests made after that time or on a day when
State Street Bank and Trust Company is not open for business cannot be accepted.
Redemption of Small Accounts
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account has a value, due to redemptions, of less than $250. Before the
Fund redeems these shares, the shareholder will be given notice that the value
of the shares in the account is less than the minimum amount and will be allowed
30 days to make an additional investment in an amount which will increase the
value of the account to at least $250.
Repurchases
The Fund also maintains a continuous offer to repurchase its shares and
shareholders may normally sell their shares through securities dealers, who may
charge customary commissions for their services. Unless made in connection with
an exchange of shares, a request for repurchase must be placed with a securities
dealer and communicated by the dealer to Equity Planning. The repurchase price
is the net asset value next determined following the receipt of the request by
Equity Planning, except that a repurchase order placed through a dealer before
the close of trading on the New York Stock Exchange on any day will be executed
at the net asset value determined as of such close provided the dealer
communicates the order to Equity Planning prior to its close of business
(normally 4:00 P.M. New York City time) on such day and subsequently confirms
the order to Equity Planning in writing, time-stamping his confirmation with the
time of the dealer's receipt of the order. It is the responsibility of dealers
to communicate such orders, and they may be liable to investors for failing to
do so. The offer to repurchase may be suspended at any time.
Payment for shares redeemed is normally made within seven days after
receipt of a duly executed request for redemption of shares, together with any
outstanding certificate or certificates for such shares, duly endorsed, and if
required, a proper signature guarantee. Payment for shares repurchased is
normally made within seven days after receipt of the repurchase order and a duly
executed stock power or other instrument of transfer, together with any
outstanding certificate or certificates for such shares and, if required, a
proper signature guarantee. However, if the Fund is requested to redeem or
repurchase shares for which it has not yet received good payment, the mailing of
a check for the proceeds of the redemption or repurchase may be delayed until
the Fund has assured itself that good payment has been collected. With respect
to shares purchased by check or via Invest-by-Phone service, payment of
redemption proceeds will only be made after the Fund has assured itself that
good payment has been collected for the purchase of shares, which may take up to
15 days. Although the mailing of a check for the proceeds of a redemption or
repurchase may be delayed, the redemption price or repurchase price will be
determined in the manner described above.
To the extent consistent with state and Federal law, the Fund may make
payment of the redemption price either in cash or in kind. However, the Fund has
elected to pay in cash all requests
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for redemption by any shareholder of record, limited in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of such period. This election has been
made pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits the withdrawal thereof. In case of a redemption in
kind, securities delivered in payment for shares would be readily marketable and
valued at the same value assigned to them in computing the net asset value per
share of the Fund. A shareholder receiving such securities would incur brokerage
costs when he sold the securities.
The right of redemption may be suspended or the payment date postponed
when the New York Stock Exchange is closed for other than customary weekend and
holiday closings, or when trading on the New York Stock Exchange is restricted,
as determined by the Securities and Exchange Commission; for any period when an
emergency as defined by rules of the Commission exists; or during any period
when the Commission has, by order, permitted such suspension. In case of a
suspension of the right of redemption, the shareholder may withdraw his request
for redemption of shares prior to the next determination of net asset value
after the suspension has been terminated or he will receive payment of the net
asset value so determined.
A shareholder may receive more or less than he paid for his shares,
depending on the net asset value of the shares at the time they are redeemed or
repurchased.
Reinvestment Privilege
Shareholders may use redemption proceeds to purchase Class A Shares of any
Phoenix Fund with no sales charge (at the net asset value next determined after
the request for purchase is made). For Federal income tax purposes, a redemption
and purchase will be treated as a sale and purchase of shares. Special rules may
apply in computing the amount of gain or loss in these situations. (See
"Dividends, Distributions and Taxes" for information on the Federal income tax
treatment of a disposition of shares.) A written request for this privilege must
be received by the Distributor within 180 days of the redemption, accompanied by
payment for the shares (not in excess of the redemption value). Class B
shareholders who have had the contingent deferred sales charge waived through
participation in the Systematic Withdrawal Program are not eligible.
TAXES
As stated in the Prospectus, it is the policy of the Fund to comply with
provisions of the Internal Revenue Code relieving investment companies which
distribute substantially all of their net income (both net investment income and
net realized capital gains) from Federal income tax on the amounts distributed.
To qualify for treatment as a "regulated investment company" for tax
purposes, the Fund must derive less than 30% of its gross income in each taxable
year from gains (without deduction for losses) from the sale or other
disposition of securities held for less than three months. This requirement may
affect decisions by the Fund regarding the purchase or sale of securities. In
particular, this requirement may affect decisions to purchase or sell options,
futures contracts and options on futures contracts.
Income dividends and short-term capital gain distributions, whether
received in shares or in cash, are treated by shareholders as ordinary income
for Federal income tax purposes.
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Distributions which are designated by the Fund as long-term capital gains,
whether received in shares or in cash, are taxable to shareholders as long-term
capital gains (regardless of how long the distributee has been a shareholder).
Any loss from the sale of shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain distributions paid with
respect to such shares.
Any taxable distribution which is declared in December payable to
shareholders of record on any date in December and paid before the next February
l will be taxable to shareholders in the year declared.
The Fund is required to withhold, for income taxes, 31% of dividends,
distributions and redemption payments if any of the following circumstances
exist: (i) a shareholder fails to provide the Fund with a correct taxpayer
identification number ("TIN"); (ii) the Fund is notified by the Internal Revenue
Service that the shareholder furnished an incorrect TIN; or (iii) the Fund is
notified by the Internal Revenue Service that withholding is required because
the shareholder failed to report the receipt of dividends or interest from other
sources. Withholding may also be required with respect to accounts where the
shareholder fails to certify that (i) the TIN provided is correct and (ii) the
shareholder is not subject to such withholding. However, withholding will not be
required in the case of certain exempt entities nor in the case of those
shareholders who comply with the procedures as set forth by the Internal Revenue
Service. If incorrect information is provided by the shareholder and the
Internal Revenue Service consequently assesses the Fund a penalty, this penalty
will be passed on to the shareholder.
Dividends paid from net investment income and net realized short-term
capital gains to a shareholder who is a non-resident alien individual, a foreign
trust or estate, a foreign corporation or a foreign partnership (a "foreign
shareholder") will be subject to United States withholding tax at a rate of 30%
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Foreign shareholders are urged to consult their own
tax advisors concerning the applicability of the United States withholding tax
and any foreign taxes.
The information included in the Prospectus with respect to Dividends,
Distributions and Taxes, in conjunction with the foregoing, is a general and
abbreviated summary of applicable provisions of the Internal Revenue Code and
Treasury regulations now in effect as currently interpreted by the courts and
the Internal Revenue Service. The Code and these Regulations, as well as the
current interpretations thereof, may be changed at any time by legislative,
judicial, or administrative action.
Shareholders ordinarily will also be subject to state income taxes on the
dividends and distributions they receive from the Fund. Shareholders are urged
to consult counsel or other competent tax advisers regarding specific questions
as to Federal, state or local taxes.
ADDITIONAL INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission which may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, DC 20549, upon payment
of the fee prescribed by the Commission's rules and regulations.
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FINANCIAL STATEMENTS
The Fund's financial statements and notes thereto for the fiscal year
ended December 31, 1994 and the report of Price Waterhouse LLP, independent
accountants, with respect thereto are set forth herein.
Neither the supplementary per share data contained in this Statement of
Additional Information nor the financial highlights information included in the
Prospectus should be considered to be representative of the future investment
performance of the Fund.
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APPENDIX
A-1 and P-1 Commercial Paper Ratings
The Money Market Series will only invest in commercial paper which at the
date of investment is rated A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investors Services, Inc., or, if not rated, is issued or guaranteed by
companies which at the date of investment have an outstanding debt issue rated
AA or higher by Standard & Poor's or Aa or higher by Moody's.
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has
the following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Services, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa Group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time 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.
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Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Standard & Poor's Corporation's Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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