As filed with the Securities and Exchange Commission on April 10, 1997
Registration Nos. 2-83024
811-3714
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
[x]
Pre-Effective Amendment No.
[ ]
Post-Effective Amendment No. 19
[x]
and/or
REGISTRATION STATEMENT
Under the
INVESTMENT COMPANY ACT OF 1940
[x]
Amendment No. 20
[x]
(Check appropriate box or boxes.)
----------------
Phoenix California Tax Exempt Bonds, Inc.
(Exact Name of Registrant as Specified in Articles of Incorporation)
-----------------
101 Munson Street, Greenfield, Massachusetts 01301
(Address of Principal Executive Offices) (Zip Code)
c/o Phoenix Equity Planning Corporation--Shareholder Services
(800) 243-1574
(Registrant's Telephone Number, including Area Code)
----------------
Philip R. McLoughlin
Vice Chairman and Chief Executive Officer
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, Connecticut 06115-0479
(name and address of Agent for Service)
----------------
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[x] 60 days after filing pursuant to paragraph (a)(i)
[ ] on pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
A Rule 24f-2 Notice for the fiscal year ended on April 30, 1996 was filed by
Registrant with the Commission on June 27, 1996.
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<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
Cross Reference Sheet
Showing Location of Information Required by Form N-1A
PART A
<TABLE>
<CAPTION>
Form N-1A Item No. Prospectus Caption
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Introduction; Fund Expenses
3. Condensed Financial Information Financial Highlights; Performance Information
4. General Description of Registrant Introduction; Investment Objectives and Policies;
Investment Techniques and Related Risks; Additional Information
5. Management of the Fund Introduction; Management of the Fund; Distribution Plans
6. Capital Stock and Other Securities Introduction; Investment Restrictions; Dividends,
Distributions and Taxes; Net Asset Value; Additional Information
7. Purchase of Securities Being Offered Distribution Plans; Purchase of Shares; Investor
Accounts and Services Available
8. Redemption or Purchase How to Redeem Shares
9. Legal Proceedings Not applicable
</TABLE>
PART B
<TABLE>
<CAPTION>
Form N-1A Item No. Statement of Additional Information Caption
- ------------------------------------------- --------------------------------------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Investment Objective and Policies; Investment
Restrictions; Fundamental Policies; Other Policies
14. Management of the Registrant Directors and Officers; Advisory Board
15. Control Persons and Principal Directors and Officers; Advisory Board
Holders of Securities
16. Investment Advisory and Other Services Services of the Adviser; Underwriter; Distribution Plans
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities See "Organization of the Fund" in Prospectus
19. Purchase, Redemption and Pricing of Net Asset Value; How to Buy Shares; Reinvestment
Securities Being Offered Privilege; Exchange Privilege; How to Redeem Shares
20. Tax Status Dividends, Distributions and Taxes
21. Underwriter Underwriter; Distribution Plans
22. Calculations of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
[COVER]
[LOGO] PHOENIX FUNDS
Phoenix California Tax Exempt Bonds, Inc.
PROSPECTUS
JUNE 9, 1997
[LOGO] Phoenix Duff & Phelps
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
101 Munson Street
Greenfield, MA 01301
PROSPECTUS
June 9, 1997
Phoenix California Tax Exempt Bonds, Inc. (the "Fund") is a diversified
open-end management investment company which invests in municipal securities
with the investment objective of obtaining a high level of current income
exempt from California state and local income taxes, as well as Federal
income tax, consistent with preservation of capital. There can be no
assurance that the Fund's investment objective will be achieved.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. No dealer, salesperson or
any other person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as
having been authorized by the Fund, Adviser or Distributor. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy any
of the securities offered hereby in any state in which, or to any person to
whom, it is unlawful to make such offer. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information herein is correct at any time subsequent to
its date. Investors should read and retain this Prospectus for future
reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated June 9, 1997, which has been filed
with the Securities and Exchange Commission (the "Commission") and is
available upon request at no charge by calling 1-800-243-4361, or by writing
to Phoenix Equity Planning Corporation at 100 Bright Meadow Boulevard, P.O.
Box 2200, Enfield, Connecticut 06033-2200. The Statement of Additional
Information is incorporated herein by reference.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by any bank, credit union, or affiliated entity, and are not
federally insured or otherwise protected by the Federal Deposit Insurance
Corporation (FDIC), the Federal Reserve Board or any other agency and involve
investment risk, including possible loss of principal.
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LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Customer Service: (800) 243-1574
Marketing: (800) 243-4361
Telephone Orders/Exchanges: (800) 367-5877
TELECOMMUNICATION DEVICE (TTY): (800) 243-1926
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION ............................................... 3
FUND EXPENSES .............................................. 4
FINANCIAL HIGHLIGHTS ....................................... 5
PERFORMANCE INFORMATION .................................... 6
INVESTMENT OBJECTIVE AND POLICIES .......................... 6
INVESTMENT TECHNIQUES AND RELATED RISKS .................... 8
MANAGEMENT OF THE FUND ..................................... 9
DISTRIBUTION PLANS ......................................... 10
HOW TO BUY SHARES .......................................... 12
INVESTOR ACCOUNTS AND SERVICES AVAILABLE ................... 16
NET ASSET VALUE ............................................ 18
HOW TO REDEEM SHARES ....................................... 19
DIVIDENDS, DISTRIBUTIONS AND TAXES ......................... 20
ADDITIONAL INFORMATION ..................................... 21
TAX FREE vs. TAXABLE INCOME ................................ 22
2
<PAGE>
INTRODUCTION
This Prospectus describes the shares offered by and the operations of
Phoenix California Tax Exempt Bonds, Inc. (the "Fund"). The Fund is a
diversified, open-end management investment company established in 1983 as a
Maryland corporation. The Fund's investment objective is to obtain a high
level of current income exempt from California state and local income taxes,
as well as Federal income tax, consistent with preservation of capital.
Investment Adviser
National Securities & Research Corporation ("National" or the "Adviser") is
the investment adviser of the Fund. The Adviser is a subsidiary of Phoenix
Duff & Phelps Corporation and prior to November 1, 1995, was an indirect
subsidiary of Phoenix Home Life Mutual Insurance Company. See "Management of
the Fund" for a description of the Investment Advisory Agreement and
management fees.
Distributor and Distribution Plans
Phoenix Equity Planning Corporation ("Equity Planning" or "Distributor"),
serves as national distributor of the Fund's shares. See "Distribution Plans"
and the Statement of Additional Information. Equity Planning also acts as
financial agent of the Fund and as such receives a fee. See "The Financial
Agent." Equity Planning also serves as the Fund's transfer agent. See "The
Custodian and Transfer Agent."
The Fund has adopted distribution plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940 as amended (the "1940 Act") for all classes.
Pursuant to the distribution plan adopted for Class A Shares, the Fund shall
reimburse the Distributor up to a maximum annual rate of 0.25% of the Fund's
average daily Class A Share net assets for distribution expenditures incurred
in connection with the sale and promotion of Class A Shares and for
furnishing of shareholder services. Pursuant to the distribution plan adopted
for Class B Shares, the Fund shall reimburse the Distributor up to a maximum
annual rate of 1.00% of the Fund's average daily Class B share net assets for
distribution expenditures incurred in connection with the sale and promotion
of Class B Shares and for furnishing of shareholder services. See
"Distribution Plans."
Purchase of Shares
The Fund offers two classes of shares which may be purchased 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 (i) at the time of purchase (the
"Class A Shares"), or (ii) on a contingent deferred basis (the "Class B
Shares"). 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
Class A Shares are offered to the public at the next determined net asset
value after receipt of the order by State Street Bank and Trust Company, plus
a maximum sales charge of 4.75% of the offering price (4.99% of the amount
invested) on single purchases of less than $50,000. The sales charge for
Class A Shares is reduced on a graduated scale on single purchases of $50,000
or more and subject to other conditions stated below. See "How To Buy
Shares", "How to Obtain Reduced Sales Charges on Class A Shares" and "Net
Asset Value."
Class B Shares are offered to the public at the next determined net asset
value after receipt of an order by State Street Bank and Trust Company, with
no sales charge. Class B Shares are subject to a sales charge if they are
redeemed within five years of purchase. See "How To Buy Shares" and "Deferred
Sales Charge Alternative--Class B Shares."
Shares of each Class represent an identical interest in the investment
portfolio of the Fund and have the same rights, except that Class B Shares
bear the cost of the higher distribution fees which cause the Class B Shares
to have a higher expense ratio and to pay lower dividends than Class A
Shares. See "How to Buy Shares."
Minimum Initial and Subsequent Investments
The minimum initial investment is $500 ($25 if using the bank draft
investment program designated "Investo-Matic") and the minimum subsequent
investment is $25. Certain exceptions to the minimum initial and subsequent
investment amounts are available under certain circumstances. See "How To Buy
Shares."
Redemption Price
Class A Shares may be redeemed at any time at their net asset value per
share next computed after receipt of a redemption request by Equity Planning,
the Fund's transfer agent. Class B shareholders redeeming shares within five
years of the date of purchase will normally be assessed a contingent deferred
sales charge. See "How to Redeem Shares."
Risk Factors
The Fund's investment objective is to obtain a high level of current income
exempt from California state and local income taxes, as well as Federal
income tax, consistent with preservation of capital. The Fund will attempt to
achieve its objective by investing in a diversified portfolio of obligations
issued by or on behalf of the states, territories and possessions of the
United States and their political subdivisions, agencies, authorities and
instrumentalities, the interest from which is, in the opinion of the bond
counsel, exempt from Federal income tax (municipal bonds).
There can be no assurance that the Fund will achieve its investment
objectives. Investors should be aware that certain California Constitutional
amendments, legislative measures, executive orders, administrative
regulations and voter initiatives could result in certain adverse
consequences affecting California municipal securities. The Fund may also
invest in securities issued by Puerto Rico. Puerto Rico's economy centers
around industrial employment. Based on recent tax law amendments, the
development of the Puerto Rican economy will be unpredictable for a number of
years. The Fund may also engage in transactions in financial futures
3
<PAGE>
contracts and related options for hedging purposes. Among other
considerations, engaging in transactions in financial futures contracts
involves certain risks, such as the possibility of an imperfect correlation
between futures market prices and cash market prices and the possibility that
the Adviser could be incorrect in its expectations as to the direction or
extent of various interest rate movements, in which case the Fund's return
might have been greater had hedging not taken place. See "Investment
Objectives and Policies."
FUND EXPENSES
The following table illustrates all fees and expenses a shareholder will
incur. The fees and expenses set forth in the table were for the 6 month
period ended October 31, 1996 and have been pro-rated to reflect a full year
of operation.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------ --------------------------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.75% None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load (as a percentage of original 5% during the first year,
purchase price or redemption proceeds, as applicable) decreasing 1% annually to 2%
during the 4th & 5th years;
dropping from 2% to 0% after
None the 5th year
Redemption Fee None None
Exchange Fee None None
Annual Fund Operating Expenses
(as a percentage of net assets for the year ended
April 30, 1996)
Management Fees 0.45% 0.45%
12b-1 Fees (a) 0.25% 1.00%
Other Operating Expenses 0.20% 0.20%
----- -----
Total Fund Operating Expenses 0.90% 1.65%
===== =====
</TABLE>
- ---------------
(a) "Rule 12b-1 Fees" represent an asset-based sales charge that, for a
long-term shareholder, may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
Rule 12b-1 Fees stated for Class B Shares include a Service Fee. See
"Distribution Plans."
<TABLE>
<CAPTION>
Cumulative Expenses
Paid for the Period
Example 1 year 3 years 5 years 10 years
- ----------------------------------------------------------- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
Class A Shares $56 $75 $95 $153
Class B Shares $57 $72 $90 $175
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A Shares $56 $75 $95 $153
Class B Shares $17 $52 $90 $175
</TABLE>
The purpose of the table above is to help the investor understand the
various costs and expenses that the investor will bear, directly or
indirectly. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. See
"Management of Fund," "Distribution Plans" and "How to Buy Shares."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth certain financial information for the
respective fiscal years of the Fund. The financial information has been
audited by Price Waterhouse LLP, independent accountants. Financial
statements and notes thereto are incorporated by reference in the Statement
of Additional Information. The Statement of Additional Information and the
Fund's most recent Annual Report (containing the report of independent
accountants and additional information relating to the Fund performance) are
available at no charge upon request by calling (800) 243-4361.
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------
Six Months
Ended Year Ended April 30,
10/31/96
(Unaudited) 1996 1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.77 $12.63 $13.03 $13.64 $13.20 $13.07 $12.58
Income from investment
operations
Net investment income 0.33 0.67 0.71 0.80 0.81 0.87 0.90
Net realized and unrealized
gain (loss) 0.22 0.20 0.05 (0.53) 0.51 0.24 0.51
---------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.55 0.87 0.76 0.27 1.32 1.11 1.41
---------- --------- --------- --------- --------- --------- ---------
Less distributions
Dividends from net
investment income (0.34) (0.67) (0.76) (0.76) (0.80) (0.88) (0.90)
Distributions in excess of
net investment income -- (0.01) -- -- -- -- --
Distributions from net
realized gains -- (0.03) (0.31) (0.12) (0.08) (0.10) (0.02)
Distributions in excess of
accumulated net realized
gains -- (0.02) (0.09) -- -- -- --
---------- --------- --------- --------- --------- --------- ---------
Total distributions (0.34) (0.73) (1.16) (0.88) (0.88) (0.98) (0.92)
---------- --------- --------- --------- --------- --------- ---------
Change in net asset value 0.21 0.14 (0.40) (0.61) 0.44 0.13 0.49
---------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
period $12.98 $12.77 $12.63 $13.03 $13.64 $13.20 $13.07
========== ========= ========= ========= ========= ========= =========
Total return(1) 4.33%(4) 6.92% 6.34% 1.80% 10.38% 8.68% 11.36%
Ratios/supplemental data:
Net assets, end of period
(thousands) $117,637 $113,806 $117,370 $131,365 $147,760 $139,118 $124,051
Ratio to average net asset
of:
Operating expenses 0.90%(3) 0.99% 0.93% 0.85% 0.90% 0.68% 0.63%
Net investment income 5.19%(3) 5.15% 5.63% 5.82% 6.00% 6.55% 6.94%
Portfolio turnover rate 10%(4) 20% 51% 25% 25% 33% 26%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- --------------------------------
From
Six Months Inception
Year Ended April 30, Ended Year 7/26/94
10/31/96 Ended to
1990 1989 1988 1987 (Unaudited) 4/30/96 4/30/95
------- ------- -------- ------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.72 $12.27 $12.50 $12.80 $12.77 $12.63 $13.04
Income from investment
operations
Net investment income 0.90 0.89 0.90 0.95(2) 0.29 0.56(5) 0.48
Net realized and unrealized
gain (loss) (0.14) 0.46 (0.23) (0.27) 0.21 0.20 0.01
--------- --------- -------- --------- ---------- -------- -------
Total from investment
operations 0.76 1.35 0.67 0.68 0.50 0.76 0.49
--------- --------- -------- --------- ---------- -------- -------
Less distributions
Dividends from net
investment income (0.90) (0.90) (0.90) (0.98) (0.29) (0.56) (0.50)
Distributions in excess of
net investment income -- -- -- -- -- (0.01) --
Distributions from net
realized gains -- -- -- -- -- (0.03) (0.31)
Distributions in excess of
accumulated net realized
gains -- -- -- -- -- (0.02) (0.09)
------ ------ ------ ------ ------ ------ ------
Total distributions (0.90) (0.90) (0.90) (0.98) (0.29) (0.62) (0.90)
------ ------ ------ ------ ------ ------ ------
Change in net asset value (0.14) 0.45 (0.23) (0.30) 0.21 0.14 (0.41)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period $12.58 $12.72 $12.27 $12.50 $12.98 $12.77 $12.63
====== ====== ====== ====== ====== ====== ======
Total return(1) 6.05% 11.41% 5.59% 5.25% 3.94%(4) 6.10% 4.10%(4)
Ratios/supplemental data:
Net assets, end of period
(thousands) $107,612 $103,415 $88,703 $88,477 $1,433 $1,258 $460
Ratio to average net asset
of:
Operating expenses 0.66% 0.73% 0.77% 0.56%(2) 1.65%(3) 1.78% 1.55%(3)
Net investment income 6.98% 7.13% 7.32% 7.30% 4.43%(3) 4.32% 4.90%(3)
Portfolio turnover rate 27% 34% 30% 21% 10%(4) 20% 51%
</TABLE>
(1) Maximum sales charge is not reflected in total return calculation.
(2) Net investment income would have been $.94 and the ratio of expenses to
average net assets would have been .63%, had the manager not waived a
portion of the management fee in 1987.
(3) Annualized
(4) Not annualized
(5) Computed using average shares outstanding.
5
<PAGE>
PERFORMANCE INFORMATION
The Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors. Both
yield and total return figures are computed separately for Class A and Class
B Shares in accordance with formulas specified by the Securities and Exchange
Commission and are based on historical earnings and are not intended to
indicate future performance.
The yield of the Fund will be computed by dividing the Fund's net investment
income over a 30-day period by an average value of invested assets (using the
average number of shares entitled to receive dividends and the maximum
offering price per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount will be compounded for six
months and then annualized for a twelve- month period to derive the Fund's
yield.
Standardized quotations of average annual total return for Class A and Class
B Shares will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in either Class A or Class B Shares over
a period of 1, 5 and 10 years (or up to the life of the class of shares).
Standardized total return quotations reflect the deduction of a proportional
share of each Class's expenses (on an annual basis), deduction of the maximum
initial sales load in the case of Class A Shares and the maximum contingent
deferred sales charge applicable to a complete redemption of the investment
in the case of Class B Shares, and assume that all dividends and
distributions on Class A and Class B Shares are reinvested when paid. It is
expected that the performance of Class A Shares will be better than that of
Class B Shares as a result of lower distribution fees paid by Class A Shares.
The Fund may also quote supplementally a rate of total return over different
periods of time by means of aggregate, average, and year-by-year or other
types of total return figures. In addition, the Fund may from time to time
publish materials citing historical volatility for shares of the Fund.
The Fund may also quote a "tax-equivalent yield" determined by dividing the
tax-exempt portion of quoted yield by 1 minus the stated income tax rate and
adding the result to the portion of the yield that is not tax-exempt.
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
ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar,
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 and 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's Price Index,
Lehman Brothers Aggregate Bond Index, Lehman Brothers Municipal Bond Index,
Lehman Brothers Corporate Index and Lehman Brothers T-Bond Index.
Advertisements, sales literature and communications may contain information
about the Fund or Adviser's current investment strategies and management
style. Current strategies and style may change to allow the Fund to respond
quickly to a changing market and economic environment. From time to time the
Fund may discuss specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Fund may
separate its cumulative and average annual returns into income results and
capital gains or losses; or cite separately as a return figure the bond
portion of a Fund's portfolio; or compare a fund's bond return figure to
well-known indices of market performance including but not limited to: the
S&P 500 Index, Dow Jones Industrial Average, Lehman Brothers Aggregate Bond
Index, Lehman Brothers Municipal Bond Index, CS First Boston High Yield Index
and Salomon Brothers Corporate and Government Bond Indices.
Performance information for the Fund reflects only the performance of a
hypothetical investment in 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 Fund's investment objective
and policies, characteristics and qualities 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. For a description of
the methods used to determine total return for the Fund, see the Statement of
Additional Information.
The Fund's Annual Report, available upon request and without charge by
calling (203) 243-4361, contains a discussion of the performance of the Fund
and a comparison of that performance to a securities market index.
INVESTMENT OBJECTIVE
AND POLICIES
The Fund's investment objective is to obtain a high level of current income
exempt from California state and local income taxes, as well as Federal
income tax, consistent with preservation of capital. There can be no
assurance that the Fund will achieve its objective. The Fund's investment
objective is a fundamental policy and may not be changed without majority
shareholder approval.
6
<PAGE>
The Fund will attempt to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of the states, territories
and possessions of the United States and their political subdivisions,
agencies, authorities and instrumentalities, the interest from which is, in
the opinion of the bond counsel, exempt from Federal income tax (municipal
bonds). The Fund may also engage in transactions in financial futures
contracts and related options for hedging purposes.
California law requires that at least 50% of the Fund's total assets be
invested in California tax exempt state and local issues or tax exempt
federal obligations at the end of each quarter of its taxable year in order
to be eligible to pay dividends to California residents which will be exempt
from California income taxes. As a fundamental policy, the Fund will invest
at least 80% of its net assets in California tax exempt municipal securities.
The Fund may invest up to 100% of its assets in such securities. The Fund may
also invest in tax-exempt securities issued by Puerto Rico.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations which were previously fully federally
tax-exempt. As a result, three categories of such obligations issued after
August 7, 1986 now exist: (1) "public purpose" bonds, the income of which
remains fully exempt from federal income taxation; (2) qualified "private
activity" industrial development bonds, the income of which, while exempt
from federal income taxation under section 103 of the Internal Revenue Code,
is includable in the calculation of the federal alternative minimum tax, and
(3) "private activity" (private purpose) bonds, the income from which is not
exempt from federal income taxation (the interest on which is also treated as
an item of tax preference for purposes of the Alternative Minimum Tax ("AMT
Bonds")). The Fund may invest up to 20% of its net assets in AMT Bonds and
qualified "private activity" industrial development bonds and taxable fixed
income obligations.
Characteristics of Municipal Bonds
The two principal classifications of tax exempt bonds are "general
obligation" and "revenue." General obligations ("G.O.s") are secured by the
issuer's general pledge of its faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are payable only from monies derived
from a specified source such as operating a particular facility or from a
guarantee, lease, specific tax or pool of assets, e.g., a portfolio of
mortgages. Pollution control or other bonds backed by private corporations do
not generally have the pledge of the credit of the issuing public body but
are secured only by the credit of the corporation benefiting from the
facilities being financed.
The yields on tax exempt bonds are dependent on a variety of factors,
including general money market conditions, general conditions of the
municipal bond market, size of a particular offering, the maturity of the
obligation and rating of the issue. The ratings of Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch
Investors Services, Inc. ("Fitch"), represent their opinions as to the
quality of the tax exempt bonds which they undertake to rate. It should be
emphasized, however, that ratings are general and not absolute standards of
quality.
Callable Bonds
The Fund may purchase and hold callable municipal bonds which contain a
provision in the indenture permitting the issuer to redeem the bonds prior to
their maturity dates at a specific price which typically reflects a premium
over the bonds' original issue price. These bonds generally have call
protection (that is, a period of time during which the bonds may not be
called) which usually lasts for 7 to 10 years, after which time such bonds
may be called away. An issuer may generally be expected to call its bonds, or
a portion of them, during periods of relatively declining interest rates,
when borrowing may be replaced at lower rates than those obtained in prior
years. If the proceeds of a bond called under such circumstances are
reinvested, the result may be lower overall yield due to lower current
interest rates.
Municipal Lease Obligations
Municipal lease obligations are municipal securities that may be supported
by a lease or an installment purchase contract issued by state and local
government authorities to acquire funds to obtain the use of a wide variety
of buildings or equipment and facilities such as fire and sanitation
vehicles, computer equipment, prisons, office buildings and schools and other
capital assets. These obligations, which may be secured or unsecured, are not
G.O.s secured by unlimited taxes and have evolved to make it possible for
state and local government authorities to obtain the use of property and
equipment without meeting constitutional and statutory requirements for the
issuance of debt. Thus, municipal lease obligations have special risks not
normally associated with G.O.s municipal bonds. These obligations frequently
contain "non- appropriation" clauses that provide that the governmental
issuer of the obligation has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
legislative body on a yearly or other periodic basis. In addition to the non-
appropriation risk, some municipal lease obligations have not yet developed
the depth of marketability associated with other municipal bonds. Although
these obligations may be secured by the leased equipment, the disposition of
collateral in the event of the foreclosure may prove difficult. The liquidity
of municipal lease obligations purchased by the Fund will be determined
pursuant to illiquid securities guidelines approved by the Board of
Directors. The Board of Directors will be responsible for determining the
credit quality of unrated municipal leases, on an ongoing basis, including an
assessment of the likelihood that any such leases will not be canceled.
Factors considered in making such determinations may include the frequency of
trades and quotes for the obligation; the number of dealers willing to
purchase or sell the security and the number of dealer willing to purchase or
sell the security and the number of other potential buyers; the willingness
of dealers to undertake to make a market in the security; the nature of
marketplace trades; the obligation's rating and, if the security is unrated,
factors generally considered by a rating agency. If a municipal lease
obligation
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is determined to be illiquid, it will be subject to a Fund's overall limit on
investments in illiquid securities.
Risk Factors
California Bonds. Investors should be aware that certain California
Constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in adverse
consequences affecting California municipal securities. For instance, certain
provisions of the California Constitution and statutes which limit the taxing
and spending authority of California governmental entities may impair the
ability of the issuers of some California bonds to maintain debt service on
their obligations.
If the issuers of any of the California municipal securities are unable to
meet their financial obligations, the income derived by the Fund, the ability
to preserve or realize appreciation of the Fund's capital and the Fund's
liquidity could be adversely affected. Additional considerations relating to
risks associated with investing in California municipal securities are
summarized below and in the Statement of Additional Information.
Puerto Rico Bonds. The Fund may also invest in securities issued by Puerto
Rico. Puerto Rico's economy centers around industrial employment, the
cornerstone of which is Section 936 of the Internal Revenue Code of 1986, as
amended (the "Code"). This provision offers certain tax advantages to U.S.
manufacturing firms operating in Puerto Rico by allowing exemptions from a
portion of U.S. corporate income tax to qualifying U.S. corporations.
Significant changes were made to Section 936 of the Code as a result of the
Omnibus Budget Reconciliation Act of 1993. The effect of these changes on the
development of the Puerto Rican economy will not be certain for a number of
years; however, it appears that the changes will not likely dramatically
affect current investment or employment. The impact of future investment and
employment is more uncertain.
Additional information regarding the economy of Puerto Rico is contained in
the Statement of Additional Information.
Other Special Considerations. The ability of issuers engaged in the
generation, distribution and/or sale of electrical power and/or natural gas
to make payments of principal or interest on such obligations is dependent
on, among other things, the continuing ability of such issuers to derive
sufficient revenues from their operations to meet debt service requirements.
There are several Federal housing subsidy programs used by state housing
agencies which do not result in unconditional protection of the bondholder.
Changes enacted by Congress in these programs or administrative difficulty
might result in a decrease in present actual or future estimated debt service
coverage. A reduction in coverage might also result from economic
fluctuations leading to changes in interest rates or operating cost. Most
state housing authority bonds are also "moral obligations." In many, but not
all cases, this "moral obligation" is explicitly reflected in the bond
contract by means of an option permitting the state legislature to provide
debt service support if the legislature so chooses, thus providing the
bondholder with an additional source of potential support not directly
related to the specific housing program.
Financial Futures. Engaging in transactions in financial futures contracts
involves certain risks, such as the possibility of an imperfect correlation
between futures market prices and cash market prices and the possibility that
the Adviser could be incorrect in its expectations as to the direction or
extent of various interest rate movements, in which case the Fund's return
might have been greater had hedging not taken place. There is also the risk
that a liquid secondary market may not exist. The risk in purchasing an
option on a financial futures contract is that the Fund will lose the premium
it paid. Also, there may be circumstances when the purchase of an option on a
financial futures contract would result in a potentially unlimited loss to
the Fund.
INVESTMENT TECHNIQUES
AND RELATED RISKS
Investment techniques and the related risks are summarized below and are
described in more detail in the Statement of Additional Information.
The Fund may invest, without percentage limitations, in investment grade
securities having ratings by Moody's of Aaa, Aa, A or Baa or ratings by S&P
or Fitch of AAA, AA, A or BBB, or in securities which are not rated, provided
that, in the opinion of the Adviser, such securities are comparable in rating
quality to those rated securities in which the Fund may invest. Except for
temporary investments (taxable or tax exempt) as described herein, including,
the investment of up to 20% of the Fund's net assets in AMT Bonds and
qualified "private activity" industrial development bonds and taxable fixed
income obligations, all of the Fund's investments consist of tax exempt
bonds. Municipal bonds rated Baa by Moody's or BBB by S&P or Fitch are medium
grade investment obligations that may have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments; in the case
of such obligations, than is the case for higher grade bonds. A description
of S&P's and Moody's rating systems is appended to the Statement of
Additional Information.
Subsequent to its purchase by the Fund, an issue of tax exempt bonds or a
temporary investment may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require the
elimination of such obligation from the Fund's portfolio, but the Adviser
will consider such an event in its determination of whether the Fund should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by S&P, Moody's or Fitch for tax exempt bonds or temporary
investments may change as a result of changes in such
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organizations, or changes in their rating systems, the Fund will attempt to
use comparable ratings as standards for its investments in accordance with
the investment policies contained herein.
The Fund may from time to time invest a portion of its assets on a temporary
basis in "temporary investments," the income from which may be subject to
Federal and state income tax. Such temporary investments may consist of notes
from issuers having, at the time of purchase, an issue of outstanding
municipal bonds rated within the three highest grades by S&P, Moody's or
Fitch (taxable or tax exempt); commercial paper rated A-1, P-1 or F-1 grade
by S&P, Moody's or Fitch, respectively, and U.S. Treasury and agency
securities. These investments may be made pending the investment or
reinvestment of proceeds from the sale of its shares or portfolio securities
and will not exceed 20% of the Fund's total assets except when abnormal
market or economic conditions warrant a temporary defensive position. When
the Fund is in a temporary defensive position, it is not investing in
securities selected to meet the Fund's investment objectives. In addition,
for such temporary defensive purposes, the Fund may pursue a policy of
retaining cash or investing part or all of its assets in cash equivalents.
The Fund may purchase municipal obligations on a when- issued basis, i.e.,
delivery and payment for the securities will take place after the transaction
date, normally within 15 to 45 days, though the payment obligation and the
interest rate that will be received on the securities is fixed at the time
the buyer enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date
if it is deemed advisable as a matter of investment strategy. No interest
accrues to the Fund prior to delivery of the purchased securities. A
segregated account of the Fund consisting of high quality interest-bearing
liquid debt securities with a market value at least equal to the amount of
the Fund's when-issued commitment will be maintained with the Custodian so
that the market value of the account will, on a daily basis, equal or exceed
the amount of such commitments by the Fund. When the time comes to pay for
when-issued securities, the Fund may meet its obligations from the segregated
account, sale of other securities, or, although it would not normally expect
to do so, from the sale of the when-issued securities themselves (which may
have a market value greater or less than the Fund's payment obligation).
Securities purchased on a when-issued basis and the securities held in the
Fund's portfolio are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes in the level of
interest rates. Generally, the value of such securities will fluctuate
inversely with changes in interest rates. If the Fund remains substantially
fully invested at the same time that it has purchased securities on a
when-issued basis, there will be a greater possibility of fluctuation in the
Fund's net asset value.
Financial Futures and Related Options
The Fund may enter into financial futures contracts and related options as a
hedge against anticipated changes in the market value of Fund securities or
securities which the Fund intends to purchase. Hedging is the initiation of
an offsetting position in the futures market which is intended to minimize
the risk associated with a position's underlying securities in the cash
market. Investment techniques related to financial futures and options are
summarized below and are described more fully in the Statement of Additional
Information.
Financial futures contracts consist of interest rate futures contracts and
securities index futures contracts. An interest rate futures contract
obligates the seller of the contract to deliver, and the purchaser to take
delivery of, the interest rate securities called for in the contract at a
specified future time and at a specified price. A securities index assigns
relative values to the securities included in the index, and the index
fluctuates with changes in the market values of the securities so included. A
securities index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures
contract gives the purchaser the right to assume a position in the contract
(a long position if the option is a call and a short position if the option
is a put) at a specified exercise price at any time during the period of the
option.
The Fund may purchase and sell financial futures contracts which are traded
on a recognized exchange or board of trade and may purchase exchange- or
board-traded put and call options on financial futures contracts. The Fund
will engage in transactions in financial futures contracts and related
options only for hedging purposes and not for speculation. In addition, the
Fund will not purchase or sell any financial futures contract or related
option if, immediately thereafter, the sum of the assets committed with
respect to the Fund's existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of the
Fund's total assets. At the time of purchase of a futures contract or a call
option on a futures contract, any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily equal to the market value of the futures contract
minus the Fund's initial margin deposit, will be deposited in a segregated
account with the Fund's custodian bank to fully collateralize the position
and ensure that it is not leveraged. The extent to which the Fund may enter
into financial futures contracts and related options may also be limited by
requirements of the Internal Revenue Code for qualification as a regulated
investment company.
MANAGEMENT OF THE FUND
The Fund is a mutual fund, known as an open-end management investment
company. The Board of Directors of the Fund (the "Directors") are responsible
for the overall supervision of the operations of the Fund and perform the
various duties imposed on directors by the 1940 Act and the Maryland General
Corporation Law.
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The Adviser
Pursuant to a Management Agreement (the "Management Agreement") with the
Fund, National acts as investment adviser to the Fund. In this capacity, the
Adviser, subject to the authority of the Directors, is responsible for the
overall management of the Fund's business affairs. The Directors periodically
review the services provided by the Adviser to ensure that the Fund's general
investment policies and programs are being properly carried out and that the
administrative services are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
The Adviser is a subsidiary of Phoenix Duff & Phelps Corporation and prior
to November 1, 1995, was an indirect subsidiary of Phoenix Home Life Mutual
Insurance Company ("Phoenix Home Life"), a mutual insurance company engaged
in the insurance and investment businesses. Phoenix Home Life's principal
place of business is located at One American Row, Hartford, Connecticut,
where the company manages combined assets of approximately $13 billion
through advisory accounts and mutual funds. The Adviser presently also acts
as the investment adviser to the Phoenix Income and Growth Fund, Phoenix
Multi-Sector Fixed Income Fund, Inc., Phoenix Multi-Sector Short Term Bond
Fund, Phoenix Equity Opportunities Fund Series of Phoenix Strategic Equity
Series Fund and Phoenix Worldwide Opportunities Fund. The Adviser currently
has approximately $1.7 billion in assets under management. The Adviser has
acted as an investment adviser for over 60 years.
As compensation for its services, the Adviser receives a fee, which is
accrued daily against the value of the Fund's net assets and is paid monthly
by the Fund. The fee is computed at an annual rate of 0.45% of the Fund's
average daily net assets up to $1 billion, 0.40% of the Fund's average daily
net assets from $1 to $2 billion, and 0.35% of the Fund's average daily net
assets in excess of $2 billion. The ratio of the management fees to average
net assets for the fiscal year ended April 30, 1996 for Class A Shares and
Class B Shares was .45%.
The Portfolio Managers
Mr. Timothy M. Heaney and Mr. James D. Wehr are Co-Managers of the Fund, and
as such, are primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Heaney has co-managed the Fund since March 1, 1996. Mr.
Wehr has managed the Fund since July 1993.
Mr. Heaney presently is an Investment Analyst with Phoenix Investment
Counsel ("PIC") and previously held a similar position from 1992 to 1994 with
Phoenix Home Life Mutual Insurance Company. He held various positions with
Connecticut National Bank between 1990 and 1992.
Mr. Wehr has also served as Vice President of PIC since 1991, and as Vice
President of National since May 1993. Mr. Wehr became the Portfolio Manager
of Phoenix Tax Exempt Bond Portfolio of Phoenix Multi-Portfolio Fund in 1988
and a Co-Manager on March 1, 1996. Until November 1995, Mr. Wehr was also
Managing Director, Public Fixed Income, Phoenix Home Life Mutual Insurance
Company and held various positions with Phoenix Home Life since 1981.
The Financial Agent
Equity Planning acts as financial agent of the Fund and, as such, performs
administrative, bookkeeping and pricing functions for the Fund. As
compensation, Equity Planning is entitled to a fee, payable monthly and based
upon (a) the average of the aggregate daily net asset values of the fund, at
the following incremental annual rates:
First $100 million .05%
$100 million to $300 million .04%
$300 million to $500 million .03%
Greater than $500 million .015%
(b) a minimum fee based on the predominant type of assets of the Fund; and
(c) an annual fee of $12,000 together with an additional $12,000 for any
additional class of shares created in the future.
For its services during the Fund's fiscal year ended April 30, 1996, Equity
Planning received a fee of $36,185 or .03% of average net assets.
The Custodian and Transfer Agent
The custodian of the assets of the Fund is State Street Bank and Trust
Company, P.O. Box 351, Boston, Massachusetts 02101 (the "Custodian").
Pursuant to a Transfer Agent and Service Agreement with the Phoenix Funds,
Equity Planning acts as transfer agent for the Fund (the "Transfer Agent")
for which it is paid $19.25 for each designated shareholder account. The
Transfer Agent engages sub-agents to perform certain shareholder servicing
functions from time to time for which such agents shall be paid a fee by
Equity Planning.
Brokerage Commissions
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. prohibit its members from seeking orders for the execution of
investment company portfolio transactions on the basis of their sales of
investment company shares, under such Rules, sales of investment company
shares may be considered in selecting brokers to effect portfolio
transactions. Accordingly, some portfolio transactions are, subject to such
Rules and to obtaining best prices and executions, effected through dealers
(excluding Equity Planning) who sell shares of the Fund.
DISTRIBUTION PLANS
The offices of Equity Planning, the National Distributor of the Fund's
shares, are located at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083-2200. Philip R. McLoughlin is a director and President of
the Fund and a director and officer of Equity Planning. David R. Pepin, a
director and officer of Equity Planning, is an officer of the Fund. Michael
E. Haylon, a director of Equity Planning, is an officer of the Fund. G.
Jeffrey Bohne, Nancy G. Curtiss,
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William E. Keen III, William R. Moyer, William J. Newman, Leonard J. Saltiel
and Thomas N. Steenburg are officers of the Fund and officers of Equity
Planning.
Equity Planning and the Fund have entered into distribution agreements under
which Equity Planning has agreed to use its best efforts to find purchasers
for Fund shares sold subject to an initial sales charge and those sold
subject to a contingent deferred sales charge. The Fund has granted Equity
Planning the exclusive right to purchase from the Fund and resell, as agent,
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 banks or
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 that agency transactions of banks or bank-affiliated securities
brokers are not permitted under the Glass-Steagall Act, the Trustees 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.
The sale of Fund shares through securities broker affiliated with a
particular bank is not expected to preclude the Fund from borrowing from such
bank or from availing itself of custodian transfer agency services offered by
such bank.
The Directors have adopted separate distribution plans under Rule 12b-1 of
the 1940 Act for each class of shares of the Fund (the "Class A Plan", the
"Class B Plan", and collectively the "Plans"). The Plans permit the Fund to
reimburse the Distributor for expenses incurred in connection with activities
intended to promote the sale of Fund shares and the furnishing of shareholder
services. Pursuant to the Class A Plan, the Fund may reimburse the
Distributor for actual expenses of the Distributor up to 0.25% annually for
the average daily net assets of the Fund's Class A Shares. Under the Class B
Plan, the Fund may reimburse the Distributor for actual expenses of the
Distributor up to 1.00% annually of the average daily net assets of the
Fund's Class B Shares.
Expenditures under the Plans may consist of: (i) commissions to sales
personnel for selling shares of the Fund (including underwriting commissions
and financing charges related to the payment of commissions for sales of
Class B Shares); (ii) compensation, sales incentives and payments to sales,
marketing and service personnel; (iii) payments to broker-dealers and other
financial institutions which have entered into agreements with the
Distributor for services rendered in connection with the sale and
distribution of shares of the Fund; (iv) payment of expenses incurred in
sales and promotional activities, including advertising expenditures related
to the Fund; (v) the costs of preparing and distributing promotional
materials; (vi) the cost of printing the Fund's Prospectus and Statement of
Additional Information for distribution to potential investors; and (vii)
such other similar services that the Directors determine are reasonably
calculated to result in the sale of shares of the Fund, provided, however,
that a portion of the above fees paid by the Fund to the Distributor in
connection with reimbursing the costs of providing services to shareholders,
including assistance in connection with inquiries related to shareholder
accounts (the "Service Fee") shall not exceed 0.25% annually of the average
daily net assets of the class to which such fee relates.
If either or both of the Plans are terminated in accordance with their
respective terms, the obligations of the Fund to make payments to the
Distributor pursuant to such Plan, including payments for expenses carried
over from previous years, will cease and the Fund will not be required to
make any payments past the date on which either Plan terminates.
For the fiscal year ended April 30, 1996, the Fund paid $299,411 and $8,508
under the Distribution Plan for Class A and Class B Shares respectively. The
fees were used to compensate unaffiliated broker-dealers for servicing
shareholder's accounts, compensating sales personnel and reimbursing the
Distributor for commission expenses and expenses related to preparation of
the marketing material. On a quarterly basis, the Fund's Directors review a
report on expenditures under each Plan and the purposes for which
expenditures were made. The Directors conduct an additional, more extensive
review annually in determining whether each Plan will be continued. By its
terms, continuation of each Plan from year to year is contingent on annual
approval by a majority of the Fund's Directors and by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of either
Plan or any related agreements (the "Plan Directors"). Each Plan provides
that it may not be amended to increase materially the costs which the Fund
may bear without approval of the applicable class of shareholders of the Fund
and that other material amendments must be approved by a majority of the Plan
Directors by vote cast in person at a meeting called for the purpose of
considering such amendments. Each Plan further provides that while it is in
effect, the selection and nomination of Directors who are not "interested
persons" shall be committed to the discretion of the Directors who are not
"interested persons". Each Plan may be terminated at any time by vote of a
majority of the Plan Directors or a majority of the applicable class of
outstanding shares of the Fund.
The Directors have concluded that there is a reasonable likelihood that the
Plans will benefit the Fund and all classes of shareholders. The Class A Plan
was approved by Class A shareholders of the Fund at a special meeting of
shareholders held on May 7, 1993. The Class B Plan was adopted by the
Directors (including a majority of independent Directors) on May 25, 1994.
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The National Association of Securities Dealers ("NASD") regards certain
distribution fees as asset-based sales charges subject to NASD sales load
limits. The NASD's maximum sales charge rule may require the Directors to
suspend distribution fees or amend either or both Plans.
HOW TO BUY SHARES
The minimum initial purchase is $500 and the minimum subsequent investment
is $25. Both the minimum initial and subsequent investment amounts are $25
for investments pursuant to the "Investo-Matic" plan, a bank draft investing
program administered by Equity Planning, or pursuant to the Systematic
Exchange Privilege (see the Statement of Additional Information). Completed
applications for the purchase of shares should be mailed to The Phoenix
Funds, c/o State Street Bank and Trust, P.O. Box 8301, Boston, MA 02266-8301.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights, and is identical to the other
in all respects, except that Class B Shares bear the expenses of the deferred
sales arrangement and any expenses (including the higher distribution
services fee and any incremental transfer agency costs) resulting from such
sales arrangement. Each class has exclusive voting rights with respect to
provisions of the Rule 12b-1 distribution plan pursuant to which its
distribution services fee is paid and each class has different exchange
privileges. Only the Class B Shares are subject to a conversion feature. The
net income attributable to Class B Shares and the dividends paid on Class B
Shares will be reduced by the amount of the higher distribution services fee
and incremental expenses associated with such distribution services fee;
likewise, the net asset value of the Class B Shares will be reduced by such
amount to the extent the Fund has undistributed net income.
Subsequent investments for the purchase of full and fractional shares in
amounts of $25 or more may be made through an investment dealer or by sending
a check to Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box
8301, Boston, MA 02266-8301. Share certificates representing any number of
full shares will be issued only on request, and subject to certain
conditions. A fee may be incurred by the shareholder for a lost or stolen
share certificate. Sales personnel of broker-dealers distributing the Fund's
shares may receive differing compensation for selling Class A or Class B
Shares.
The Fund offers combination purchase privileges, letters of intent,
accumulation plans, withdrawal plans and reinvestment and exchange
privileges. Certain privileges may not be available in connection with Class
B Shares. Shares of the Fund or shares of any other Phoenix Fund may be
exchanged for shares of the same class on the basis of the relative net asset
values per share at the time of the exchange. Exchanges are subject to the
minimum initial investment requirement of the designated Phoenix Fund, except
if made in connection with the Systematic Exchange privilege. Shareholders
may exchange shares held in book-entry form for an equivalent number (value)
of the same class of shares from any other Phoenix Fund. On Class B Share
exchanges, the contingent deferred sales charge schedule of the original
shares purchased is not taken and continues to apply.
Alternative Sales Arrangements
The alternative purchase arrangement permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, whether
the investor wishes to receive distributions in cash or to reinvest them in
additional shares of the Fund, and other circumstances. Investors should
consider whether, during the anticipated life of their investment in the
Fund, the accumulated continuing distribution services fee and contingent
deferred sales charges on Class B Shares prior to conversion would be less
than the initial sales charge and accumulated distribution services fee on
Class A Shares purchased at the same time, and to what extent such
differential would be offset by the higher yield of Class A Shares. In this
regard, Class A Shares will normally be more beneficial to the investor who
qualifies for certain reduced initial sales charges. For this reason, the
Distributor intends to limit sales of Class B Shares sold to any shareholder
to a maximum total value of $250,000. Class B Shares sold to unallocated
qualified employer sponsored plans will be limited to a maximum total value
of $1,000,000.
Class B Shares sold to allocated qualified employer sponsored plans,
including 401k plans, will be limited to a maximum total value of $250,000
for each participant. The Distributor reserves the right to decline the sale
of Class B Shares to allocated qualified employer sponsored plans not
utilizing an approved participant tracking system. In addition, Class B
Shares will not be sold to any qualified employee benefit plan, endowment
fund or foundation if, on the date of the initial investment, the plan, fund
or foundation has assets of $10,000,000 or more or at least 100 eligible
employees. Class B Shares will also not be sold to investors who have reached
the age of 85 because of such persons' expected distribution requirements.
Class A Shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share. However, because
initial sales charges are deducted at the time of purchase, Class A investors
would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced initial
sales charges who expect to maintain their investment for an extended period
of time might 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 life of the investment. Again,
however, such investors must weigh this consideration against the fact that,
because of such initial sales charge, not all their funds will be invested
initially. However, other investors might determine that it would be more
advantageous to purchase Class B Shares to have all their funds invested
initially, although remaining subject to higher continuing distribution
charges and, for a five-year period, being subject to a contingent deferred
sales charge.
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Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A Shares is the net asset value plus a
sales charge, as set forth below. Offering prices become effective at the
close of the general trading session of the New York Stock Exchange. Orders
received by dealers prior to such time are confirmed at the offering price
effective at that time, provided the order is received by State Street Bank
and Trust Company prior to its close of business.
The sales charge varies with the size of the purchase and reduced charges
apply to the aggregate of purchases of the Fund made at one time by "any
person," which term includes an individual, an individual and his/her spouse
and their children under the age of 21, or a trustee or other fiduciary
purchasing shares for a single trust, estate or fiduciary account although
more than one beneficiary is involved.
Class A Shares of the Fund are offered to the public at the net asset value
next computed after the purchase order is received by State Street Bank and
Trust Company, plus a maximum sales charge of 4.75% of the offering price
(4.99% of the amount invested) on single purchases of less than $50,000. The
sales charge is reduced on a graduated scale on single purchases of $50,000
or more as shown below.
Sales Charge Sales Charge Dealer Discount
as Percentage as Percentage or Agency Fee
Amount of of Offering of Amount as Percentage of
Transaction Price Invested Offering Price %
- ------------------ ------------- -------------- ----------------
Less than $50,000 4.75% 4.99% 4.25%
$50,000 but under
$100,000 4.50% 4.71% 4.00%
$100,000 but under
$250,000 3.50% 3.63% 3.00%
$250,000 but under
$500,000 3.00% 3.09% 2.75%
$500,000 but under
$1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None None**
* Equity Planning will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or
expense reimbursement. Brokers or dealers other than Equity Planning may also
make customary additional charges for their services in effecting purchases,
if they notify the Fund of their intention to do so. Equity Planning shall
also pay service and retention fees, from its own profits and resources, to
qualified wholesalers in connection with the sale of shares of Phoenix Funds
(exclusive of Class A Shares of Phoenix Money Market Series) by registered
financial institutions and related third party marketers.
** 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.
In connection with Class A share purchases of $1,000,000 or more (or
subsequent purchases in any amount), excluding purchases by qualified
employee benefit plans as described above, Equity Planning may pay
broker/dealers, from its own profits and resources, a percentage of the net
asset value of any shares sold as set forth below:
Purchase Amount Payment to Broker/Dealers
------------------------------ -------------------------------
$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%
If part or all of such an investment, including investments by qualified
employee benefit plans, is subsequently redeemed within one year of the
investment date, the broker/dealer will refund to Equity Planning any such
amounts paid with respect to the investment.
How to Obtain Reduced Sales Charges on Class A Shares
Investors choosing the initial sales charge alternative under certain
circumstances may be entitled to pay reduced sales charges. The circumstances
under which such investors may pay reduced sales charges are described below.
Qualified Purchasers. No sales charge will be imposed on sales of shares to:
(1) any Phoenix Fund trustee, director or officer; (2) any director or
officer, or any full-time employee or sales representative (who has acted as
such for at least 90 days), of the Adviser or of Equity Planning; (3)
registered representatives and employees of securities dealers with whom
Equity Planning has sales agreements; (4) any qualified retirement plan
exclusively for persons described above; (5) any officer, director or
employee of a corporate affiliate of the Adviser or Equity Planning; (6) any
spouse, child, parent, grandparent, brother or sister of any person named in
(1), (2), (3) or (5) above; (7) employee benefit plans for employees of the
Adviser, Equity Planning and/or their corporate affiliates; (8) any employee
or agent who retires from Phoenix Home Life or Equity Planning; (9) to any
account held in the name of a qualified employee benefit plan, endowment fund
or foundation if, on the date of the initial investment, the plan, fund or
foundation has assets of $10,000,000 or more or at least 100 eligible
employees; (10) any person with a direct rollover transfer of shares from an
established Phoenix Fund qualified plan; (11) any Phoenix Home Life separate
account which funds group annuity contracts offered to qualified employee
benefits plans; (12) any state, county, city, instrumentality, department,
authority or agency prohibited by law from paying a sales charge; (13) any
fully matriculated student in any U.S. service academy; (14) any unallocated
account held by a third party administrator, registered investment adviser,
trust company, or bank trust department which exercises discretionary
authority and holds the account in a fiduciary, agency, custodial or similar
capacity, if in the aggregate such accounts equal or exceed $1,000,000; or
(15) any person who is investing redemption proceeds from investment
companies other than the Phoenix Funds if, in connection with the purchases
or redemption of the redeemed shares, the investor paid a prior sales charge
provided such investor supplies verification that the redemption occurred
within 90 days of the
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<PAGE>
Phoenix Fund purchase and that a sales charge was paid; provided that sales
made to persons listed in (1) through (15) above are made upon the written
assurance that the purchase is made for investment purposes and that such
shares will not be resold except to the Fund.
In addition, Class A shares purchased by the following investors are not
subject to any Class A sales charge: (1) investment advisors and financial
planners who charge an advisory, consulting or other fee for their services
and buy shares for their own accounts or the accounts of their clients, and
(2) retirement plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 403(b) or 457 of the Internal Revenue Code), and "rabbi
trusts" that buy shares for their own accounts, in each case if those
purchases ae made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases;
(3) clients of such investment advisors or financial planners who buy shares
for their own accounts may also purchase shares without sales charge but only
if their accounts are linked to a master account of their investment advisor
or financial planner on the books and records of the broker, agent or
financial intermediary with which the Distributor has made such special
arrangements (each of these investors may be charged a fee by the broker,
agent or financial intermediary for purchasing shares).
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are not subject to any sales charges. The Fund
receives the entire net asset value of its Class A Shares sold to investors.
The Distributor's commission is the sales charge shown above less any
applicable discount or commission "re-allowed" to selected dealers and
agents. The Distributor will re-allow discounts to selected dealers and
agents in the amounts indicated in the table above. In this regard, the
Distributor may elect to re- allow the entire sales charge to selected
dealers and agents for all sales with respect to which orders are placed with
the Distributor. A selected dealer who receives re-allowance in excess of 90%
of such a sales charge may be deemed to be an "underwriter" under the
Securities Act of 1933.
Combination Purchase Privilege. Purchases, either singly or in any
combination, of shares of the Fund or shares of any other Phoenix Fund
(including Class B Shares and excluding Money Market Class A Shares), if made
at a single time by a single purchaser, will be combined for the purpose of
determining whether the total dollar amount of such purchases entitles the
purchaser to a reduced sales charge on any such purchases of Class A Shares.
Each purchase of Class A Shares will then be made at the public offering
price, as described in the then current Prospectus relating to such shares,
which at the time of such purchase is applicable to a single transaction of
the total dollar amount of all such purchases. The term "single purchaser"
includes an individual, or an individual, his spouse and their children under
the age of majority purchasing for his or their own account (including an IRA
account) including his or their own trust, commonly known as a living trust;
a trustee or other fiduciary purchasing for a single trust, estate or single
fiduciary account, although more than one beneficiary is involved; multiple
trusts or 403(b) plans for the same employer; multiple accounts (up to 200)
under a qualified employee benefit plan or administered by a third party
administrator; or trust companies, bank trust departments, registered
investment advisers, and similar entities placing orders or providing
administrative services with respect to funds over which they exercise
discretionary investment authority and which are held in a fiduciary, agency,
custodial or similar capacity, provided all shares are held in record in the
name, or nominee name, of the entity placing the order.
Letter of Intent. Class A Shares or shares of any other Phoenix Fund
(including Class B Shares and excluding Money Market Class A Shares) may be
purchased by a "single purchaser" (as defined above) within a period of
thirteen months pursuant to a Letter of Intent, in the form provided by
Equity Planning, stating the investor's intention to invest in such shares
during such period an amount which, together with the value (at their maximum
offering prices on the date of the Letter) of the shares of the Fund or
shares of any other Phoenix Fund then owned by such investor, equals a
specified dollar amount. Each purchase of shares made pursuant to a Letter of
Intent will be made at the public offering price, as described in the then
current Prospectus relating to such shares, which at the time of purchase is
applicable to a single transaction of the total dollar amount specified in
the Letter of Intent.
An investor's Letter of Intent is not a binding commitment of the investor
to purchase or a binding obligation of the Fund or Equity Planning to sell a
specified dollar amount of shares qualifying for a reduced sales charge.
Accordingly, out of his initial purchase (and subsequent purchases if
necessary), 5% of the dollar amount of purchases required to complete his
investment is held in escrow in the form of shares (valued at the purchase
price thereof) registered in the investor's name until he completes his
investment, at which time escrowed shares are deposited to his account. If
the investor does not complete his investment and does not within 20 days
after written request by Equity Planning or his dealer pay the difference
between the sales charge on the dollar amount specified in his Letter of
Intent and the sales charge on the dollar amount of actual purchases, the
difference will be realized through the redemption of an appropriate number
of the escrowed shares and any remaining escrowed shares will be deposited to
his account.
Right of Accumulation. "Single purchasers" (as defined above) may also
qualify for reduced sales charges based on the combined value of purchases of
either class of shares of the Fund, or any other Phoenix Fund, made over
time. Reduced sales charges are offered to investors whose shares, in the
aggregate, are valued (i.e., the dollar amount of such purchases plus the
then current value (at the public offering price as described in the then
current prospectus relating to such shares) of shares of all Phoenix Funds
owned) in excess of the threshold amounts described in the section entitled
"Initial Sales Charge Alternative--Class A Shares". To use this option, the
investor must supply sufficient account
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<PAGE>
information to Equity Planning to permit verification that one or more
purchases qualify for a reduced sales charge.
Associations. A group or association may be treated as a "single purchaser"
and qualify for reduced initial sales charges under the Combination Purchase
Privilege and Right of Accumulation if the group or association (1) has been
in existence for at least six months; (2) has a legitimate purpose other than
to purchase mutual fund shares at a reduced sales charge; (3) gives its
endorsements or authorization in the investment program to facilitate
solicitation of the membership by the investment dealer, thus effecting
economies of sales effort; and (4) is not a group whose sole organizational
nexus is that the members are credit card holders of a company, policyholders
of an insurance company, customers of a bank or a broker-dealer or clients of
an investment adviser.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B
Shares at net asset value per share without the imposition of a sales charge
at the time of purchase. The Class B Shares are subject to a sales charge if
redeemed within five years of purchase.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of the Distributor related to providing distribution-related
services to the Fund in connection with the sale of the Class B Shares, such
as the payment of compensation to selected dealers and agents. The
combination of the contingent deferred sales charge and the distribution fee
facilitates the ability of the Fund to sell the Class B Shares without a
sales charge being deducted at the time of purchase.
Contingent Deferred Sales Charge. Class B Shares which are redeemed within
five years of purchase will be subject to a contingent deferred sales charge
at the rates set forth below charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the lesser
of the current market value or the cost of the shares being redeemed.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.
The Distributor intends to pay investment dealers a sales commission of 4%
of the sale price of Class B Shares sold by such dealers, subject to future
amendment or termination. The Distributor will retain all or a portion of the
continuing distribution fee assessed to Class B shareholders and will receive
the entire amount of the contingent deferred sales charge paid by
shareholders on the redemption of shares to finance the 4% commission plus
interest and related marketing expenses.
The amount of the contingent deferred sales charges, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such shares. Solely for
purposes of determining the number of years from the time of any payment for
the purchases of shares, all payments during a month will be aggregated and
deemed to have been made on the last day of the previous month.
Contingent Deferred
Sales Charge as
a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
------------------- ------------------
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 2%
Sixth 0%
In determining whether a contingent deferred sales charge is applicable to a
redemption, it will be assumed that any Class A Shares are redeemed first.
Class B Shares held for over 5 years and shares acquired pursuant to
reinvestment of dividends or distributions are redeemed next. Any Class B
Shares held longest during the 5 year period are redeemed next, unless the
shareholder directs otherwise. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase.
To provide an example, assume in 1990, an investor purchased 100 Class B
Shares. In 1993, the investor purchased another 100 Class B Shares at $12 per
share. In 1995, the investor purchased 100 Class A Shares. Assume that in
1996, the investor owns 225 Class B Shares (15 Class B Shares resulting from
dividend reinvestment and distributions upon the Class B Shares purchased in
1990 and 10 Class B Shares resulting from dividend reinvestment and
distributions upon the Class B Shares purchased in 1993) as well as 100 Class
A Shares. If the investor wished to then redeem 300 shares and had not
specified a preference in redeeming shares; first, 100 Class A Shares would
be redeemed without charge. Second, 115 Class B Shares purchased in 1990
(including 15 shares issued as a result of dividend reinvestment and
distributions) would be redeemed next without charge. Finally, 85 Class B
Shares purchased in 1993 would be redeemed resulting in deferred sales charge
of $27 [85 shares (85 shares minus 10 shares resulting from dividend
reinvestment) x $12 (original price) x 3% (applicable rate in the third year
after purchase)].
The contingent deferred sales charge is waived on redemptions of shares (a)
if redemption is made within one year of death (i) of the sole shareholder on
an individual account, (ii) of a joint tenant where the surviving joint
tenant is the deceased's spouse, or (iii) of the beneficiary of a Uniform
Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other
custodial account; (b) if redemption is made within one year of disability,
as defined in Section 72(m)(7) of the Code; (c) in connection with mandatory
distributions upon reaching age 70-1/2 under any retirement plan qualified
under Sections 401, 408 or 403(b) of the Code or any redemption resulting
from the tax-free return of an excess contribution to an IRA; (d) in
connection with redemptions by 401(k) plans using an approved participant
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<PAGE>
tracking system for: participant hardships, death, disability or normal
retirement, and loans which are subsequently repaid; (e) in connection with
the exercise of certain exchange privileges among the Class B Shares of the
Fund and Class B Shares of other Phoenix Funds; (f) in connection with any
direct rollover transfer of shares from an established Phoenix Fund qualified
plan into a Phoenix Fund IRA by participants terminating from the qualified
plan; and (g) in accordance with the terms specified under the Systematic
Withdrawal Program. If, upon the occurrence of a death as outlined above, the
account is transferred to an account registered in the name of the deceased's
estate, the contingent deferred sales charge will be waived on any redemption
from the estate account occurring within one year of the death. If the Class
B Shares are not redeemed within one year of the death, they will remain
Class B Shares and be subject to the applicable contingent deferred sales
charge when redeemed.
Class B Shares of the Fund will automatically convert to Class A Shares
without a sales charge at the relative net asset values of each of the
classes after eight years from the acquisition of the Class B Shares, and as
a result, will thereafter be subject to the lower distribution fee under the
Class A Plan. 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 relieve the holders
of Class B Shares that have been outstanding for a period of time sufficient
for the Distributor to have been compensated for distribution-related
expenses from the burden of such distribution-related expenses.
For purposes of conversion to Class A Shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B Shares
in a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's Fund account
(other than those in the sub-account) are converted to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account will also be
converted to Class A Shares.
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 ("IRS") to the effect: (i) that the conversion of shares does
not constitute a taxable event under federal income tax law; and (ii) 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 Code. The conversion of Class
B Shares to Class A Shares may be suspended if such an opinion or ruling is
not 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 (8)
years after the end of the month in which affected Class B Shares were
purchased. If the Fund were unable to obtain such assurances with respect to
the assessment of distribution fees and transfer agent costs relative to the
Class B Shares it might make additional distributions if doing so would
assist in complying with the Fund's general practice of distributing
sufficient income to reduce or eliminate U.S. federal taxes.
INVESTOR ACCOUNTS AND
SERVICES AVAILABLE
An account will be opened for the investor after the investor makes an
initial investment. Shares purchased will be held in the shareholder's
account by the Transfer Agent in book entry form.
The Fund mails periodic reports to shareholders. In order to reduce the
volume of mail, to the extent possible, only one copy of most reports will be
mailed to households for multiple accounts with the same surname at the same
household address. Please contact Equity Planning to request additional
copies of shareholder reports. Shareholder inquiries should be directed to
the Fund at (800) 243-1574.
Bank Draft Investing Program (Investo-Matic Plan)
By completing the Investo-Matic Section of the New Account Application, a
shareholder may authorize the bank named in the form to draw $25 or more from
his/her personal checking account to be used to purchase additional shares
for his/her account. The amount the shareholder designates will be made
available, on form payable to the order of the Transfer Agent by the bank on
the date the bank draws on his/her 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, if any, payable in shares of the Fund at net asset value or,
at the option of the shareholder, in cash. By exercising the distribution
option, a 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 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,
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 of at least $5,000, or
$2,000 for 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 a single account of one of the other Phoenix
Funds at net asset value. Shareholders should obtain a current prospectus and
consider the objectives and policies of each Fund carefully before
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<PAGE>
directing dividends and distributions to another Fund. Reinvestment direction
forms and prospectuses are available from Equity Planning. An alternate payee
section has been incorporated into the application allowing distributions to
be mailed to a second payee and/or address. Dividends and capital gain
distributions received in shares are taxable to the shareholder and credited
to the shareholder's account in full and fractional shares and are computed
at the closing net asset value on the next business day after the record
date. A distribution option may be changed at any time by notifying Customer
Service by telephone at 800-243-1574 or by sending a written letter signed by
the registered owner(s) of the account. Requests for directing distributions
to an alternate payee must be made in writing with a signature guarantee of
the registered owner(s). To be effective with respect to a particular
dividend or distribution, notification of the new distribution option must be
received by the Transfer Agent at least three 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 of a dividend or distribution, he will receive cash for the
dividend or distribution regardless of the distribution option selected.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows shareholders to periodically redeem
a portion of their account at predetermined monthly or quarterly, semiannual
or annual basis. A sufficient number of full and fractional shares shall
therefore 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, and elect to have all distributions
reinvested.
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 otherwise applicable contingent deferred sales
charges.
The purchase of shares while participating in the withdrawal program will
ordinarily be disadvantageous to the Class A Share investor 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.
Class B shareholders redeeming more shares than the percentage permitted by
the withdrawal program shall be subject to any applicable contingent deferred
sales charge on all shares redeemed. 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.
Tax Sheltered Retirement Plans
Shares of the Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations, and 403(b) Retirement Plans. Write or call
Equity Planning at (800) 243-4361 for further information about the plans.
Exchange Privileges
Shareholders may exchange their Class A or Class B Shares for shares of the
same class of other Phoenix Funds provided that the following conditions are
met: (1) the shares that will be acquired in the exchange (the "Acquired
Shares") are available for sale in the shareholder's state of residence; (2)
the Acquired Shares are of the same class as the shares to be surrendered
(the "Exchanged Shares"); (3) the Acquired Shares will be registered to the
same shareholder account as the Exchanged Shares; (4) the account value of
the fund whose shares are to be acquired must equal or exceed the minimum
initial investment amount required by that fund after the exchange is
implemented; and (5) if a shareholder has elected not to participate in the
Telephone Exchange Privilege (see below), a properly executed exchange
request must be received by the Phoenix funds |Pg State Street Bank and Trust
Company.
Subject to the above requirements for an exchange, a shareholder or his/her
registered representative may, by telephone or written notice, elect to have
Class A or Class B Shares of the Fund exchanged for the same class of shares
of another Phoenix Fund automatically on a monthly, quarterly, semi-annual,
or annual basis or may cancel the privilege ("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 of the account), may direct that shares
of the Fund be automatically exchanged at predetermined intervals for shares
of the same class of another Phoenix Fund. If the shareholder is
participating in the Self Security program offered by Phoenix Home Life, it
is not necessary to maintain the above account balances in order to use the
Systematic Exchange privilege.
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
17
<PAGE>
business day. The minimum initial and subsequent amount that may be exchanged
under the Systematic Exchange is $25. Systematic Exchange forms are available
from Equity Planning.
Exchanges will be based upon each Fund's net asset value per share next
computed following receipt of a properly executed exchange request, without a
sales charge. On Class B share exchanges, the contingent deferred sales
charge schedule of the original shares purchased continues to apply.
The exchange of shares from one fund to another is treated as a sale of the
Exchanged Shares and a purchase of the Acquired Shares for Federal income tax
purposes. The shareholder may, therefore, realize a taxable gain or loss.
"See Dividends, Distributions and Taxes" for information concerning the
Federal income tax treatment of a disposition of shares.
Because excessive trading can hurt Fund performance and harm shareholders,
the Fund reserves the right to temporarily or permanently terminate exchange
privileges or reject any specific order for any dealer, shareholder or person
whose transactions seem to follow a timing pattern, including those who
request more than one exchange out of a fund within any 30 day period. The
Distributor has entered into agreements with certain dealers and investment
advisors permitting them to exchange their clients' shares by telephone.
These privileges are limited under those agreements and the Distributor has
the right to reject or suspend those privileges. The Fund reserves the right
to terminate or modify its exchange privileges at any time upon giving
prominent notice to shareholders at least 60 days in advance.
Each Phoenix Fund has different investment objectives and policies.
Shareholders should, therefore, obtain and review the current prospectus of
the fund into which the exchange is to be made before any exchange requests
are made.
Telephone Exchanges
Telephone Exchange Privileges are available only in states where shares
being acquired may be legally sold. 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) 243-1574
provided that the exchange is made between accounts with identical account
registrations. Under the Telephone Exchange Privilege, telephone exchange
orders may also be entered on behalf of the shareholder by his or her
registered representative.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephone instructions are genuine. In addition to requiring identical
registrations on both accounts, the Transfer Agent will require address
verification and 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, the Fund and/or Transfer Agent 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 the Fund and/or the Transfer Agent 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 an event an
exchange may be effected by following the procedure outlined for tendering
shares represented by certificate(s).
If a shareholder elects not to use the Telephone Exchange Privilege or if
the shares being exchanged are represented by a certificate or certificates,
in order to exchange shares the shareholder must submit a written request to
Phoenix Funds, c/o State Street Bank & Trust Company, P.O. Box 8301, Boston,
MA 02266-8301. 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.
Purchase and withdrawal plans and reinvestment and exchange privileges are
described more fully in the Statement of Additional Information. For further
information, call Equity Planning at (800) 243-1574.
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The net asset value per share of the Fund
is determined by adding the values of all securities and other assets of the
Fund, subtracting liabilities, and dividing by the total number of
outstanding shares of the Fund. The total liability allocated to a class,
plus that class's distribution fee and any other expenses allocated solely to
that class, are deducted from the proportionate interest of such class in the
assets of the Fund, and the resulting amount of each is divided by the number
of shares of that class outstanding to produce the net asset value per share.
The Fund's investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by
the Directors or their delegates. Foreign and domestic debt securities (other
than short-term investments) are valued on the basis of broker quotations or
valuations provided by a pricing service approved by the Directors when such
prices are believed to reflect the fair value of such securities. Foreign and
domestic equity securities are valued at the last sale
18
<PAGE>
price or, if there has been no sale that day, at the last bid price,
generally. Short term investments having a remaining maturity of less than
sixty-one days are valued at amortized cost, which the Directors have
determined approximates market value. For further information about security
valuations, see the Statement of Additional Information.
HOW TO REDEEM SHARES
Shareholders have the right to have the Fund buy back shares at the net
asset value next determined following receipt of a redemption order and any
other required documentation in proper form by Phoenix Funds, c/o State
Street Bank and Trust Company, P.O. Box 8301, Boston, MA 02266-8301 (see "Net
Asset Value"). In the case of Class B Share redemptions, investors will be
subject to the applicable deferred sales charge, if any, for such shares (see
"Deferred Sales Charge Alternative - Class B Shares"). To redeem, any
outstanding share certificates in proper form for transfer must be received
by Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box 8301,
Boston, MA 02266-8301. To be in proper form to redeem shares, the signatures
of the shareholder(s) on the certificate or stock power must be signed
exactly as registered, including any fiduciary title, on a written
instruction letter, certificate, or accompanying stock power, such signatures
being guaranteed by an eligible guarantor institution as determined in
accordance with standards and procedures established by the Transfer Agent
(please contact the Fund at (800) 243-1574 with any questions regarding
eligible guarantors).
If no certificate has been issued, the Transfer Agent requires a written
request with signature guarantee. The Transfer Agent may waive the signature
guarantee requirement in the case of shares registered in the names of
individuals singly, jointly, or as custodian under the Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act, if the proceeds do not exceed
$50,000, and the proceeds are payable to the registered owner(s) at the
address of record. Such requests must be signed by each person in whose name
the account is registered. In addition, a shareholder may sell shares back to
the Fund through securities dealers, brokers, or agents who may charge
customary commissions or fees for their services. The redemption price in
such case will be the price as of the close of the general trading session of
the New York Stock Exchange on that day, provided the order is received by
the dealer prior thereto, and is transmitted to the Distributor prior to the
close of its business. No charge is made by the Fund on redemptions, but
shares tendered through investment dealers may be subject to a service charge
by such dealers. Payment for shares redeemed is made within seven days;
provided, however, that redemption proceeds will not be disbursed until each
check used for purchase of shares has been cleared for payment by the
investor's bank, which may take up to 15 days after receipt of the check.
Additional documentation may be required for redemptions by corporations,
partnerships or other organizations, executors, administrators, trustees,
custodians, guardians, or from IRAs or other retirement plans, or if
redemption is requested by anyone but the shareholder(s) of record. To avoid
delay in redemption or transfer, shareholders having questions about specific
requirements should contact the Fund at (800) 243-1574. Redemption requests
will not be honored until all required documents in proper form have been
received.
Telephone Redemptions
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 telephoning (800) 243-1574 and telephone redemptions will also
be accepted on behalf of the shareholder from his or her registered
representative.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that telephone instructions are genuine. Address and bank account information
will be verified, the 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. To the extent that procedures reasonably
designed to prevent unauthorized telephone redemptions are not followed, the
Fund and/or the Transfer Agent 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 the Fund and/or the Transfer Agent reasonably believe to be
genuine. The Telephone Redemption 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 Redemption Privilege may be
difficult to exercise and a shareholder should submit a written redemption
request, as described above.
If the amount of the redemption is over $500, the proceeds will be wired to
the shareholder's designated U.S. commercial bank account. If the amount of
the redemption is less than $500, the proceeds will be sent by check to the
address of record on the shareholder's account.
Telephone redemption orders received and accepted by the Transfer Agent on
any day when the Transfer Agent is open for business will be entered at the
next determined net asset value. However, telephone redemption orders
received and accepted by the Transfer Agent after the close of trading hours
on the Exchange will be executed on the following business day. The proceeds
of a telephone redemption will normally be sent on the first business day
following receipt of the redemption request. However, with respect to the
telephone redemption of shares purchased by check, such requests will only be
effected after the Fund has assured itself that good payment has been
collected for the purchase of shares, which may take up to 15 days. This
expedited redemption privilege is not available to HR-10, IRA and 403(b)(7)
Plans.
19
<PAGE>
Reinvestment Privilege
Shareholders may use redemption proceeds to purchase Class A Shares of any
Phoenix Fund at the net asset value next determined after the request for
reinstatement is made. For Federal income tax purposes, a reinvestment and
reinvestment 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 reinvestment
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 to use the reinvestment privilege.
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 $200.
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 $200.
DIVIDENDS, DISTRIBUTIONS
AND TAXES
The Fund intends to continue to qualify annually as a regulated investment
company under Subchapter M of the Code and to distribute annually to
shareholders all or substantially all of its net investment income and net
realized capital gains, after utilization of any capital loss carryovers. If
the Fund so qualifies, it generally will not be subject to Federal income tax
on the income it distributes. The discussion below is based upon the
assumption that the Fund will continue to qualify as a regulated investment
company.
Income dividends are intended to be declared daily and paid monthly. Capital
gain distributions, if any, will be paid at least annually. An additional
capital gain distribution may be paid after the end of the Fund's fiscal
year.
The Fund will be subject to a nondeductible 4% excise tax if it fails to
meet certain calendar year distribution requirements. In order to prevent
imposition of the excise tax, it may be necessary for the Fund to make
distributions more frequently than described in the previous paragraph.
Distribution by the Fund of interest income from tax exempt bonds will not
be taxable to shareholders and will not be included in their respective gross
incomes for Federal income tax purposes. Distributions or parts thereof
derived from interest received on California state and local issues and
Puerto Rico issues held in the portfolio will be exempt from California
personal income taxes in proportion to the amount that such investments bear
to the total investment of the Fund, provided that the Fund has complied with
the requirement that at least 50% of its assets be invested in California tax
exempt state and local issues or tax exempt Federal obligations at the end of
each quarter of its taxable year. This requirement will be met because it is
a fundamental policy of the Fund that at least 80% of the assets of the Fund
be invested in California tax exempt municipal securities. Distributions
derived from other earnings will be subject to California personal income tax
for California residents and other persons subject to California income tax.
All net realized long- or short-term capital gains, if any, are declared and
distributed to the Fund's shareholders at least annually. Distributions of
net income from certain temporary investments (such as net interest income
from taxable commercial paper) and short- term capital gains, if any, will be
taxable as ordinary income whether they are received in cash or in shares.
The Fund will inform shareholders of the amount and nature of such gains.
During the fiscal year ended April 30, 1996, the Fund distributed to
shareholders net realized capital gains of $0.05 per share which are taxable
for Federal and California income tax purposes.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations which were previously fully federally
tax-exempt. As a result, three categories of such obligations issued after
August 7, 1986 now exist: (1) "public purpose" bonds, the income of which
remains fully exempt from federal income taxation, (2) qualified "private
activity" industrial development bonds, the income of which, while exempt
from federal income taxation under section 103 of the Internal Revenue Code,
is includable in the calculation of the federal alternative minimum tax, and
(3) "private activity" (private purpose) bonds, the income of which is not
exempt from federal income taxation. The Fund's investments in the foregoing
types of obligations is more particularly described in the section entitled
"Investment Objective and Policies."
The foregoing is only a summary of some of the important tax considerations
generally affecting the Fund and its shareholders. In addition to the Federal
income tax consequences described above, which are applicable to any
investment in the Fund, there may be foreign, state or local tax
considerations, and estate tax considerations, applicable to the
circumstances of a particular investor. Additional information about taxes is
set forth in the Statement of Additional Information. Also, legislation may
be enacted in the future that could affect the tax consequences described
above. Shareholders are urged to consult their attorney or tax advisor
regarding specific questions as to Federal, foreign, state or local taxes.
Important Notice Regarding Taxpayer IRS Certification
Pursuant to IRS regulations, the Fund may be required to withhold 31% of all
reportable payments including any taxable dividends, capital gain
distributions or share redemption proceeds, for any account which does not
have a taxpayer identification number or social security number and certain
required certifications.
The Fund reserves the right to refuse to open an account for any person
failing to provide a taxpayer identification number along with the required
certifications.
20
<PAGE>
The Fund sends to all shareholders, within 31 days after the end of the
calendar year, information which is required by the Internal Revenue Service
for preparing federal income tax returns.
ADDITIONAL INFORMATION
Organization of the Fund
The Fund was incorporated as a Maryland corporation on April 7, 1983. On
June 25, 1992, the Fund's name was changed to National's California Tax
Exempt Bonds, Inc. in order to reflect the Fund's affiliation with National
and other National Securities Funds. On June 30, 1993, the Directors approved
an amendment of the Fund's Articles of Incorporation to change the name of
the Fund to Phoenix California Tax Exempt Bonds, Inc. The amendment was
considered appropriate in light of the Fund's current affiliation with
Phoenix Home Life, which resulted from the transfer of ownership of National
to an affiliate of Phoenix Home Life on May 14, 1993. On December 23, 1993
the requisite majority of Fund shareholders approved the modification of the
Fund's name to Phoenix California Tax Exempt Bonds, Inc.
The Fund's Articles of Incorporation, as amended, provide that the Fund's
Directors are authorized to create an unlimited number of series and one or
more classes. The authorized capital stock of the Fund consists of
500,000,000 shares of common stock, with par value of One Cent ($0.01) each.
All shares have equal voting rights, except that only shares of the
respective series or separate classes within a series are entitled to vote on
matters concerning only that series or class. At the date of this Prospectus,
there is only one existing series of the Fund, which has two classes of
shares. The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will
be freely transferable.
Registration Statement
This Prospectus omits certain information included in the Statement of
Additional Information and Part C of the Registration Statement filed with
the Securities and Exchange Commission under the Securities Act of 1933 and
the 1940 Act. A copy of the Registration Statement may be obtained from the
Securities and Exchange Commission in Washington, D.C.
21
<PAGE>
TAX-FREE vs. TAXABLE INCOME
(Combined Federal and California Taxes)
The table below shows the approximate taxable yields which are equivalent to
tax exempt yields under combined Federal and California income tax rates
using the 1995 rates contained in the Internal Revenue Code, and state and
local taxes currently scheduled to be in effect. The tables illustrate the
return required on taxable investments to equal the tax exempt yield in a
given income tax bracket. Find the relevant income bracket and read across
that line.
<TABLE>
<CAPTION>
Taxable Income 1995* Tax-Exempt Yield
- ------------------------------------------ ----------------------------------------------------------
Combined
Federal and
State
Single Return Joint Return Bracket** 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
is equivalent to a Taxable Yield of
-------------------- ------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 18,068 to $ 23,349 $36,136 to $ 38,999 20.10% 6.26 6.88 7.51 8.14 8.76 9.39 10.01
23,350 to 25,082 39,000 to 50,165 32.32% 7.39 8.13 8.87 9.60 10.34 11.08 11.82
25,083 to 31,699 50,166 to 63,399 33.76% 7.55 8.30 9.06 9.81 10.57 11.32 12.08
31,700 to 56,549 63,400 to 94,249 34.70% 7.66 8.42 9.19 9.95 10.72 11.49 12.25
56,550 to 109,935 94,250 to 143,599 37.42% 7.99 8.79 9.59 10.39 11.19 11.98 12.78
109,936 to 117,949 -- 37.90% 8.05 8.86 9.66 10.47 11.27 12.08 12.88
-- 143,600 to 219,871 41.95% 8.61 9.47 10.34 11.20 12.06 12.92 13.78
117,950 to 219,871 219,872 to 256,499 42.40% 8.68 9.55 10.42 11.28 12.15 13.02 13.89
219,872 to 256,499 -- 43.04% 8.78 9.66 10.53 11.41 12.29 13.17 14.04
-- 256,500 to 439,743 45.64% 9.20 10.12 11.04 11.96 12.88 13.80 14.72
256,500 + 439,744 + 46.24% 9.30 10.23 11.16 12.09 13.02 13.95 14.88
-------------------- ------------------ --------- ----- ----- ------ ------ ------ ------ ------
</TABLE>
- ----------
* Represents taxable income as currently defined by the Internal Revenue
Code.
** Federal and State tax rates include the effect of fully deducting itemized
deductions on federal and state returns. However, taxpayers with adjusted
gross income in excess of certain amounts would be required to reduce
their itemized deductions, as provided in the Internal Revenue Code and
California State Tax Law. In addition, taxpayers with adjusted gross
income in excess of $114,700 (single) and $172,050 (joint) are required to
phase-out the benefit of any personal exemptions claimed.
Note--In determining the Combined Federal and State Bracket, it is assumed
that none of the tax-free obligations would give rise to a tax
preference and that the alternative minimum tax is otherwise
inapplicable.
22
<PAGE>
BACKUP WITHHOLDING INFORMATION
Step 1. Please make sure that the social security number or taxpayer
identification number (TIN) which appears on the Application complies
with the following guidelines:
<TABLE>
<CAPTION>
Account Type Give Social Security Number or Tax Identification Number of:
<S> <C>
- ---------------------------------------------------------------------------------------------------
Individual Individual
- ---------------------------------------------------------------------------------------------------
Joint (or Joint Tenant) Owner who will be paying tax
- ---------------------------------------------------------------------------------------------------
Uniform Gifts to Minors Minor
- ---------------------------------------------------------------------------------------------------
Legal Guardian Ward, Minor or Incompetent
- ---------------------------------------------------------------------------------------------------
Sole Proprietor Owner of Business (also provide owner's name)
- ---------------------------------------------------------------------------------------------------
Trust, Estate, Pension Plan Trust Trust, Estate, Pension Plan Trust (not personal TIN
of fiduciary)
- ---------------------------------------------------------------------------------------------------
Corporation, Partnership,
Other Organization Corporation, Partnership, Other Organization
- ---------------------------------------------------------------------------------------------------
Broker/Nominee Broker/Nominee
- ---------------------------------------------------------------------------------------------------
</TABLE>
Step 2. If you do not have a TIN, you must obtain Form SS-5 (Application for
Social Security Number) or Form SS-4 (Application for Employer
Identification Number) from your local Social Security or IRS office
and apply for one. Write "Applied For" in the space on the
application.
Step 3. If you are one of the entities listed below, you are exempt from
backup withholding.
(bullet) A corporation
(bullet) Financial institution
(bullet) Section 501(a) exempt organization (IRA, Corporate
Retirement Plan, 403(b), Keogh)
(bullet) United States or any agency or instrumentality thereof
(bullet) A State, the District of Columbia, a possession of the
United States, or any subdivision or instrumentality thereof
(bullet) International organization or any agency or instrumentality
thereof
(bullet) Registered dealer in securities or commodities registered in
the U.S. or a possession of the U.S.
(bullet) Real estate investment trust
(bullet) Common trust fund operated by a bank under section 584(a)
(bullet) An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1)
(bullet) Regulated Investment Company
If you are in doubt as to whether you are exempt, please contact the Internal
Revenue Service.
Step 4. IRS Penalties--If you do not supply us with your TIN, you will be
subject to an IRS $50 penalty unless your failure is due to
reasonable cause and not willful neglect. If you fail to report
interest, dividend or patronage dividend income on your federal
income tax return, you will be treated as negligent and subject to an
IRS 5% penalty tax on any resulting underpayment of tax unless there
is clear and convincing evidence to the contrary. If you falsify
information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to a
backup withholding, you may be subject to an IRS $500 penalty and
certain criminal penalties including fines and imprisonment.
- --------------
This Prospectus sets forth concisely the information about the Phoenix
California Tax Exempt Bonds, Inc. (the "Fund") which you should know before
investing. Please read it carefully and retain it for future reference.
The Fund has filed with the Securities and Exchange Commission a Statement of
Additional Information, dated June 9, 1997. The Statement contains more
detailed information about the Fund and is incorporated into this Prospectus
by reference. You may obtain a free copy of the Statement by writing the Fund
c/o Phoenix Equity Planning Corporation, 100 Bright Meadow, P.O. Box 2200,
Enfield, Connecticut 06083-2200.
Financial information relating to the Fund is contained in the Semiannual
Report to Shareholders for the period ended October 31, 1996 and is
incorporated into the Statement of Additional Information by reference. An
Annual Report will also be sent if you request a Statement of Additional
Information.
[Recycle Logo] Printed on recycled paper using soybean ink
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
PO Box 2200
Enfield CT 06083-2200
[LOGO] PHOENIX
DUFF&PHELPS
BULK RATE MAIL
U.S. POSTAGE
PAID
SPRINGFIELD, MA
PERMIT NO. 444
PDP 393 (6/97)
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
101 Munson Street
Greenfield, Massachusetts 01301
Statement of Additional Information
June 9, 1997
This Statement of Additional Information is not a prospectus, but expands
upon and supplements the information contained in the current Prospectus of
Phoenix California Tax Exempt Bonds, Inc. (the "Fund"), dated June 9, 1997,
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, CT 06083-2200.
TABLE OF CONTENTS
The Fund (24) .................................................. 2
Investment Objective and Policies (7) .......................... 2
Risk Factors (7) ............................................... 5
Investment Restrictions (9) .................................... 10
Performance Information (6) .................................... 10
Portfolio Transactions and Brokerage ........................... 11
Services of the Adviser (11) ................................... 12
Net Asset Value (21) ........................................... 13
How to Buy Shares (13) ......................................... 13
Exchange Privileges (20) ....................................... 13
Redemption of Shares (22) ...................................... 14
Dividends, Distributions and Taxes (23) ........................ 14
Tax Sheltered Retirement Plans ................................. 16
The Distributor (12) ........................................... 16
Plans of Distribution (12) ..................................... 17
Directors and Officers ......................................... 18
Other Information (11) ......................................... 24
Numbers appearing in parenthesis correspond to related disclosures in the
Fund's Prospectus.
Customer Service--(800) 243-1574
Marketing--(800) 243-4361
Telephone Orders/Exchanges--(800) 367-5877
Telecommunication Device (TTY)--(800) 243-1926
1
<PAGE>
THE FUND
Phoenix California Tax Exempt Bonds, Inc. is a diversified open-end
management investment company which was organized as a Maryland corporation
in 1983. On December 23, 1993, shareholders of the Fund approved a change in
the name of the Fund to reflect the Fund's affiliation with Phoenix Home Life
Mutual Insurance Company ("Phoenix Home Life") which resulted from the
transfer of ownership of the Fund's investment adviser, National Securities &
Research Corporation to Phoenix Home Life on May 14, 1993. Prior to January
1, 1994, the Fund's name was "National's California Tax Exempt Bonds, Inc."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to obtain a high level of current income
exempt from California state and local income taxes, as well as Federal
income tax, consistent with preservation of capital. The Fund may invest in a
diversified portfolio of obligations issued by or on behalf of the states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities; the interest from
these investments, in the opinion of bond counsel, is exempt from federal
income tax (municipal bonds). California law requires that at least 50% of
the Fund's total assets be invested in California tax exempt state and local
issues or tax exempt federal obligations at the end of each quarter of its
taxable year in order to be eligible to pay dividends to California
residents. Such dividends will be exempt from California income taxes in
ratable proportion of the exempt California investments to the total
investments of the Fund at the end of each quarter. The Fund, as a
fundamental policy, will invest at least 80% of its assets in California tax
exempt municipal securities and may invest up to 100% of its assets in such
securities. The Fund may also invest in tax-exempt private activity bonds,
the interest on which is treated as an item of tax preference for purposes of
the Alternative Minimum Tax ("AMT Bonds"). The Fund may also invest, without
percentage limitations, in investment grade securities having ratings by
Moody's Investors Service, Inc. ("Moody's") of Aaa, Aa, A, or Baa or by
Standard & Poor's Corporation ("S&P") or Fitch Investor Services, Inc.
("Fitch") of AAA, AA, A, or BBB, or in securities which are not rated,
provided that, in the opinion of the Adviser, such securities are comparable
in rating quality to those in which the Fund may invest. Except for temporary
investments (taxable or tax exempt) as described herein, all of the Fund's
investments consist of tax exempt bonds. Municipal bonds rated Baa by Moody's
or BBB by S&P and Fitch are medium grade investment obligations which have
certain speculative characteristics (see Appendix).
General Characteristics
Tax exempt bonds are debt obligations issued by the various states and their
subdivisions (e.g., cities, counties, towns, and school districts) to raise
funds, generally for various public improvements requiring long-term capital
investment. Purposes for which tax exempt bonds are issued include flood
control, airports, bridges and highways, housing medical facilities, schools,
mass transportation and power, water or sewage plants, as well as others. Tax
exempt bonds also are occasionally issued to retire outstanding obligations,
to obtain funds for operating expenses or to loan to other public or, in some
cases, private sector organizations or to individuals.
The two principal classifications of tax exempt bonds are "general
obligation" and "revenue." General obligations or "G.O.s" are secured by the
issuer's general pledge of its faith, credit, and taxing power for the
payment of principal and interest. Revenue bonds are payable only from monies
derived from a specified source such as operating a particular facility or
from a guarantee, lease, specific tax or pool of assets, e.g., a portfolio of
mortgages.
Pollution control or other bonds backed by private corporations do not
generally have the pledge of the credit of the issuing public body but are
secured only by the credit of the corporation benefiting from the facilities
being financed. There are, of course, variations in the security of municipal
bonds, both within a particular classification and between classifications
depending on numerous factors.
The yields on tax exempt bonds are dependent on a variety of factors,
including general money market conditions, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligations and the rating of the issue. The ratings of S&P, Moody's and
Fitch represent their opinions as to the quality of the tax exempt bonds
which they undertake to rate. It should be emphasized however, that ratings
are general and not absolute standards of quality. Consequently, tax exempt
bonds with the same maturity and coupon with different ratings may have the
same yield.
The ability of issuers engaged in the generation, distribution and/or sale
of electrical power and/or natural gas to make payments of principal or
interest on such obligations is dependent upon, among other things, the
continuing ability of such issuers to derive sufficient revenues from their
operations to meet debt service requirements. General problems confronting
such issuers include the difficulty in financing construction projects during
inflationary periods, restrictions on operations and increased costs and
delays attributable to applicable environmental laws, the difficulty in
obtaining fuel for energy generation at reasonable prices, the difficulty in
obtaining natural gas for resale, and the effects of present or proposed
energy or natural resource conservation programs.
There are several Federal housing subsidy programs used by state housing
agencies which do not result in unconditional protection of the bondholder.
Changes enacted by Congress in these programs or administrative difficulties
may result in decreases in the present actual or future estimated debt
service coverage. A reduction in coverage may also result from economic
fluctuations
2
<PAGE>
leading to changes in interest rates or operating costs. Most state housing
authority bonds are also "moral obligations" of the issuing states; however,
a few programs specifically reject the "moral obligation." In many but not
all cases, this "moral obligation" is explicitly reflected in the bond
contract by means of an option permitting the state legislature to provide
debt service support if the legislature so chooses; thus, this option
provides the bondholder with an additional source of potential support not
directly related to the specific housing program.
Subsequent to its purchase by the Fund, an issue of tax exempt bonds or a
temporary investment may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require the
elimination of such obligation from the Fund's portfolio but the adviser will
consider such an event in its determination of whether the Fund should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by S&P, Moody's or Fitch for tax exempt bonds or temporary
investments may change as a result of changes in such organizations, or
changes in their rating systems, the Fund will attempt to use comparable
ratings as standards for its investments in tax exempt bonds or temporary
investments in accordance with the investment policies contained herein.
The Fund may purchase municipal obligations on a when-issued basis; i.e.,
delivery and payment for the securities will take place after the transaction
date, normally within 15 to 45 days, though the payment obligation and the
interest rate that will be received on the securities are fixed at the time
the buyer enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date
if it is deemed advisable as a matter of investment strategy. A segregated
account of the Fund consisting of high quality interest-bearing liquid debt
securities with a market value at least equal to the amount of the Fund's
when-issued commitments will be maintained with State Street Bank & Trust
Company, the Fund's custodian, on a daily basis so that the market value of
the account will equal or, exceed the amount of such commitments by the Fund.
At such time(s) as when-issued securities must be paid, the Fund will meet
its obligations from then-available cash flow, sale of securities held in the
segregated account, sale of other securities, or although it would not
normally expect to do so, from the sale of the when-issued securities
themselves (which may have a market value greater or lesser than the Fund's
payment obligation).
Securities purchased on a when-issued basis and the securities held in the
Fund's portfolio are subject to changes in value based upon the public's
perception of the creditworthiness of the issuer and changes in the level of
interest rates. Generally, the value of such securities will fluctuate
inversely to changes in interest rates, i.e., they will appreciate in value
when interest rates decline and decrease in value when interest rates rise.
Therefore, in order to achieve higher interest income, if the Fund remains
substantially invested at the same time that it has purchased securities on a
when-issued basis, there will be a greater possibility of fluctuation in the
Fund's net asset value.
The Fund may from time to time invest a portion of its assets on a temporary
basis in "temporary investments;" the income from which, may be subject to
Federal and California income tax. Specifically, the Fund may invest in
"private activity" (private purpose) bonds, the income from which is not
exempt from federal income taxation (the interest on which is also treated as
an item of tax preference for purposes of the Alternative Minimum Tax ("AMT
Bonds"). Such investments may be made pending the investment or reinvestment
of the proceeds from the sale of its shares or portfolio securities and will
not exceed 20% of the Fund's total assets except when made for defensive
purposes. Such temporary investments may consist of notes of issuers having,
at the time of purchase, an issue of outstanding municipal bonds rated within
the three highest grades by S&P, Moody's or Fitch (taxable or tax exempt);
commercial paper rated at least A-l by Moody's, P-l by S&P or F-l by Fitch;
and U.S. Treasury and agency securities. The Fund may invest in California
bonds with any maturity and may purchase short-term municipal notes such as
tax anticipation notes, revenue anticipation notes and bond anticipation
notes.
The Fund may write call options only if they are covered and remain covered
for as long as the Fund is obligated as a writer. Thus, if the Fund writes a
call option on an individual security, the Fund must own the underlying
security or other securities that are acceptable for escrow at all times
during the option period. The Fund will write call options on indices only to
hedge in an economically appropriate way 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 securities being hedged.
Portfolio trading will be undertaken principally to accomplish the
objectives of the Fund in relation to anticipated movements in the general
level of interest rates, provided, however, the Fund may engage to a limited
extent in short-term trading consistent with its objective. Securities may be
sold in anticipation of a market decline (a rise in interest rates) or
purchased in anticipation of a market rise (a decline in interest rates) and
later sold, but the Fund will not engage in trading merely to realize a gain.
In addition, a security may be sold and another of comparable quality
purchased at approximately the same time to take advantage of what the Fund
believes to be a temporary disparity in the normal yield relationship between
the two securities. Yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general
movement of interest rates, such as changes in the overall demand for or
supply of various types of tax exempt bonds or changes in the investment
objective of investors.
Portfolio turnover rate for a fiscal year is the ratio of the lesser of
purchases or sales of portfolio securities to the monthly average of the
value of portfolio securities, all excluding securities with maturities at
acquisition of one year or less. The Fund's portfolio turnover rate will not
be a limiting factor when the Fund deems it desirable to purchase or sell
securities.
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Portfolio turnover may involve the payment by the Fund of dealer mark-ups or
underwriting commissions. It is impossible to predict portfolio turnover
rates; however, in periods of rapidly fluctuating interest rates, the Fund's
investment policies may lead to frequent changes in investments. The Fund's
portfolio turnover rates for the two years ended April 30, 1995 and 1996 were
51% and 20%, respectively.
The Fund may use financial futures contracts and related options to hedge
against changes in the market value of securities or securities which it
intends to purchase. Hedging is accomplished when an investor takes a
position in the futures market opposite to the investor's 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 (although in inverse relation to) 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 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 and may purchase exchange-
or board-traded put and call options on financial futures contracts as a
hedge against anticipated changes in the market value of its securities or
securities which it intends to purchase. Financial futures contracts consist
of interest rate futures contracts, securities index futures contracts and
foreign currency 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.
In contrast to the situation in which a 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 (although an obligation to deliver or receive
the underlying security in the future is created by such a contract).
Initially, when it enters into a financial futures contract, the Fund will be
required to deposit in a segregated account with the Fund's 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, 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 contracts and related
options transactions. These commissions may be higher than those which would
apply to purchases and sales of securities directly, and will be in addition
to those paid for direct purchases and sales of securities.
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 5% 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, any asset, including equity securities and non- investment grade
debt so long as the asset is liquid, unencumbered and marked to market daily
equal to the market value of the futures contract minus the 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
"Dividends, Distributions & Taxes."
RISK FACTORS
California Obligations
Certain developments regarding the California Constitution and state
statutes which limit the taxing and spending authority of California
government entities may impair the ability of California issuers to maintain
debt service on their obligations, as described more fully below. The
following information as to certain California state risk factors is provided
to investors in view of the policy of the Fund to concentrate its investments
in California state and municipal issuers. Such information constitutes only
a brief discussion, does not purport to be a complete description and is
based on information from sources believed by the Fund to be reliable,
including official statements relating to securities offerings of California
state and municipal issuers and periodic publications by national rating
organizations. Such information, however, has not been independently verified
by the Fund.
Certain of the California municipal securities in which the Fund may invest
may be obligations of issuers which rely in whole or in part on California
state revenues for payment of these obligations. Property tax revenues and a
portion of the state's General Fund surplus are distributed to counties,
cities and their various taxing entities and the state assumes certain
obligations theretofore paid out of local funds. Whether and to what extent a
portion of the state's General Fund will be distributed in the future to
counties, cities and various entities is unclear.
Certain of the municipal securities purchased by the Fund may be obligations
of issuers who rely in whole or in part on ad valorem real property taxes as
a source of revenue. On June 6, 1978, Proposition 13 added Article XIIIA to
the California Constitution. The effect of Article XIIIA is to limit ad
valorem taxes on real property and to restrict the ability of taxing entities
to increase real property revenues.
Legislation enacted by the California Legislature to implement Article XIIIA
(Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding
any other law, local agencies may not levy any ad valorem property tax except
to pay debt service on indebtedness approved by the voters prior to July 1,
1978, and that each county will levy maximum tax permitted by Article XIIIA
of $4.00 per $100 assessed valuation. The apportionment of property taxes in
fiscal years after 1978/79 has been revised pursuant to Statutes of 1979,
Chapter 282, which provides relief funds from state moneys beginning in
fiscal year 1979/80 and is designed to provide a permanent system for sharing
state taxes and budget funds with local agencies. Under Chapter 282, cities
and counties receive more of the remaining property tax revenues collected
under Proposition 13 instead of direct state aid. School districts receive a
correspondingly reduced amount of property taxes, but receive compensation
directly from the state and are given additional relief.
The application and interpretation of Article XIIIA has been and will
probably continue to be the subject of numerous lawsuits in the California
courts. It is not possible to predict the outcome of litigation or the
ultimate scope and impact of Article XIIIA, its implementing legislation and
regulations issued by the California State Board of Equalization. However,
the outcome of such litigation could substantially impact local property tax
collections and the ability of the state agencies, local governments and
districts to make future payments on outstanding debt obligations.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" added Article XIIIB to the California Constitution which provides
that, state and local governmental entities have an annual "appropriations
limit" and are not allowed to spend certain moneys (called "appropriations
subject to limitations") in an amount higher than the "appropriations limit."
In general terms, the "appropriations limit" is required to be based on
certain 1978/79 expenditures, and is to be adjusted annually to reflect
changes in consumer prices, population and certain services provided by these
entities. Article XIIIB also provides that if revenues of these entities in
any year exceed the amounts permitted to be spent, the excess is to be
returned by revising tax rates or fee schedules over the subsequent two
years.
At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (a) the California Legislature establish a prudent state reserve
fund in an amount that it shall deem reasonable and necessary, and (b)
revenues in excess of amounts permitted to be spent and which would otherwise
be returned pursuant to Article XIIIB by revision of tax rates or fee
schedules, be transferred and allocated (up to a maximum of 4%) to the State
School Fund and be expended solely for purposes of instructional improvement
and accountability. No such transfer or allocation of funds will be required
if certain designated state officials determine that annual student
expenditures and class size meet certain criteria as set forth in proposition
98. Any funds allocated to the State School Fund shall cause the
appropriation limits established in Article XIIIB to be annually increased
for any such allocation made in the prior year.
Proposition 98 also amends Article XVI to require that the State of
California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 fiscal year, state moneys to
support school districts and community college districts shall equal or
exceed the lesser of: (a) an amount equalling the percentage of state general
revenue bonds for
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school districts and community college districts in fiscal year 1986-87, or
(b) an amount equal to the prior year's state general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes,
after adjustment under Article XIIIB. The initiative permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.
Proposition 111 was approved by voters and took effect on July 1, 1990.
Among a number of important provisions, Proposition 111 recalculates spending
limits for the state and local governments, allows greater annual increases
in the limits, allows the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduces the amount of funding
guarantee in recession years for school districts and community college
districts (but with a floor of 40.9% of state General Fund tax revenues),
removes the provision of Proposition 98 which included excess moneys
transferred to school districts and community college districts in the base
calculation for the next year, limits the amount of state tax revenue over
the limit which would be transferred to school districts and community
college districts, and exempts increased gasoline taxes and truck weight fees
from the state appropriations limit. Additionally, Proposition 111 exempts
from the state appropriations limit funding for capital outlays.
During the recent recession, General Fund revenues for several years were
less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided
in the law. The legislature responded to these developments by designating
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments
would not be included in the Proposition 98 "base" for calculating future
years' entitlements. In 1992, a lawsuit was filed, called California
Teachers' Association v. Gould, which challenged the validity of these
off-budget loans. As part of the negotiations leading to the 1995-96 Budget
Act, an oral agreement was reached to settle this case. The settlement
required adoption of legislation satisfactory to the parties to implement its
terms, which has occurred. The court gave final approval of the settlement in
late July, 1996.
The settlement provides that both the State and K-14 schools share in the
repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million by forgiveness of the
amount owed, while the K-14 schools will repay $825 million. The State share
of the repayment will be reflected as expenditures above the current
Proposition 98 base calculation. The schools' share of the repayment will
count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact. The Director of Finance has certified that a settlement has occurred,
allowing approximately $377 million in appropriations from 1995-96 fiscal
year to schools to be disbursed in August 1996.
Substantially increased General Fund revenues, above initial budget
projections, in the 1994-95 and 1995-96 fiscal years have resulted in
retroactive increases in Proposition 98 appropriations from subsequent fiscal
years' budgets.
Articles XIIIB, like Article XIIIA, may require further interpretation by
both the California Legislature and the courts to determine their
applicability to specific situations involving the state and local taxing
authorities. Depending upon such interpretations, Article XIIIB may limit
significantly a governmental entity's ability to budget sufficient funds to
meet debt service on bonds and other obligations.
Certain California municipal securities in the Fund may be obligations which
are secured in whole or in part by a mortgage or deed of trust on real
property. Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's non-judicial foreclosure rights
under the power of sale contained in the mortgage or deed of trust are
subject to the constraints imposed by California law upon transfer of title
to real property by private power of sale. During the three-month period
beginning with the filing of a formal notice of default, the debtor is
entitled to reinstate the home mortgage by making any overdue payments. Under
standard loan servicing procedures, the filing of the formal notice of loan
servicing procedures, and the filing of the formal notice of default does not
occur unless at least three full monthly payments have become due and remain
unpaid. The power of sale is exercised by posting and publishing a notice of
sale for at least 20 days after expiration of the three-month reinstatement
period. Therefore, the effective minimum period for foreclosing on a mortgage
could be in excess of seven months after the initial default. Such time
delays in collections could disrupt the flow of revenues available to an
issuer for the payment of debt service on the outstanding obligations if such
defaults occur with respect to a substantial number of home mortgages or
deeds of trust securing an issuer's obligations.
Certain California municipal securities in the Fund may be obligations which
finance the acquisition of single family home mortgages for low- and
moderate-income mortgagors. These obligations may be payable solely from
revenues derived from home mortgages, and are subject to California statutory
limitations described above applicable to obligations secured by real
property. Under California antideficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with a
loan secured by the mortgage.
Under California law, mortgage loans secured by single family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage
loans may be imposed only with respect to voluntary prepayments made during
the first five years during the term of the mortgage loan, and cannot in any
event exceed six month's advance interest on the amount prepaid in excess of
20% of the original principal amount of the mortgage loan. This limitation
could affect the flow of revenues available to an issuer for debt service on
outstanding debt obligations which financed such home mortgages.
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From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others,
were all severely affected. Job losses were the worst of the post-war
recession. Employment levels stabilized by late 1993 and California's economy
has been on a steady recovery since the start of 1994. Employment has grown
by over 500,000 in 1994 and 1995. The strongest growth has been in
export-related industries, business services, electronics, entertainment and
tourism, all of which have offset the recession-related losses which were
heaviest in aerospace and defense-related industries, finance and insurance.
Residential housing construction, with new permits for under 100,000 annual
new units issued in 1994 and 1995, is weaker than in previous recoveries, but
has been growing slowly since 1993.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State also faced a structural imbalance in its budget,
with the largest programs supported by the General Fund--education, health,
welfare and corrections--growing at rates significantly higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the State experienced recurring budget deficits in the late 1980's
and early 1990's. The State Controller reports that expenditures exceeded
revenues for four of the five fiscal years ending with 1991-92; revenues and
expenditures were equal in 1992-93; and the State had an operating surplus of
$1.1 billion in 1993-94. However, at June 30, 1994, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties
still had an accumulated deficit, on a budget basis, of approximately $1.5
billion.
As part of its cash management program, the State has regularly issued
short-term obligations to meet cash flow needs. Between spring 1992 and
summer 1994, the State depended upon external borrowing, including borrowings
extending into the subsequent fiscal year, to meet its cash needs, including
repayment of maturing notes and warrants. The State did not have to resort to
such cross-year borrowing during the 1995-96 fiscal year.
The State of California entered the 1995-96 budget negotiations with the
smallest nominal "budget gap" to be closed in many years, with strengthening
revenues and reduced caseload growth based on an improving economy.
Nonetheless, serious policy differences between the Governor and the
legislature prevented timely enactment of the budget.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase over 1994-95.
Also included in this figure was the projected receipt of $494 million from
the federal government to reimburse the State's cost of incarceration and
health care costs of illegal immigrants above commitments already made by the
federal government. Expenditures were budgeted at $43.4 billion, a four
percent increase over 1994-95. The Budget Act further projected Special Fund
revenues of $12.7 billion and appropriated Special Fund expenditures of $13.0
billion.
A revision report released by the Department of Finance on May 21, 1966 (the
"May Revision"), updated the projections for the 1995-96 fiscal year, so that
revenues and transfers were estimated to be $46.1 billion, some $2 billion
over the original fiscal year estimate, which was attributed to the strong
economic recovery. Expenditures also increased, to an estimated $45.4
billion, as a result of the requirement to expend revenues for schools under
Proposition 98, and, among other things, failure of the federal government to
enact welfare reform and to budget new aid for illegal immigrant costs, both
of which had been counted on to allow reductions in State costs. The Special
Fund for Economic Uncertainties was projected to have a small negative
balance of about $70 million at June 30, 1996, all but eliminating the
accumulated budget deficit from the early 1990's.
The 1996-97 Budget Act was signed by the Governor on July 15, 1996, along
with various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With signing of the
Budget Act, the State will implement its regular cash flow borrowing program
with the issuance of $3.0 billion of revenue anticipation notes to mature on
or before June 30, 1997. The Budget Act appropriates a modest budget reserve
in the Special Fund for Economic Uncertainties of $305 million as of June 30,
1997. The Department of Finance projects that, on June 30, 1997, the State's
available internal borrowable (cash) resources will be $2.9 billion, after
payment of all obligations due by that date, so that no cross-fiscal year
borrowing will be needed.
The legislature rejected the Governor's proposed 15% cut in personal income
taxes (to be phased in over three years), but did approve a 5% cut in bank
and corporation taxes, to be effective for income years starting in January
1, 1997. As a result, revenues for the fiscal year will be an estimated $550
million higher than projected in the May Revision, and are estimated to total
$47.643 billion, a 3.3% increase over the final estimated 1995-96 revenues.
Special Fund revenues are estimated to be $13.3 billion. The Budget Act
contains General Fund appropriations totaling $47.251 billion, a 4.0%
increase over the final estimated 1995-96 expenditures. Special Fund
expenditures are budgeted at $12.6 billion.
On December 6, 1994, Orange County, California (the "County"), together with
its pooled investment funds (the "Funds") filed for protection under Chapter
9 of the federal Bankruptcy Code, after reports that the Funds had suffered
significant market losses in their investments, causing liquidity crisis for
the Funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the Funds.
Orange County has reported the Funds' loss at about $1.69 billion, or about
23 percent of their initial deposits of approximately $7.5 billion. Many of
thee entities which deposited
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moneys in the Funds, including the County, faced interim and/or extended cash
flow difficulties because of the bankruptcy filing and may be required to
reduce programs or capital projects. The County has embarked on a fiscal
recovery plan based on sharp reductions in services and personnel, and
rescheduling of outstanding short term debt using certain new revenues
transferred to the County from other local governments pursuant to special
legislation enacted in October, 1995. The State has no existing obligation
with respect to any outstanding obligations or securities of the County or
any of the other participating entities.
The State is a party to numerous legal proceedings, many of which normally
recur in governmental operations. In addition, the State is involved in
certain other legal proceedings which, if decided against the State, may
require the State to make significant future expenditures or may impair
future revenue sources.
Among the more significant lawsuits pending against the State are the
following: (i) lawsuits involving the exclusion of small business stock gains
from taxation, one of which was decided against the State, resulting in an
$80 million loss to the State; (ii) cases challenging the amendment of
statutes prescribing specific percentages of tobacco tax revenues to be
placed in accounts to be used for health education and research programs as
well as the appropriation of approximately $63 million in tobacco tax funds
to medical treatment programs pursuant to legislation enacted in July 1995;
(iii) a lawsuit seeking reimbursement for alleged state-mandated costs
involving an estimated potential liability to the State of over $1 billion;
(iv) lawsuits related to contamination at the Stringfellow toxic waste site;
(v) an action involving damages caused by the Yuba River flood of February
1986 with potential liability to 3,000 plaintiffs, ranging from $800 million
to $1.5 billion; (vi) a claim that payment of wages in registered warrants
violated the Fair Labor Standards Act, which involves maximum damages of
approximately $500 million; (vii) lawsuits challenging the transfer of monies
from Special Fund accounts within the State Treasury to the State's General
Fund pursuant to the Budget Acts of 1991, 1992, 1993 and 1994; (viii) cases
challenging budget appropriations mandated by the 1994 and 1995 Budget Acts
regarding the transfer of funds from the State Highway Account to the General
Fund; (ix) a lawsuit involving the reduction of the State's Aid to Families
with Dependent Children ("AFDC") payments in 1992, 1993, and 1994; (x) a
lawsuit involving the 1994-95 Budget Act's 2.3% reduction in AFDC payments;
(xi) a lawsuit challenging the purposes of appropriations of funds from the
Cigarette and Tobacco Products Surtax Fund in the budgets for fiscal years
1989-90 through 1994-95; (xii) a lawsuit challenging the constitutionality of
legislation that deferred payment of the State's employer contribution to the
Public Employees' Retirement System beginning in fiscal year 1992-93; and
(xiii) a lawsuit involving potential damages of approximately $350 million,
in which prison inmate plaintiffs claim they are entitled to minimum wages
while working for the Prison Industry Authority.
In December 1991, S&P downgraded its rating of the State's general
obligation bonds to "AA" from "AAA". As the State's economy worsened and its
budget deficit swelled, rating agency officials closely monitored the State's
budget progress. In February 1992, Moody's downgraded its rating of the
State's general obligation bonds to "Aa1" from "Aaa". In April 1992, S&P
placed the State's general obligation bonds on its CreditWatch, indicating
the possibility of further downgrades should the State's budget and
recessionary problems persist. In July 1992, Moody's and S&P downgraded their
ratings of the State's general obligation bonds to "Aa" from "Aa1", and to
"A+" from "AA", respectively. On July 15, 1994, Moody's and S&P further
downgraded their ratings of the State's general obligation bonds from "Aa" to
"A1" and "A+" to "A", respectively. On July 30, 1996, S&P upgraded its rating
of the State's general obligation bonds to "A+" from "A", citing the State's
improving economy. There can be no assurance that such ratings will continue
for any given period of time or that they will not in the future be further
revised or withdrawn.
Puerto Rico
Since 1983, Puerto Rico has experienced a wide ranging economic expansion
with growth in almost every sector of its economy and record levels of
employment. Although the increase in real gross product slowed to 0.9% in
fiscal 1991, and 0.8% in fiscal 1992, reflecting the effects of the recession
in the U.S. economy, the growth pattern continued in fiscal 1994 and 1995
with real gross product increases of 2.5% and 3.4%, respectively. While
trends in the Puerto Rican economy normally follow those in the United
States, Puerto Rico did not experience a recession during fiscal 1991 as the
United States did, primarily because its manufacturing base is comprised of
certain industries less prone to business cycle fluctuations. Other factors
contributing to Puerto Rico's decade-long expansion include
Commonwealth-sponsored economic development programs, the relatively stable
prices of oil imports, the continued growth in the U.S. economy, declines in
the exchange value of the U.S. dollar and the relatively low cost of
borrowing during the period. These factors will continue to affect Puerto
Rico's economic growth rate in fiscal 1996 and beyond. As of November 1995,
Puerto Rico's unemployment rate was 13.4% (seasonally adjusted).
Puerto Rico has a diversified economy with the manufacturing and services
sectors comprising the principal sectors. Manufacturing is the largest sector
in terms of gross domestic product. In fiscal 1995, manufacturing generated
$17.7 billion (or 41.8%) of gross domestic product. In the last two decades,
industrial development has tended to be more capital intensive and more
dependent on skilled labor. This gradual shift in emphasis is best
exemplified by the heavy investment in the pharmaceutical, scientific
instruments, computer, microprocessor, medical product and electrical product
industries over the last decade.
One of the factors assisting the development of the manufacturing sector was
the tax incentives offered by the federal and Commonwealth governments, most
notably Section 936 of the U.S. Internal Revenue Code, under which certain
qualifying U.S. corporations were entitled to U.S. corporate income tax
credits. On August 20, 1996, President Clinton signed into law a bill that
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will phase out Section 936 tax credits over a nine year period, ending
January 1, 2006. The effect on Puerto Rico's economy of the phased
elimination of Section 936 tax credits will not be certain for a number of
years. The impact on future investment and employment is more uncertain.
Over the past decade, Puerto Rico has experienced significant growth in the
services sector in terms of both income and employment. The services sector
accounted for $15.9 billion (or 37.5%) of Puerto Rico's gross domestic
product in fiscal 1995. The services sector, particularly wholesale and
retail trade and finance, insurance and real estate, has experienced
significant growth partly in response to the expansion of the manufacturing
sector. Growth in construction and tourism also contributed to increased
economic activity in fiscal 1995.
The Constitution of Puerto Rico provides a limitation on the amount of
general obligation debt that can be issued. The Commonwealth's policy has
been and continues to be to maintain the level of such debt within a prudent
range below the constitutional limitation. Historically, the Commonwealth has
maintained a fiscal policy which provides for a prudent relationship between
the growth of public sector debt and the growth of the economic base required
to service that debt. The Commonwealth also has sought opportunities to
realize debt service savings by refunding outstanding debt with obligations
bearing lower interest rates. In certain years, this policy has had the
effect of causing the rate of growth of public sector debt to be higher than
the ratio of growth of gross domestic product. Over the fiscal years 1991 to
1995, public sector debt increased 24.7% while gross product rose 24.4%.
Short-term debt outstanding relative to total debt was 7.5% as of November
30, 1995.
Futures and Options
Positions in futures contracts and related options may be closed out on an
exchange if the exchange provides a secondary market for such contracts or
options. The Fund will enter into a futures or futures related option
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 to meet its margin obligations 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 positions 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 limit a hedger's opportunity to
benefit fully from 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 turnover rate.
The successful use of futures contracts and related options 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 involves the risk of imperfect correlation
in movements in the price of futures contracts and movements in the price of
the securities or currencies 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 or currency. It is
possible that, where the Fund has sold futures contracts to hedge against
decline in the market, the market may advance and the value of securities
held in the Fund 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 requirements. In such cases,
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 or
currencies rather than to engage in closing transactions because such action
would reduce the liquidity of the futures market. In addition, because, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the underlying
securities market, increased participation by speculators in the futures
market could cause temporary price distortions. Because of the possibility of
price distortions in the futures market and 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.
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Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk 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 (i.e., the loss of the premium
paid) while the purchase or sale of the futures contract would not have
resulted in loss, such as when there is no movement in the price of the
underlying securities.
INVESTMENT RESTRICTIONS
Fundamental Policies
The Fund has adopted the following investment restrictions which, in
addition to the investment objective set forth under Investment Objective and
Policies, are fundamental policies which cannot be changed with out the
consent of the holders of a majority of the shares of the Fund. A majority of
the shares as used in this Statement means (1) 67% or more of the shares
present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy, or (ii) more than 50% of the shares,
whichever is less.
The Fund may not:
(1) issue senior securities, as such term is defined in the Investment
Company Act of 1940, as amended, except as otherwise permitted under these
fundamental investment restrictions;
(2) make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions; provided, however, the deposit or payment of an 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) borrow money in excess of 5% of the value of its total assets, or pledge
its assets to an extent greater than 5% of the value of its total assets. Any
such borrowings shall be from banks and shall be undertaken only as a
temporary measure or 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 shall not be deemed to be a pledge or other encumbrance;
(4) engage in the business of underwriting the securities of others except
in connection with the purchase of securities for its portfolio of municipal
bonds;
(5) concentrate its investments in the securities of issuers all of which
conduct their principal business activities in the same industry provided
that this restriction shall not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities;
(6) make any investment in real estate, real estate mortgage loans and/or
commodities, 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 do not exceed 5% of the value of the Fund's total
assets; and
(7) make loans, except that the Fund may (a) invest up to 15% 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 value of its total assets.
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 a violation of the restriction.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in advertisements
or reports to shareholders or prospective investors. Performance information
in advertisements and sales literature may be expressed as yield of a class
and as total return of a class.
Standardized quotations of average annual total return for Class A or Class
B Shares will be expressed in terms of the average annual compounded rate of
return for a hypothetical investment in either Class A or Class B Shares over
periods of 1, 5 and 10 years or up to the life of the class of shares,
calculated for each class separately pursuant to the following formula:
P(1+T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the
average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of
the period). All total return figures reflect the deduction of a proportional
share of each Class's expenses (on an annual basis), deduction of the maximum
initial sales load in the case of Class A Shares and the maximum contingent
deferred sales charge applicable to a complete redemption of the investment
in the case of Class B Shares, and assume that all dividends and
distributions are on Class A and Class B Shares reinvested when paid.
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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
ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar,
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 and 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 & 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's Price Index,
Lehman Brothers Aggregate Bond Index, Lehman Brothers Municipal Bond Index,
Lehman Brothers Corporate Index and Lehman Brothers T-Bond Index.
Advertisements, sales literature and other communications may contain
information about the Fund and Adviser's current investment strategies and
management style. Current strategies and style may change to allow the Fund
to respond quickly to changing market and economic conditions. From time to
time the Fund may include specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Fund may
separate its cumulative and average annual returns into income and capital
gains components; or cite separately as a return figure the equity or bond
portion of the Fund's portfolio; or compare the Fund's bond return future to
well-known indices of market performance, including, but not limited to: the
S&P 500 Index, Dow Jones Industrial Average, Lehman Brothers Aggregate Bond
Index, Lehman Brothers Municipal Bond Index, CS First Boston High Yield Index
and Salomon Brothers Corporate and Government Bond Indices.
For the 1, 5 and 10 year periods ended April 30, 1996, the average annual
total return of the Class A Shares was 1.84%, 5.75% and 6.81%, respectively.
For the one year period ended April 30, 1996, and since inception (July 26,
1994) for Class B Shares, the average annual total return was 1.10% and 3.66%
respectively. Performance information reflects only the performance of a
hypothetical investment in each class during the particular time period on
which the calculations are based. Performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and quality of the portfolio, and the market condition during
the given time period, and should not be considered as a representation of
what may be achieved in the future.
The Fund may also compute aggregate total return for specified periods based
on a hypothetical Class A or Class B account with an assumed initial
investment of $10,000. The aggregate total return is determined by dividing
the net asset value of this account at the end of the specified period by the
value of the initial investment and is expressed as a percentage. Calculation
of aggregate total return reflects payment of the Class A Shares's maximum
sales charge of 4.75% and assumes reinvestment of all income dividends and
capital gain distributions during the period. Based on the foregoing, the
Class A share's aggregate total return quotation for the period commencing
May 17, 1983 and ending April 30, 1996 was 179.33%.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, for both classes of shares of
the Fund, both as a percentage and as a dollar amount based on a hypothetical
$10,000 investment for various periods other than those noted below. Such
data will be computed as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charge will not be included with respect to annual, annualized or aggregate
rate of return calculations.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser places orders for the purchase and sale of securities,
supervises their execution and negotiates brokerage commissions on behalf of
the Fund. It is the practice of the Adviser to seek the best prices and
execution of orders and to negotiate brokerage commissions which in its
opinion are reasonable in relation to the value of the brokerage services
provided by the executing broker. Brokers who have executed orders for the
Fund will be asked to quote a fair commission for their services. If the
execution is satisfactory and if the requested rate approximates rates
currently being quoted by the other brokers selected by the Adviser, the rate
is deemed by the Adviser to be reasonable. Brokers may ask for higher rates
of commission if all or a portion of the securities involved in the
transaction are positioned by the broker, if the broker believes it has
brought the Fund an unusually favorable trading opportunity, or if the broker
regards its research services as being of exceptional value, and payment of
such commissions is authorized by the Adviser after the transaction has been
consummated. If the Adviser more than occasionally differs with the broker's
appraisal of opportunity or value, the broker would not be selected to
execute trades in the future.
The Adviser believes that the Fund benefits with a securities industry
comprised of many and diverse firms and that the long-term interests of
shareholders of the Fund are best served by its brokerage policies which will
include paying a fair commission rather than seeking to exploit its leverage
to force the lowest possible commission rate. The primary factors considered
in determining the firms to which brokerage orders will be given are the
Adviser's appraisal of the firm's ability to execute the order in the desired
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manner, the value of research services provided by the firm, and the firm's
attitude toward and interest in mutual funds in general, including those
managed and sponsored by the Adviser. The Adviser does not offer or promise
to any broker an amount or percentage of brokerage commissions as an
inducement or reward for the sale of shares of the Fund. Over-the-counter
purchases and sales are transacted directly with principal market makers
except in those circumstances where, in the opinion of the Adviser, better
prices and execution are available elsewhere. In the over-the-counter market,
securities are usually traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually contains a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, usually referred to
as the underwriter's concession or discount.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm
with broadest coverage generally from the large full-line firms. Smaller
firms in general tend to provide information and interpretations on a smaller
scale, frequently with a regional emphasis. In addition, several firms
monitor federal, state, local and foreign political developments; many of the
brokers also provide access to outside consultants. The outside research
assistance is particularly useful to the Adviser's staff since the brokers as
a group tend to monitor a broader universe of securities and other matters
than the Adviser's staff can follow. In addition, it provides the Adviser
with a diverse perspective on financial markets. Research and investment
information is provided by these and other brokers at no cost to the Adviser
and is available for the benefit of other accounts advised by the Adviser and
its affiliates and not all of this information will be used in connection
with the Fund. While this information may be useful in varying degrees and
may tend to reduce the Adviser's expenses, it is not possible to estimate its
value and in the opinion of the Adviser it does not reduce the Adviser's
expenses in a determinable amount. The extent to which the Adviser makes use
of statistical, research and other services furnished by brokers will be
considered by the Adviser in the allocation of brokerage business, but there
is no formula by which such business is allocated. The Adviser will do so in
accordance with its judgment of the best interest of the Fund and its
shareholders.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to
lower commission costs on a per-share and per-dollar basis. According to the
bunching procedures, the Adviser shall aggregate transactions unless it
believes in its sole discretion that such aggregation is consistent with its
duty to seek best execution (which shall include the duty to seek best price)
for the Fund. No advisory account of the Adviser is to be favored over any
other account and each account that participates in an aggregated order is
expected to participate at the average share price for all transactions of
the Adviser in that security on a given business day, with all transaction
costs shared pro rata based on the Fund's participation in the transaction.
If the aggregated order is filled in its entirety, it shall be allocated
among the Adviser's accounts in accordance with the allocation order, and if
the order is partially filled, it shall be allocated pro rata based on the
allocation order. Notwithstanding the foregoing, the order may be allocated
on a basis different from that specified in the allocation order if all
accounts of the Adviser whose orders are allocated receive fair and equitable
treatment and the reason for such different allocation is explained in
writing and is approved in writing by the Adviser's compliance officer as
soon as practicable after the opening of the markets on the trading day
following the day on which the order is executed. If an aggregated order is
partially filled and allocated on a basis different from that specified in
the allocation order, no account that is benefited by such different
allocation may intentionally and knowingly effect any purchase or sale for a
reasonable period following the execution of the aggregated order that would
result in it receiving or selling more shares than the amount of shares it
would have received or sold had the aggregated order been completely filled.
The Directors will annually review these procedures or as frequently as shall
appear appropriate.
SERVICES OF THE ADVISER
The Adviser provides certain services and facilities required to carry on
the day-to-day operations of the Fund (for which it receives a management
fee) other than the costs of printing and mailing proxy materials, reports
and notices to shareholders; legal and auditing services; regulatory filing
fees and expenses of printing the Fund's registration statements (but the
Underwriter purchases such copies of the Fund's prospectuses and reports and
communications to shareholders as it may require for sales purposes;
association membership dues; brokerage fees; and taxes.
For services provided and the expenses assumed pursuant to the Management
Agreement, the Fund will pay to the Adviser as compensation a monthly fee at
the annual rate of 0.45% of the Fund's average daily net assets up to $1
billion, 0.40% of the Fund's average daily net assets from $1 to $2 billion,
and 0.35% of the Fund's average daily net assets in excess of $2 billion. The
Adviser's fee will be accrued daily against the value of the Fund's net
assets and will be payable monthly by the Fund. Total management fees for the
fiscal years ended April 30, 1994, 1995 and 1996 amounted to $643,338,
$549,917, and $542,769, respectively. For the fiscal years ended April 30,
1994, 1995 and 1996, the Adviser received a fee at an annual rate of 0.45%,
0.45%, and 0.45%, respectively, of the Fund's average daily net assets.
The Adviser is an indirect wholly owned subsidiary of Phoenix Duff & Phelps
Corporation. Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life")
is a mutual insurance company engaged in the insurance and investment
business. Phoenix Home Life manages combined assets of approximately 13
billion through advisory accounts and mutual funds. The Adviser serves as
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investment adviser to other registered investment companies. For the purposes
hereof, the Fund, as well as such other investment companies with Phoenix
Home Life family of funds shall hereinafter be referred to collectively as
the "Phoenix Funds." The Adviser presently has $1.7 billion in managed
assets. The Adviser has acted as investment adviser for over sixty-years.
The current Management Agreement was approved by the Board of Directors on
April 16, 1993 and by the shareholders of the Fund on May 7, 1993. The
Management Agreement became effective on May 14, 1993, and will continue in
effect until May 14, 1997. After that date, the Management Agreement will
continue in effect from year to year if specifically approved annually by a
majority of the Directors who are not interested persons of the parties
thereto, as defined in the 1940 Act, and by either (a) the Board of Directors
or (b) the vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act). The Agreement may be terminated without
penalty at any time by the Directors or by a vote of a majority of the
outstanding voting securities of the Fund or by the Adviser upon 60 days'
written notice and will automatically terminate in the event of its
"assignment" as defined in Section 2(a)(4) of the 1940 Act.
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The Exchange will be closed on the
following observed national holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Since the Fund does not price securities on weekends or United
States national holidays, the net asset value of the Fund's foreign assets
may be significantly affected on days when the investor has no access to the
Fund. The net asset value per share of the Fund is determined by adding the
values of all securities and other assets of the Fund, subtracting
liabilities, and dividing by the total number of outstanding shares of the
Fund. Assets and liabilities are determined in accordance with generally
accepted accounting principles and applicable rules and regulations of the
Securities and Exchange Commission. The total liability allocated to a class,
plus that class's distribution fee and any other expenses allocated solely to
that class, are deducted from the proportionate interest of such class in the
assets of the Fund, and the resulting amount of each is divided by the number
of shares of that class outstanding to produce the net asset value per share.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary exchange for such
security by the Directors or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world,
the calculation of net asset value may not take place for the Fund which
invests in foreign securities contemporaneously with the determination of the
prices of the majority of the portfolio securities of the Fund. All assets
and liabilities initially expressed in foreign currency values will be
converted into United States dollar values at the mean between the bid and
ask quotations of such currencies against United States dollars as last
quoted by any recognized dealer. If an event were to occur after the value of
an investment was so established but before the net asset value per share was
determined, which was likely to materially change the net asset value, then
the instrument would be valued using fair value considerations by the
Directors or their delegates. If at any time the Fund has investments where
market quotations are not readily available, such investments are valued at
the fair value thereof as determined in good faith by the Directors although
the actual calculations may be made by persons acting pursuant to the
direction of the Directors.
HOW TO BUY SHARES
Shares may be purchased from investment dealers having sales agreements with
the Distributor at the public offering price (the net asset value next
computed following receipt by State Street Bank and Trust Company of a
purchase application in proper form, plus the applicable sales charge.) The
minimum initial purchase is $500 ($25 if using the bank draft investing
program designated "Investo-Matic") and the minimum subsequent investment is
$25. In the case of employee payroll deductions plans, organized group plans
and other benefit programs or arrangements offered by certain dealers, the
minimum initial investment may be fixed from time to time at such lesser
amounts as the adviser in its sole discretion may determine, and may in
certain cases be waived from time to time by the Adviser, in its sole
discretion. See the Fund's current Prospectus.
EXCHANGE PRIVILEGES
Subject to limitations, shareholders may exchange Class A or Class B shares
held in book-entry form for shares of the same class of other Phoenix Funds,
provided the following conditions are met: (1) the shares that will be
acquired in the exchange (the "Acquired Shares") are available for sale in
the shareholder's state of residence; (2) the Acquired Shares are the same
class as the shares to be surrendered (the "Exchanged Shares"); (3) the
Acquired Shares will be registered to the same shareholder account as the
Exchange Shares; (4) the account value of the Fund whose shares are to be
acquired must equal or exceed the minimum initial investment amount required
by that Fund after the exchange is implemented; and (5) if a shareholder has
elected not to utilize the Telephone Exchange Privilege (see below), a
properly executed exchange request must be received by Equity Planning.
Subject to the above requirements for an exchange, a shareholder or his/her
registered representative may, by telephone or written notice, elect to have
Class A or Class B shares of the Fund exchanged for the same class of shares
of another Phoenix Fund automatically on a monthly, quarterly, semi-annual or
annual basis or may cancel the privilege ("Systematic Exchange").
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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 another Phoenix Fund. If the shareholders is
participating in the Self Security program offered by Phoenix Home Life, it
is not necessary to maintain the above account balances in order to use the
Systematic Exchange Privilege.
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 Exchange forms are available from Equity Planning.
Exchanges will be based upon each Fund's net asset value per share next
computed following receipt of a properly executed exchange request, without
sales charge. On Class B share exchanges, the contingent deferred sales
charge schedule of the original shares purchased continues to apply.
The exchange of shares from one fund to another is treated as sale of the
Exchanged Shares and a purchase of the Acquired Shares for Federal income tax
purposes. The shareholder may, therefore, realize a taxable gain or loss. See
"Dividends, Distributions and Taxes" of the Prospectus for information
concerning the Federal income tax treatment of a disposition of shares. It is
the policy of the Adviser to discourage and prevent frequent trading by
shareholders among the Fund and other Phoenix Funds in response to market
fluctuations. The Fund reserves the right to terminate or modify its exchange
privileges at any time upon giving prominent notice to shareholders at least
60 days in advance.
Each Phoenix Fund has different investment objectives and policies.
Shareholders should, therefore, obtain and review the prospectus of the fund
into which the exchange is to be made before any exchange requests are made.
REDEMPTION OF SHARES
Under the 1940 Act, payment for shares redeemed must ordinarily be made
within seven days after tender. The right to redeem shares may be suspended
and payment therefor postponed during periods when the New York Stock
Exchange is closed, other than customary weekend and holiday closings, or if
permitted by rules of the Securities and Exchange Commission, during periods
when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets or during any other period
permitted by order of the Securities and Exchange Commission for the
protection of investors. Furthermore, the Transfer Agent will not mail
redemption proceeds until checks received for shares purchased have cleared,
which may take up to 15 days, but payment will be forwarded immediately upon
demand. See the Fund's current Prospectus for further information.
Redemptions by Class B shareholders will be subject to the applicable
deferred sales charge, if any.
Each shareholder account in the Fund which has been in existence for at
least one year and has a value of less than $200 may be redeemed upon the
giving of not less than 60 days' written notice to the shareholder mailed to
the address of record. During the 60 day period the shareholder has the right
to add to the account to bring its value to $200 or more. See the Fund's
current Prospectus for more information.
Telephone Redemption
Shareholders who do not have certificated shares may redeem up to $50,000
worth of their shares by telephone. See the Fund's current Prospectus for
additional information.
Reinvestment Privilege
Shareholders who may have overlooked features of their investment at the
time they redeemed have a privilege of reinstatement of their investment at
net asset value. See the Fund's current Prospectus for more information and
conditions attached to the privilege.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to remain qualified as a regulated investment company under
certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under such provisions, the Fund will not be subject to Federal
income tax on such part of its ordinary income and net realized capital gains
which it distributes to shareholders provided it meets certain distribution
requirements. To qualify for treatment as a regulated investment company, the
Fund must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest and gains from the sale or other
disposition of securities and (b) derive less than 30% of its gross income
each taxable year as gains (without deduction for losses) from the sale or
other disposition of securities held for less than three months; (c)
diversify its holdings so that, at the end of each quarter of the taxable
year (i) at least 50% of the market value of the Fund's assets are
represented by cash, U.S. Government Securities, securities of other
regulated investment companies and other securities of any one issuer limited
for purposes of this calculation to an amount
14
<PAGE>
not greater than 5% of the Fund's total assets and 10% of the outstanding
voting securities of any one issuer and (ii) not more than 25% of the value
of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated
investment companies), If, in any taxable year, the Fund does not qualify as
a regulated investment company, all of its taxable income will be taxed to
the Fund at corporate rates and the Fund would not be eligible to pay exempt
interest dividends.
Interest on certain "private activity bonds" issued after August 7, 1986,
although otherwise tax-exempt, is treated as a tax preference item for
alternative minimum tax purposes. Under regulations to be promulgated, the
Fund's exempt interest dividends will be treated as a tax preference item for
purposes of computing the alternative minimum tax liability of shareholders
to the extent attributable to interest paid on "private activity" bonds.
Corporate shareholders should also be aware that the receipt of exempt
interest dividends could subject them to alternative minimum tax under the
provisions of Code Section 56(f) (relating generally to book income or
adjusted current earnings in excess of taxable income).
The Fund declares a daily dividend, which is accrued and is paid monthly.
Income dividends and capital gains are reinvested automatically in additional
shares at net asset value unless the shareholder elects to receive
distributions in cash. If a shareholder withdraws the entire amount in the
account at any time during the month, all dividends accrued to the date of
liquidation will be paid to the shareholder along with the proceeds from the
redemption of shares.
Distribution by the Fund of interest income from tax exempt bonds will not
be taxable to shareholders and will not be included in their respective gross
incomes for Federal income tax purposes provided that certain conditions are
met. Distributions or parts thereof derived from interest received on
California state and local issues and U.S. Government Obligations held in the
portfolio will be exempt from California personal income taxes in ratable
proportion of the California investments and U.S. Government Obligations of
the Fund, provided that the Fund has complied with the requirement that at
least 50% of its assets be invested in California state and local issues and
U.S. Government issues at the end of each fiscal quarter. The Fund intends to
comply with this standard since at least 80% of the assets of the Fund will
normally be invested in California municipal securities. Distributions
derived from other earnings will be subject to California personal income tax
for California residents and other persons subject to California income tax.
Distributions, if any, of the excess of net long-term capital gain over net
short-term capital loss will be made at least annually and will be taxable to
shareholders (and not the Fund) as long-term capital gain. The Fund has no
plans to make a distribution of capital gains realized during any year in
which there is a tax loss carry forward available to offset such gains;
however, this is subject to review in the future. All net realized long- or
short-term capital gains, if any, are declared and distributed to the Fund's
shareholders annually after the close of the Fund's fiscal year.
Distributions of net income from certain temporary investments (such as net
interest income from taxable commercial paper) and short-term capital gains,
if any, will be taxable as ordinary income whether received in cash or in
shares. Any gain or loss realized by a shareholder on the sale or redemption
of shares will be long- or short-term capital gain or loss, depending upon
the length of the shareholder's holding period. However, any loss realized on
the sale of shares held for six months or less will be long-term loss to the
extent of the long term loss to the extent of long term capital gains
received by the shareholder. A shareholder will not be permitted to deduct
for Federal income tax purposes interest on indebtedness incurred to purchase
or carry shares.
The Code imposes a 4% nondeductible excise tax on a regulated investment
company, such as the Fund, if it does not distribute to its shareholders
during the calendar year an amount equal to 98% of the Fund's net ordinary
income, with certain adjustments, for such calendar year, plus 98% of the
Fund's capital gain net income for the one-year period ending on April 30 of
such calendar year. In addition, an amount equal to any undistributed
investment company taxable income or capital gain net income from the
previous reporting year must also be distributed to avoid the excise tax. The
excise tax will not, however, generally apply to the tax-exempt income of a
regulated investment company such as the Fund that pays exempt-interest
dividends. In addition, if the Fund has taxable income that would be subject
to the excise tax, the Fund intends to distribute such income so as to avoid
payment of the excise tax.
Under another provision of the Code, any dividend declared by a fund to
shareholders of record in October, November and December of any year will be
deemed to have been received by, and will be taxable to, shareholders as of
December 31 of such year, provided that the dividend is actually paid by the
Fund in January of the following year.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on
the disposition of those shares. This rule applies where shares of the Fund
are disposed of within 90 days after the date on which they were acquired and
new shares of a regulated investment company are acquired without a sales
charge or at a reduced sales charge. In that case, the gain or loss realized
on the disposition will be determined by excluding from the tax basis of the
shares disposed of all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced
as a result of the shareholder having incurred a sales charge initially. The
portion of the sales charge affected by this rule will be treated as a sales
charge paid for the new shares.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from the Fund ("backup withholding") at the
rate of 31%. Corporate shareholders and certain other shareholders specified
in the Code generally are exempt from such backup withholding. Generally,
shareholders subject to backup withholding will be (i) those for whom a
15
<PAGE>
certified taxpayer identification number is not on file with the Fund, (ii)
those about whom notification has been received (either by the shareholder or
the Fund) from the Internal Revenue Service that they are subject to backup
withholding or (iii) those who, to the Fund's knowledge, have furnished an
incorrect taxpayer identification number. Generally, to avoid backup
withholding, an investor must, at the time an account is opened, certify
under penalties of perjury that the taxpayer identification number furnished
is correct and that he or she is not subject to backup withholding.
The Fund furnishes all shareholders, within 31 days after the end of the
calendar year, with information which is required by the Internal Revenue
Service for preparing Federal income tax returns with the final dividend
confirmation statement or dividend check of the calendar year (the percentage
of all income distributions made during a fiscal year designated as tax
exempt will be uniform).
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal bonds and similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of tax exempt bonds
for investment by the Fund and the value of the Fund's portfolio would be
affected. The Directors would then re-evaluate the Fund's investment
objective and policies.
Tax Sheltered Retirement Plans
Shares of the Fund and other Phoenix Funds may be offered in connection with
employer-sponsored 401(k) plans. National and its affiliates may, directly or
through third parties, provide administrative services to these plans and to
their participants, in addition to the services that National and its
affiliates provide to the Phoenix Funds and receive compensation therefor.
For information on the terms and conditions applicable to employee
participation in such plans, including information on applicable plan
administrative charges and expenses, prospective investors should consult the
plan documentation and employee enrollment information which is available
from participating employers.
THE DISTRIBUTOR
Phoenix Equity Planning Corporation ("Equity Planning") acts as the
Underwriter for the Fund and as such will conduct a continuous offering
pursuant to a "best efforts" arrangement requiring the Underwriter to take
and pay for only such securities as may be sold to the public. Equity
Planning is an indirect less than wholly owned subsidiary of Phoenix Home
Life Mutual Insurance Company and an affiliate of National. Shares of the
Fund may be purchased through investment dealers who have sales agreements
with the Underwriter. The Underwriter purchases such number of copies of the
Fund's Prospectus, Statement of Additional Information and reports to
shareholders as it may require for sales purposes at printers over-run cost.
During the fiscal years ended April 30, 1994, 1995, and 1996, purchasers of
Fund shares paid aggregate sales charges of $246,087, $124,446, and $156,046,
respectively, of which the principal underwriter received net commissions of
$35,802, $14,922, and $18,687, respectively, for its services, the balance
being paid to dealers.
The Underwriting Agreement may be terminated at any time on not more than 60
days written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding voting securities of the Fund, or by
vote of a majority of the Fund's Trustees who are not "interested persons" of
the Fund and who have no direct or indirect financial interest in the
operation of the Distribution Plan or in any related agreements. The
Underwriting Agreement will terminate automatically in the event of its
assignment.
Dealers with whom the Underwriter has entered into sales agreements receive
sales charges in accordance with the commission table set forth in the
Prospectus. The Underwriter may from time to time pay, from its own resources
or pursuant to the Plan of Distribution described below, a bonus or other
incentive to dealers (other than the Underwriter) which employ a registered
representative who sells a minimum dollar amount of the shares of the Fund
during a specific period of time. Such bonus or other incentive may take the
form of payment for travel expenses, including lodging, incurred in
connection with trips taken by qualifying registered representatives and
members of their families to places within or without the United States or
other bonuses such as gift certificates or the cash equivalent of such
bonuses. The Underwriter may, from time to time, reallow the entire portion
of the sales charge which it normally retains to individual selling dealers.
However, such additional reallowance generally will be made only when the
selling dealer commits to substantial marketing support such as internal
wholesaling through dedicated personnel, internal communications and mass
mailings.
Equity Planning also acts as financial agent of the Fund and as such
performs administrative, bookkeeping and pricing functions for the Fund. As
compensation for such services, effective as of January 1, 1997, Equity
Planning is entitled to a fee, payable monthly and based upon the average of
the aggregate daily net asset values of the Fund, at the following
incremental annual rates:
First $100 million .05% plus a minimum fee
$100 million to $300 million .04%
$300 million to $500 million .03%
Greater than $500 million .015%
A minimum fee of $70,000 also applies. In addition, Equity Planning is paid
$12,000 for each class of shares of the Fund beyond one.
16
<PAGE>
PLANS OF DISTRIBUTION
The Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (the "Class A Plan", the Class
B Plan and collectively the Plans). The Plans permit the Fund to reimburse
the Underwriter for expenses incurred in connection with activities intended
to promote the sale of shares of each class of shares of the Fund. Pursuant
to the Class A Plan, the Fund may reimburse the Underwriter for actual
expenses of the Underwriter related to that class up to 0.25% annually of the
average daily net assets of the Fund. Under the Class B Plan, the Fund may
reimburse the Underwriter for actual expenses of the Underwriter related to
that class up to 1.00% annually of the average daily net assets of the Fund.
Expenditures under the Plans shall consist of: (i) commissions to sales
personnel for selling shares of the Fund including Underwriting fees and
related financing expenses for sales of shares; (ii) compensation, sales
incentives and payments to sales, marketing and service personnel; (iii)
payments to broker-dealers and other financial institutions which have
entered into agreements with the Underwriter in the form of the Dealer
Agreement for Phoenix Funds for services rendered in connection with the sale
and distribution of shares of the Fund; (iv) payment of expenses incurred in
sales and promotional activities, including advertising expenditures related
to the Fund; (v) the costs of preparing and distributing promotional
materials; (vi) the cost of printing the Fund's Prospectus and Statement of
Additional Information for distribution to potential investors; and (vii)
such other similar services that the Directors of the Fund determine are
reasonably calculated to result in the sale of shares of the Fund, provided,
however, that a portion of such amount equal to or less than 0.25% annually
of the average daily net assets of Fund shares may be paid for reimbursing
the costs of providing services to shareholders, including assistance in
connection with inquiries related to shareholder accounts (the "Service
Fee").
In addition to the amount paid to dealers pursuant to the sales charge table
in the Prospectus, the Underwriter may from time to time pay, from its own
resources or pursuant to either Plan, a bonus or other incentive to dealers
(other than the Underwriter) which employ a registered representative who
sells a minimum dollar amount of the shares of the Fund during a specific
period of time. Such bonus or other incentive may take the form of payment
for travel expenses, including lodging, incurred in connection with trips
taken by qualifying registered representatives and members of their families
to places within or without the United States or other bonuses such as gift
certificates or the cash equivalent of such bonuses. The Underwriter may,
from time to time, re-allow the entire portion of the sales charge which it
normally retains to individual selling dealers. However, such additional
re-allowance generally will be made only when the selling dealer commits to
substantial marketing support such as internal wholesaling through dedicated
personnel, internal communications and mass mailings.
The Directors have concluded that there is a reasonable likelihood that each
Plan will benefit the Fund and each affected class of shareholders. The
Distribution Plan for Class A Shares was approved by Class A shareholders of
the Fund at a special meeting of shareholders held on May 7, 1993. The
Distribution Plan for Class B Shares was approved by the Directors on May 25,
1994. For the fiscal year ended April 30, 1996, the Fund paid Rule 12b-1 fees
in the amount of $307,919 of which the principal underwriter of the Fund
received $26,087 and unaffiliated broker-dealers received $281,832. The Rule
12b-1 payments were used for compensating dealers ($296,125) compensation to
sales and shareholder serviced personnel ($8,494), marketing materials
($1,573) and promotion expenses ($1,727).
On a quarterly basis, the Fund's Directors review a report on expenditures
under each Plan and the purposes for which expenditures were made. The
Directors conduct an additional, more extensive review annually in
determining whether each Plan will be continued. By its terms, continuation
of each Plan from year to year is contingent on annual approval by a majority
of the Fund's Directors and by a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of either Plan or any related
agreements (the "Plan Directors"). Each Plan provides that it may not be
amended to increase materially the costs which the Fund may bear without
approval of the applicable class of shareholders of the Fund and that other
material amendments to such Plan must be approved by a majority of the Plan
Directors by vote cast in person at a meeting called for the purpose of
considering such amendments. Each Plan further provides that while it is in
effect, the selection and nomination of Directors who are not "interested
persons" shall be committed to the discretion of the Directors who are not
"interested persons". Each Plan may be terminated at any time by vote of a
majority of the Plan Directors or a majority of the outstanding shares of the
applicable class of the Fund.
The Underwriting Agreement may be terminated at any time on not more than 60
days' written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding voting securities of the Fund, or by
vote of a majority of the Fund's Directors who are not "interested persons"
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements. The Underwriting Agreement will
terminate automatically in the event of its assignment.
The National Association of Securities Dealers, Inc. ("NASD"), recently
approved certain amendments to the NASD's mutual fund maximum sales charge
rule. The amendments would, under certain circumstances, regard distribution
fees as asset-based sales charges subject to NASD sales load limits. The
NASD's maximum sales charge rule may require the Directors to suspend
distribution fees or amend the Plan.
17
<PAGE>
DIRECTORS AND OFFICERS
The Directors and Officers of the Fund and their business affiliations for
the past five years are set forth below and, unless otherwise noted, the
address of each executive officer and Director is One American Row, Hartford,
Connecticut, 06115. On November 15, 1996, the Directors voted to increase the
number of Directors to fourteen and to appoint Francis E. Jeffries, Everett
L. Morris and Calvin J. Pedersen to fill the vacancies caused by the
increase. The elected and appointed Directors and executive officers are
listed below:
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
-------------------------------- -------------------------------------------------------------------------
<S> <C> <C>
C. Duane Blinn (69) Director Partner in the law firm of Day, Berry & Howard.
Day, Berry & Howard Director/ Trustee, Phoenix Funds (1980-present).
CityPlace Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
Hartford, CT 06103 & Phelps Institutional Mutual Funds (1996-present).
Director/Trustee, the National Affiliated Investment
Companies (until 1993).
Robert Chesek (62) Director Trustee/Director, Phoenix Funds (1981-present) and
49 Old Post Road Chairman (1989-1994). Trustee, Phoenix-Aberdeen Series
Wethersfield, CT 06109 Fund and Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present). Director/Trustee, the National
Affiliated Investment Companies (until 1993). Vice
President, Common Stock, Phoenix Home Life Mutual
Insurance Company (1980-1994).
E. Virgil Conway (67) Director Chairman (1992-present), Metropolitan Transportation
9 Rittenhouse Road Authority. Trustee/Director, Consolidated Edison
Bronxville, NY 10708 Company of New York, Inc. (1970-present), Pace
University (1978-present), Atlantic Mutual Insurance
Company (1974-present), HRE Properties (1989-present),
Greater New York Councils, Boy Scouts of America
(1985-present), Union Pacific Corp. (1978-present),
Blackrock Fund for Freddie Mac Mortgage Securities
(Advisory Director) (1990-present), Centennial
Insurance Company (1974-present), Josiah Macy, Jr.,
Foundation (1975-present) and The Harlem Youth
Development Foundation (1987-present). Chairman, Audit
Committee of the City of New York (1981-1996).
Director/Trustee, the National Affiliated Investment
Companies (until 1993). Director/Trustee, Phoenix Funds
(1993-present). Trustee, Phoenix-Aberdeen Series Fund
and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities
Tax-Free Income Inc. and Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present). Director,
Accuhealth (1994-present), Trism, Inc. (1994-present),
Realty Foundation of New York (1972-present), Chairman,
New York Housing Partnership Development Corp.
(1981-present), and Blackrock Fannie Mae Mortgage
Securities Fund (Advisory Director) (1989-1996) and
Advisory Director, Fund Directions (1993-present).
Chairman, Financial Accounting Standards Advisory
Council (1992-1995).
Harry Dalzell-Payne (67) Director Director/Trustee, Phoenix Funds (1983-present).
330 East 39th Street Director, Duff & Phelps Utilities Tax-Free Income Inc.
Apartment 29G (1995-present), Duff & Phelps Utility and Corporate
New York, NY 10016 Bond Trust Inc. (1995-present). Trustee,
Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director,
Farragut Mortgage Co., Inc. (1991-1994). Director/
Trustee, the National Affiliated Investment Companies
(1983-1993). Formerly a Major General of the British
Army.
18
<PAGE>
*Francis E. Jeffries (66) Director Director and Chairman of the Board, Phoenix Duff &
6585 Nicholas Blvd. Phelps Corporation (1995-present). Director/Trustee,
Apt. 1601 Phoenix Funds (1995-present). Trustee, Phoenix-Aberdeen
Naples, FL 33963 Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Director, Duff & Phelps
Utilities Income Fund (1987-present), Duff & Phelps
Utilities Tax-Free Income Inc. (1991-present), Duff &
Phelps Utility and Corporate Bond Trust Inc.
(1993-present) and The Empire District Electric Company
(1984-present). Director (1989-1995), Chairman of the
Board (1993-1995), President (1989-1993), and Chief
Executive Officer (1989-1995), Duff & Phelps
Corporation.
Leroy Keith, Jr. (58) Director Chairman and Chief Executive Officer, Carson Products
Chairman and Chief Company (1995-present). Director/Trustee, Phoenix Funds
Executive Officer (1980-present). Trustee, Phoenix-Aberdeen Series Fund
Carson Products Company and Phoenix Duff & Phelps Institutional Mutual Funds
64 Ross Road (1996-present). Director, Equifax Corp. (1991-present),
Savannah, GA 30750 and Keystone International Fund, Inc. (1989-present).
Trustee, Keystone Liquid Trust, Keystone Tax Exempt
Trust, Keystone Tax Free Fund, Master 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). Chairman and Chief Executive
Officer, Keith Ventures (1992-1994).
*Philip R. McLoughlin (50) Director and Director, Vice Chairman and Chief Executive Officer,
One American Row President Phoenix Duff & Phelps Corporation (1995-present).
Hartford, CT 06102 Director (1994-present) and Executive Vice President,
Investments, (1988-present) Phoenix Home Life Mutual
Insurance Company. Director/Trustee and President,
Phoenix Funds (1989-present). Trustee, Phoenix-Aberdeen
Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present), Duff & Phelps Utilities
Tax-Free Income Inc. (1995-present), and Duff & Phelps
Utility and Corporate Bond Trust Inc. (1995-present).
Director (1983-present) and Chairman (1995-present)
Phoenix Investment Counsel, Inc. Director
(1984-present) and President (1990-present), Phoenix
Equity Planning Corporation. Director, Phoenix Realty
Group, Inc. (1994-present), Phoenix Realty Advisors,
Inc. (1987-present), Phoenix Realty Investors, Inc.
(1994-present), Phoenix Realty Securities, Inc.
(1994-present), PXRE Corporation (Delaware)
(1985-present), and World Trust Fund (1991-present).
Director and Executive Vice President, Phoenix Life and
Annuity Company (1996-present), Director and Executive
Vice President, PHL Variable Insurance Company
(1995-present), and Director, Phoenix Charter Oak Trust
Company (1996-present). Director/Trustee, the National
Affiliated Investment Companies (until 1993). Director
(1994-present), Chairman (1996-present), and Chief
Executive Officer (1995-1996), National Securities &
Research Corporation and Director and President,
Phoenix Securities Group, Inc. (1993-1995). Director
(1992-present) and President (1992-1994), W.S. Griffith
& Co., Inc. and Director (1992-1995) and President
(1992-1994), Townsend Financial Advisers, Inc. Director
and Vice President, PM Holdings, Inc. (1985-present).
19
<PAGE>
Everett L. Morris (68) Director Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present).
Colts Neck, NJ 07722 Trustee, Duff & Phelps Mutual Funds (1994-present).
Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
& Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income, Inc.
(1991-present), Duff & Phelps Utility and Corporate
Bond Trust, Inc. (1993-present) and Public Service
Enterprise Group, Incorporated (1986-1993). President
and Chief Operating Officer, Enterprise Diversified
Holdings, Incorporated (1989-1993). Senior Executive
Vice President and Chief Financial Officer, Public
Service Electric and Gas Company (1986-1992). Director,
First Fidelity Bank, N.A., N.J. (1984-1991).
*James M. Oates (50) Director Managing Director, Wydown Group (1994-present).
Managing Director Chairman, IBEX Capital Markets LLC (1997-present).
The Wydown Group Director, Phoenix Duff & Phelps Corporation
Chairman, IBEX (1995-present). Director/Trustee, Phoenix Funds
Capital Markets LLC (1987-present). Trustee, Phoenix-Aberdeen Series Fund
60 State Street and Phoenix Duff & Phelps Institutional Mutual Funds
Suite 950 (1996-present). Director, Govett Worldwide Opportunity
Boston, MA 02109 Funds, Inc. (1991-present), Blue Cross and Blue Shield
of New Hampshire (1994-present), Investors Financial
Service Corporation (1995-present), Investors Bank &
Trust Corporation (1995-present) and Plymouth Rubber
Co. (1995-present). Director, Stifel Financial
(1996-present). Member, Chief Executives Organization
(1996-present). Director/Trustee, the National
Affiliated Investment Companies (until 1993). Director
and President (1984-1994) and Chief Executive Officer
(1986-1994), Neworld Bank.
*Calvin J. Pedersen (55) Director Director and President, Phoenix Duff & Phelps
Phoenix Duff & Phelps Corporation (1995-present). Director/Trustee, Phoenix
Corporation Funds (1995-present). Trustee, Phoenix-Aberdeen Series
55 East Monroe Street Fund and Phoenix Duff & Phelps Institutional Mutual
Suite 3600 Funds (1996-present). President and Chief Executive
Chicago, IL 60603 Officer, Duff & Phelps Utilities Tax-Free Income Inc.
(1995-present), Duff & Phelps Utilities Income Fund
(since inception), and Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present). Director
(1986-1995), President (1993-1995) and Executive Vice
President (1992-1993), Duff & Phelps Corporation.
Philip R. Reynolds (69) Director Director/Trustee, Phoenix Funds (1984-present).
43 Montclair Drive Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
West Hartford, CT 06107 & Phelps Institutional Mutual Funds (1996-present).
Director, Vestaur Securities, Inc. (1972-present).
Trustee and Treasurer, J. Walton Bissell Foundation,
Inc. (1988-present). Director/Trustee, the National
Affiliated Investment Companies (until 1993).
20
<PAGE>
Herbert Roth, Jr. (68) Director Director/Trustee, Phoenix Funds (1980-present).
134 Lake Street Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
P.O. Box 909 & Phelps Institutional Mutual Funds (1996-present).
Sherborn, MA 01770 Director, Boston Edison Company (1978-present), Phoenix
Home Life Mutual Insurance Company (1972-present),
Landauer, Inc. (medical services) (1970-present), Tech
Ops./Sevcon, Inc. (electronic controllers)
(1987-present), Key Energy Group (oil rig service)
(1988-1994), and Mark IV Industries (diversified
manufacturer) (1985-present). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Richard E. Segerson (51) Director Director/Trustee, Phoenix Funds, (1993-present).
102 Valley Road Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
New Canaan, CT 06840 & Phelps Institutional Mutual Funds (1996-present).
Managing Director, Mullin Associates (1993-present).
Vice President and General Manager, Coats & Clark, Inc.
(previously Tootal American, Inc.) (1991-1993).
Director/Trustee, the National Affiliated Investment
Companies (1984-1993).
Lowell P. Weicker, Jr. (65) Director Visiting Professor, University of Virginia.
731 Lake Avenue Trustee/Director, Phoenix Funds (1995-present).
Greenwich, CT 06830 Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
& Phelps Institutional Mutual Funds (1996-present).
Chairman, Dresing, Lierman, Weicker (1995-1996).
Director, UST Inc. (1995-present), Compuware
(1996-present), HPSC Inc. (1995-present) and Duty Free
International (1997-present). Governor of the State of
Connecticut (1991-1995).
Michael E. Haylon (39) Executive Vice Director and Executive Vice President-Investments,
President Phoenix Duff & Phelps Corporation (1995-present).
Senior Vice President, Securities Investments,
Phoenix Home Life Mutual Insurance Company
(1993-1995). Director (1994-present), President
(1996-present), and Executive Vice President
(1994-1996), National Securities & Research
Corporation. Executive Vice President, Phoenix Funds
(1995-present) Phoenix-Aberdeen Series Fund
(1996-present) and Vice President, Phoenix Duff &
Phelps Institutional Mutual Funds (1996-present).
Director (1994-present) and President (1995-
present), Phoenix Investment Counsel, Inc. Director,
Phoenix Equity Planning Corporation (1995-present).
Various other positions with Phoenix Home Life Mutual
Insurance Company (1990-1993).
David R. Pepin (54) Executive Vice Executive Vice President, Phoenix Funds,
President Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director,
Phoenix Investment Counsel, Inc., National Securities
& Research Corporation and Phoenix Equity Planning
Corporation (1996-present). Executive Vice President,
Mutual Fund Sales and Operations, Phoenix Equity
Planning Corporation (1996-present). Managing
Director, Phoenix-Aberdeen International Advisors,
LLC (1996-present). Executive Vice President
(1996-present) and Director (1997-present), Phoenix
Duff & Phelps Corporation. Vice President, Phoenix
Home Life Mutual Insurance Company (1994-1995). Vice
President and General Manager, Digital Equipment and
Corporation (1980-1994).
21
<PAGE>
Timothy M. Heaney (32) Vice President Director, Fixed Income Research (1996-present),
Investment Analyst (1995-1996), Phoenix Investment
Counsel, Inc. Director, Fixed Income Research
(1996-present), National Securities & Research
Corporation. Investment Analyst, Phoenix Home Life
Mutual Insurance Company (1992-1994). Vice President,
Phoenix California Tax Exempt Bonds, Inc.
(1996-present) and Phoenix Multi-Portfolio Fund
(1996-present).
William E. Keen, III (33) Vice President Assistant Vice President, Phoenix Equity Planning
100 Bright Meadow Blvd. Corporation (1996-present). Vice President, Phoenix
P.O. Box 2200 Funds, Phoenix-Aberdeen Series Fund, and Phoenix Duff &
Enfield, CT 06083-2200 Phelps Institutional Mutual Funds (1996-present).
Assistant Vice President USAffinity Funds, USAffinity
Investments LP, (1994-1995). Manager, Fund
Administration, SEI Corporation (1991-1994).
William R. Moyer (52) Vice President Senior Vice President and Chief Financial Officer,
100 Bright Meadow Blvd. Phoenix Duff & Phelps Corporation (1995-present). Vice
P.O. Box 2200 President, Investment Products Finance, Phoenix Home
Enfield, CT 06083-2200 Life Mutual Insurance Company (1990-1995). Senior Vice
President (1990-present), Chief Financial Officer
(1996-present), Finance (until 1990), and Treasurer
(1994-1996), Phoenix Equity Planning Corporation, and
Phoenix Investment Counsel, Inc. Vice President,
Phoenix Funds (1990-present), Phoenix-Aberdeen Series
Fund and Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present). Vice President, the National
Affiliated Investment Companies (until 1993). Senior
Vice President, Finance, Phoenix Securities Group, Inc.
(1993-1995). Senior Vice President, Finance
(1993-present), and Treasurer (1994-present), National
Securities & Research Corporation. Senior Vice
President (1994-present), Chief Financial Officer
(1996-present) Finance (until 1996) and Treasurer
(1994-present), W.S. Griffith & Co., Inc. and Townsend
Financial Advisers. Senior Vice President and Chief
Financial Officer, Duff & Phelps Investment Management
Co. (1996-present).
Leonard J. Saltiel (43) Vice President Managing Director, Operations and Service Phoenix
Equity Planning Corporation (1996-present). Senior
Vice President, Phoenix Equity Planning Corporation
(1994-1996). Vice President, Phoenix Funds
(1994-present), Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present), and National Securities & Research
Corporation (1994-present). Vice President,
Investment Operations, Phoenix Home Life Mutual
Insurance Company (1994-1995). Various positions with
Home Life Insurance Company and Phoenix Home Life
Mutual Insurance Company (1987-1994).
James D. Wehr (39) Vice Managing Director, Fixed Income, (1996-present), Vice
President President (1991-1996), Phoenix Investment Counsel,
Inc. Managing Director, Fixed Income, (1996-present),
Vice President (1993-1996), National Securities &
Research Corporation. Vice President, Phoenix
Multi-Portfolio Fund, (1988-present), Phoenix Series
Fund (1990-present), The Phoenix Edge Series Fund
(1991-present), Phoenix California Tax Exempt Bonds,
Inc. (1993-present) and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Managing
Director, Public Fixed Income, Phoenix Home Life
Insurance Company (1991-1995). Various positions with
Phoenix Home Life Mutual Insurance Company
(1981-1991).
22
<PAGE>
Nancy G. Curtiss (44) Treasurer Vice President, Fund Accounting, Phoenix Equity
Planning Corporation (1996-present). Treasurer,
Phoenix Funds (1994-present), Phoenix-Aberdeen Series
Fund and Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present). Second Vice President, Fund
Accounting, Phoenix Equity Planning Corporation
(1994-1995). Second Vice President and Treasurer,
Fund Accounting, Phoenix Home Life Mutual Insurance
Company (1994-1995). Various positions with Phoenix
Home Life Insurance Company (1987-1994).
G. Jeffrey Bohne (49) Secretary Vice President, Mutual Fund Customer Service, Phoenix
101 Munson Street Equity Planning Corporation (1996-present). Secretary,
Greenfield, MA 01301 the Phoenix Funds (1993-present), Phoenix-Aberdeen
Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Vice President and
General Manager, Phoenix Home Life Mutual Insurance Co.
(1993-present). Vice President, Transfer Agent
Operations, Phoenix Equity Planning Corporation
(1993-1996). Vice President, Home Life of New York
Insurance Company (1984-1992).
</TABLE>
- -----------
*Indicates that the Director(s) 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.
For services rendered to the Fund for the fiscal year ended April 30, 1996,
the Directors receive aggregate renumeration of $17,625. For his services on
the Boards of the Phoenix Funds and the mutual funds managed by 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 $40,000 and
$2,500 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. The function of the
Executive Committee is to serve as a contract review, compliance review and
performance review delegate of the full Board of Directors. The foregoing
fees do not include the reimbursement of expenses incurred in connection with
meetings attended. Officers and employees of the Adviser who are interested
persons are compensated for their services by the Adviser and receive no
compensation from the Fund. Any other interested persons who are not
compensated by the Adviser receive fees from the Fund.
For the Fund's last fiscal year ending April 30, 1996, the Directors
received the following compensation:
<TABLE>
<CAPTION>
Total
Compensation
Pension or From Fund and
Aggregate Retirement Benefits Estimated Fund Complex
Compensation Accrued as Part Annual Benefits (10 Funds)
Name From Fund of Fund Expenses Upon Retirement Paid to Directors
- ------------------------ -------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
C. Duane Blinn $ 1,730* $50,250
Robert Chesek $ 1,545 $45,750
E. Virgil Conway $ 1,915 $67,750
Harry Dalzell-Payne $ 1,605 $47,250
Francis E. Jeffries $ 0 $ 0
Leroy Keith, Jr. $ 1,525 None None $45,250
Philip R. McLoughlin $ 0 for any for any $ 0
Everett L. Morris $ 330 Director Director $40,750
James M. Oates $ 1,850 $54,250
Calvin J. Pedersen $ 0 $ 0
Philip R. Reynolds $ 1,605 $47,250
Herbert Roth, Jr. $ 2,020* $59,250
Richard E. Segerson $ 1,850 $54,250
Lowell P. Weicker, Jr. $ 1,650 $49,250
</TABLE>
*This compensation (and the earnings thereon) was deferred pursuant to the
Directors' Deferred Compensation Plan.
On April 30, 1996, the Directors and officers of the Fund beneficially owned
less than 1% of the outstanding shares of the Fund.
23
<PAGE>
OTHER INFORMATION
Independent Accountants
Price Waterhouse LLP has been selected as the independent accountants for
the Fund. Price Waterhouse LLP audits the Fund's annual financial statements
and expresses an opinion thereon.
Custodian and Transfer Agent
State Street Bank and Trust Company, P.O. Box 8301, Boston, MA 02105-8301,
serves as the Fund's custodian. Equity Planning serves as the Fund's transfer
agent.
Reports to Shareholders
The fiscal year of the Fund ends on April 30. The Fund will send financial
statements to its shareholders at least semi-annually. An annual report
containing financial statements audited by the Fund's independant
accountants, will be sent to shareholders each year.
Financial Statements
The financial statements for the Fund for the period ended October 31, 1996,
appearing in the Fund's Semiannual Report to Shareholders, are incorporated
herein by reference.
24
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
- --------------------------------------------------------------------------------
INVESTMENTS AT OCTOBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
----------- --------- ---------------
<S> <C> <C> <C>
MUNICIPAL TAX-EXEMPT BONDS--94.5%
Certificates of Participation/Lease
Revenue--7.2%
California Public Works Lease
Revenue
5.25%, '06 AAA $ 1,640 $ 1,666,109
California State Public Works
5.375%, '19 AAA 2,500 2,383,925
California Statewide Community
4.90%, '09 AAA 2,200 2,091,914
Orange County Recovery 5.80%,
'16 AAA 1,500 1,506,825
San Mateo County Revenue
5.125%, '18 AAA 1,000 941,890
------------
Total Certificates of Participation/
Lease Revenue 8,590,663
------------
General Obligations--5.2%
California State G.O.
5.50%, '08 AAA 1,500 1,545,510
Central School District G.O.
7.05%, '16 A(b) 1,000 1,092,270
Pomona School District G.O.
Series C 5.60%, '12 AAA 1,500 1,524,735
Puerto Rico G.O. 5.375%, '06 AAA(b) 2,000 2,034,300
------------
Total General Obligations 6,196,815
------------
Healthcare--5.7%
California Health Facilities
7.30%, '20 A+ 1,400 1,499,204
California Health Facilities
6.25%, '22 A+ 1,500 1,526,250
Grass Valley Hospital
7.25%, '19 A+ 2,000 2,108,640
San Bernardino School Health
Care 7%, '21 AA 1,500 1,680,195
------------
Total Healthcare 6,814,289
------------
Housing Revenue--3.5%
California Housing Financing
Agency 7.25%, '17 AA- 785 822,044
California Housing Financing
Agency 7.75%, '17 AA- 400 422,004
California Housing Financing
Agency Series C 7.20%, '17 AA- 805 834,495
L.A. Community Redevelopment
Agency Series A 6.55%, '27 AAA 2,000 2,062,680
------------
Total Housing Revenue 4,141,223
------------
Pre-Refunded Revenue--28.0%
Covina Redevelopment Agency
8.80%, '08 NR 1,200 1,419,864
Hayward Hospital Revenue (St.
Rose Hosp.) 10%, '04 AAA 510 605,431
Huntington Park Redevelopment
Agency 8%, '19 AAA 2,400 3,119,040
Los Angeles Harbor Department
7.60%, '18 AAA 1,000 1,210,390
Northern California Hydro
Electric 7.50%, '23 AAA 195 237,929
Orange County Water District
COP 7%, '15 AAA 1,000 1,110,160
Pasadena COP 6.75%, '15 AAA(b) 2,000 2,201,520
Puerto Rico Aqueduct 7%, '19 AAA 1,500 1,601,880
Puerto Rico Electric Power 7%,
'21 BBB+ 2,500 2,811,575
Puerto Rico Highway Authority
Series T 6.625%, '18 AAA 200 223,330
Puerto Rico Highway Revenue
Series T 6.625%, '18 A 800 893,320
Puerto Rico Public Buildings
7%, '19 AAA 500 531,615
Puerto Rico Public Buildings
Series L 6.875%, '21 AAA 3,170 3,578,962
Redlands COP Series C
7%, '22 AAA 1,000 1,116,650
Riverside County 8.625%, '16 AAA 700 913,437
Riverside County 7.80%, '21 AAA 4,000 4,942,720
Riverside Public Financing
Authority 7.80%, '08 AAA 1,000 1,030,100
San Bernardino COP Series B 7%,
'28 AAA 2,200 2,477,860
San Gabriel Valley Schools
Financing 7.20%, '19 NR 1,200 1,310,964
Torrance Hospital COP
7.10%, '15 AAA 1,780 1,958,908
------------
Total Pre-Refunded Revenue 33,295,655
------------
See Notes to Financial Statements.
2
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
- --------------------------------------------------------------------------------
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
----------- --------- ---------------
Tax Revenue--11.3%
Culver City Redevelopment
Agency 4.60%, '20 AAA $ 4,500 $ 3,809,790
L.A. County Sales Tax 7%, '19 AA- 2,500 2,671,675
L.A. County Transit Authority
Series A 5%, '21 AAA 3,750 3,385,912
San Francisco Redevelopment
Agency 4.75%, '18 AAA 1,100 965,492
San Francisco Redevelopment
Agency 5.50%, '18 A- 1,500 1,419,900
San Pablo Redevelopment Agency
5%, '13 AAA 1,250 1,175,788
-----------
Total Tax Revenue 13,428,557
-----------
Transportation Revenue--4.8%
Los Angeles County Revenue
Series B 5.25%, '23 AAA 3,000 2,800,440
San Diego Transportation Series
A 4.75%, '08 AAA 2,000 1,915,700
San Francisco Airport Revenue
6.25%, '10 AAA 1,000 1,055,120
-----------
Total Transportation Revenue 5,771,260
-----------
Utility Revenue--28.8%
California Department of Water
5%, '15 AA 1,375 1,275,753
California State Water Series L
5.75%, '19 AA 4,000 3,949,480
Chino Basin, California 5.90%,
'11 AAA 2,000 2,102,200
Contra Costa Water District
Series G 5.75%, '14 AAA 3,100 3,135,619
Delta Diablo Sanitation
District, CA 0%, '16 AAA 1,070 333,005
Irvine Ranch Water District
7.80%, '08 A+ 1,500 1,561,770
Irvine Ranch Water District
8.25%, '23 A+ 2,000 2,126,900
L.A. Wastewater Series D
4.70%, '17 AAA 7,000 6,117,300
MSR Public Power Agency 6.75%,
'20 AAA 1,500 1,748,835
Puerto Rico Electric Power
Authority Series N 6%, '10 AAA(b) 1,500 1,512,270
Sacramento Cogeneration Project
6.375%, '10 BBB- 1,000 1,024,690
Sacramento Flood Control Agency
5.375%, '15 AAA 2,370 2,310,584
Sacramento Municipal Utility
District Revenue 5.75%, '11 AAA 3,500 3,575,285
Sacramento Utility District
Electric Series G 4.75%, '21 AAA 1,000 863,780
Southern California Public
Power Authority 5.50%, '20 A 915 875,280
Southern California Public
Power Series A 4.875%, '20 AAA 2,000 1,775,440
-----------
Total Utility Revenue 34,288,191
-----------
TOTAL MUNICIPAL TAX-EXEMPT BONDS
(Identified cost $106,289,099) 112,526,653
-----------
SHORT-TERM OBLIGATIONS--2.9%
Commercial Paper--2.9%
CXC, Inc. 5.70%, 11-1-96 A-1+ 3,430 3,430,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $3,430,000) 3,430,000
-----------
TOTAL INVESTMENTS--97.4%
(Identified cost $109,719,099) 115,956,653(a)
Cash and receivables, less liabilities--2.6% 3,113,001
-----------
NET ASSETS--100.0% $119,069,654
===========
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of
investment securities is comprised of gross appreciation of $6,768,413
and gross depreciation of $530,859 for income tax purposes. At October
31, 1996, the aggregate cost of securities for federal income tax
purposes was $109,719,099.
(b) As rated by Moody's, Duff and Phelps or Fitch.
See Notes to Financial Statements.
3
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investment securities at value
(Identified cost $109,719,099) $115,956,653
Receivables
Fund shares sold 1,199,239
Interest 2,197,480
-------------
Total assets 119,353,372
-------------
Liabilities
Payables
Custodian 468
Fund shares repurchased 5,827
Dividend distributions 106,820
Investment advisory fee 44,219
Distribution fee 25,414
Directors' fee 9,331
Transfer agent fee 7,486
Financial agent fee 2,948
Accrued expenses 81,205
-------------
Total liabilities 283,718
-------------
Net Assets $119,069,654
=============
Net Assets Consist of:
Capital paid in on shares of capital stock $112,243,195
Undistributed net investment loss (91,746)
Accumulated net realized gain 680,651
Net unrealized appreciation 6,237,554
-------------
Net Assets $119,069,654
=============
Class A
Shares of capital stock outstanding, $.01 par value,
250,000,000 shares authorized
(Net Assets $117,637,151) 9,062,735
Net asset value per share $12.98
Offering price per share
$12.98/(1-4.75%) $13.63
Class B
Shares of capital stock outstanding, $.01 par value,
250,000,000 shares authorized
(Net Assets $1,432,503) 110,349
Net asset value and offering price per share $12.98
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED 0CTOBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Interest $3,580,794
-----------
Total investment income 3,580,794
-----------
Expenses
Investment advisory fee 264,557
Distribution fee--Class A 145,350
Distribution fee--Class B 6,505
Financial agent fee 17,637
Transfer agent 40,000
Professional 15,550
Registration 15,060
Printing 14,000
Directors 7,854
Custodian 6,400
Miscellaneous 3,923
-----------
Total expenses 536,836
-----------
Net investment income 3,043,958
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 533,477
Net realized gain on futures contracts 383,554
Net change in unrealized appreciation (depreciation)
on investments 1,184,180
-----------
Net gain on investments 2,101,211
-----------
Net increase in net assets resulting from operations $5,145,169
===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
October 31, Year
1996 Ended
(Unaudited) April 30, 1996
-------------------------------
<S> <C> <C>
From Operations
Net investment income $ 3,043,958 $ 6,205,857
Net realized gain 917,031 1,098,320
Net change in unrealized appreciation (depreciation) 1,184,180 756,545
----------- -----------
Increase in net assets resulting from operations 5,145,169 8,060,722
----------- -----------
From Distributions to Shareholders
Net investment income--Class A (3,028,454) (6,135,672)
Net investment income--Class B (28,928) (36,045)
Net realized gains--Class A -- (288,116)
Net realized gains--Class B -- (1,693)
Distributions in excess of net investment income--Class
A -- (77,865)
Distributions in excess of net investment income--Class
B -- (457)
Distributions in excess of accumulated net realized
gains--Class A -- (235,000)
Distributions in excess of accumulated net realized
gains--Class B -- (1,380)
----------- -----------
Decrease in net assets from distributions to
shareholders (3,057,382) (6,776,228)
----------- -----------
From Share Transactions
Class A
Proceeds from sales of shares (3,620,113 and 2,203,421
shares, respectively) 46,351,773 28,531,594
Net asset value of shares issued from reinvestment of
distributions
(99,321 and 218,807 shares, respectively) 1,275,410 2,842,822
Cost of shares repurchased (3,568,062 and 2,801,630
shares, respectively) (45,862,647) (36,234,994)
----------- -----------
Total 1,764,536 (4,860,578)
----------- -----------
Class B
Proceeds from sales of shares (29,359 and 73,939 shares,
respectively) 378,262 962,800
Net asset value of shares issued from reinvestment of
distributions (1,151 and 1,751, respectively) 14,764 22,780
Cost of shares repurchased (18,652 and 13,644 shares,
respectively) (240,080) (175,468)
----------- -----------
Total 152,946 810,112
----------- -----------
Increase (decrease) in net assets from share
transactions 1,917,482 (4,050,466)
----------- -----------
Net increase (decrease) in net assets 4,005,269 (2,765,972)
Net Assets
Beginning of period 115,064,385 117,830,357
----------- -----------
End of period (including undistributed net investment
loss and distributions in excess of net investment
income of ($91,746) and ($78,322), respectively) $119,069,654 $115,064,385
============ ============
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Phoenix California Tax Exempt Bonds, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
Six Months
Ended
10/31/96 Year Ended April 30,
(Unaudited) 1996 1995 1994 1993 1992
------------ ----------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.77 $12.63 $13.03 $13.64 $13.20 $13.07
Income from investment operations
Net investment income 0.33 0.67 0.71 0.80 0.81 0.87
Net realized and unrealized gain
(loss) 0.22 0.20 0.05 (0.53) 0.51 0.24
--------- --------- --------- --------- --------- ---------
Total from investment operations 0.55 0.87 0.76 0.27 1.32 1.11
--------- --------- --------- --------- --------- ---------
Less distributions
Dividends from net investment
income (0.34) (0.67) (0.76) (0.76) (0.80) (0.88)
Distributions in excess of net
investment income -- (0.01) -- -- -- --
Distributions from net realized
gains -- (0.03) (0.31) (0.12) (0.08) (0.10)
Distributions in excess of
accumulated net realized gains -- (0.02) (0.09) -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.34) (0.73) (1.16) (0.88) (0.88) (0.98)
--------- --------- --------- --------- --------- ---------
Change in net asset value 0.21 0.14 (0.40) (0.61) 0.44 0.13
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $12.98 $12.77 $12.63 $13.03 $13.64 $13.20
========= ========= ========= ========= ========= =========
Total return (1) 4.33% (3) 6.92% 6.34% 1.80% 10.38% 8.68%
Ratios/supplemental data:
Net assets, end of period
(thousands) $117,637 $113,806 $117,370 $131,365 $147,760 $139,118
Ratio to average net assets of:
Operating expenses 0.90% (2) 0.99% 0.93% 0.85% 0.90% 0.68%
Net investment income 5.19% (2) 5.15% 5.63% 5.82% 6.00% 6.55%
Portfolio turnover 10% (3) 20% 51% 25% 25% 33%
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------
Six Months From
Ended Year Inception
10/31/96 Ended 7/26/94 to
(Unaudited) 4/30/96 4/30/95
------------ --------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.77 $12.63 $13.04
Income from investment operations
Net investment income 0.29 0.56 (4) 0.48
Net realized and unrealized gain 0.21 0.20 0.01
--------- --------- ---------
Total from investment operations 0.50 0.76 0.49
--------- --------- ---------
Less distributions
Dividends from net investment income (0.29) (0.56) (0.50)
Distributions in excess of net investment income -- (0.01) --
Distributions from net realized gains -- (0.03) (0.31)
Distributions in excess of accumulated net realized gains -- (0.02) (0.09)
--------- --------- ---------
Total distributions (0.29) (0.62) (0.90)
--------- --------- ---------
Change in net asset value 0.21 0.14 (0.41)
--------- --------- ---------
Net asset value, end of period $12.98 $12.77 $12.63
========= ========= =========
Total return (1) 3.94% (3) 6.10% 4.10% (3)
Ratios/supplemental data:
Net assets, end of period (thousands) $1,433 $1,258 $460
Ratio to average net assets of:
Operating expenses 1.65% (2) 1.78% 1.55% (2)
Net investment income 4.43% (2) 4.32% 4.90% (2)
Portfolio turnover 10% (3) 20% 51%
</TABLE>
(1) Maximum sales charge is not reflected in total return calculation.
(2) Annualized
(3) Not annualized
(4) Computed using average shares outstanding.
See Notes to Financial Statements.
6
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Phoenix California Tax Exempt Bonds, Inc. (the "Fund") is organized as a
Maryland corporation and is registered under the Investment Company Act of
1940, as amended, as a diversified open-end management investment company.
The Fund's investment objective is to obtain a high level of current income
exempt from California state and local income taxes, as well as Federal
income tax, consistent with preservation of capital. The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge of up to 4.75%. Class B shares are sold with a contingent deferred
sales charge which declines from 5% to zero depending on the period of time
the shares are held. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
each class bears different distribution expenses and has exclusive voting
rights with respect to its distribution plan. Income and expenses of the Fund
are borne pro rata by the holders of both classes of shares, except that each
class bears distribution expenses unique to that class.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
A. Security valuation:
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service which utilizes information with respect to
recent sales, market transactions in comparable securities, quotations from
dealers, and various relationships between securities in determining value.
Short-term investments having a remaining maturity of 60 days or less are
valued at amortized cost which approximates market. All other securities and
assets are valued at their fair value as determined in good faith by or under
the direction of the Directors.
B. Security transactions and related income:
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Premiums and discounts are amortized to income
using the effective interest method. Realized gains and losses are determined
on the identified cost basis.
C. Income taxes:
It is the policy of the Fund to comply with the requirements of the
Internal Revenue Code (the "Code") applicable to regulated investment
companies and to distribute substantially all of its taxable and tax exempt
income to its shareholders. In addition, the Fund intends to distribute an
amount sufficient to avoid imposition of any excise tax under Section 4982 of
the Code. Therefore, no provision for federal income taxes or excise taxes
has been made.
D. Distributions to shareholders:
Distributions to shareholders are declared and recorded daily. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include the treatment of non-taxable dividends, expiring
capital loss carryforwards and losses deferred due to wash sales and excise
tax regulations. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid in
capital.
E. Futures contracts:
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. The Fund may enter into financial
futures contracts as a hedge against anticipated changes in the market value
of the portfolio securities. Upon entering into a futures contract, the Fund
is required to pledge to the broker an amount of cash and/or securities equal
to the "initial margin" requirements of the futures exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from
or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The potential risk to the Fund is that
the change in value of the futures contract may not correspond to the change
in value of the hedged instruments.
2. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS
As compensation for its services to the Fund, the Investment Adviser,
National Securities and Research Corporation, an indirect majority-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"), is entitled
to a fee at an annual rate of 0.45% of the average daily net assets of the
Fund for the first $1 billion.
As Distributor of the Fund's shares, Phoenix Equity Planning Corp.
("PEPCO"), an indirect majority-owned subsidiary of PHL, has advised the Fund
that it retained net selling commissions of $6,364 for Class A shares and
deferred sales charges of $6,133
7
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 (Unaudited) (Continued)
for Class B shares for the six months ended October 31, 1996. In addition,
the Fund pays PEPCO a distribution fee at an annual rate of 0.25% for Class A
shares and 1.00% for Class B shares of the average daily net assets of the
Fund. The Distributor has advised the Fund that of the total amount expensed
for the six months ended October 31, 1996, $14,248 was earned by the
Distributor and $137,607 was earned by unaffiliated participants.
As Financial Agent of the Fund, PEPCO receives a fee at an annual rate of
0.03% of the average daily net assets of the Fund for bookkeeping,
administration and pricing services. PEPCO serves as the Fund's Transfer
Agent with State Street Bank and Trust as sub-transfer agent. For the six
months ended October 31, 1996, transfer agent fees were $40,000 of which
PEPCO retained $13,078, which is net of fees paid to State Street.
At October 31, 1996, PHL and affiliates held 197 Class A shares and 9,241
Class B shares of the Fund with a combined value of $122,507.
3. PURCHASE AND SALE OF SECURITIES
Purchases and sales of securities, excluding short-term securities and
futures, for the six months ended October 31, 1996, aggregated $11,005,942
and $14,818,918, respectively. There were no purchases or sales of long-term
U.S. Government securities.
4. ASSET CONCENTRATION
There are certain risks arising from the Fund's concentration in
California municipal securities. Certain California constitutional
amendments, legislative measures, executive orders, administrative
regulations, court decisions and voter initiatives could result in certain
adverse consequences including impairing the ability of certain issuers of
California municipal securities to pay principal and interest on their
obligations.
This report is not authorized for distribution to prospective investors
in the Phoenix California Tax Exempt Bonds, Inc. unless preceded or
accompanied by an effective Prospectus which includes information concerning
the sales charge, Fund's record and other pertinent information.
8
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
PART C--OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A: Financial Highlights
Included in Part B: Financial Statements and Notes thereto, are included
in the Semiannual Report to Shareholders for the
period ended October 31, 1996, incorporated by
reference.
(b) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
1.1 Articles of Incorporation of the Registrant, previously filed, and herein incorporated by
reference.
1.2 Articles of Amendment of Registrant, filed with Post-Effective Amendment No. 16 on July 13,
1994, and incorporated herein by reference.
1.3 Articles Supplementary of Registrant, filed with Post-Effective Amendment No. 16 on July 13,
1994, and incorporated herein by reference.
2.1 Revised and Restated By-laws of the Registrant, adopted November 16, 1994, and further
amended February 15, 1995, and filed with Post-Effective Amendment No. 17 on August 22, 1995
and incorporated herein by reference.
2.2 Revised and Restated By-laws of the Registrant, adopted November 16, 1994, amended February
15, 1995 and further amended November 15, 1995 filed via Edgar with Post-Effective Amendment
No. 18 on August 28, 1996, and incorporated herein by reference.
3. Not Applicable.
4 Reference is made to Article VIII Section 1 of Registrant's Revised and Restated By-laws as
amended, and filed with the Registration Statement referred to in Exhibit 2.1.
5.1* Investment Advisory Agreement between Registrant and National Securities & Research
Corporation dated March 14, 1997, filed herewith via EDGAR.
6.1 Underwriting Agreement between Registrant and Phoenix Equity Planning Corporation ("Equity
Planning") dated May 14, 1993, filed with Post-Effective Amendment No. 13 on June 30, 1993,
and herein incorporated by reference.
6.2 Underwriting Agreement for Class B Shares between Registrant and Equity Planning, filed with
Post-Effective Amendment No. 16 on July 13, 1994, and incorporated herein by reference.
7. None.
8. Custodian Contract between Registrant and State Street Bank and Trust Company dated October
14, 1993, previously filed, and incorporated herein by reference.
9.1 Transfer Agency and Service Agreement between Registrant et al and Phoenix Equity Planning
Corporation dated June 1, 1994, filed with Post-Effective Amendment No. 16 on July 13, 1994,
and incorporated herein by reference.
9.2 Form of Sales Agreement, filed with Post-Effective Amendment No. 16 on July 13, 1994, and
incorporated herein by reference.
9.3* Financial Agent Agreement between Registrant and Phoenix Equity Planning Corporation, and
filed herewith via Edgar and incorporated herein by reference.
9.4* First Amendment to Financial Agent Agreement between Registrant and Phoenix Equity Planning
Corporation, and filed herewith via Edgar and incorporated herein by reference.
10. Opinion of counsel as to legality of the Shares, filed with Post-Effective Amendment No. 16
on July 13, 1994, and incorporated herein by reference.
11. Consent of Independent Accountants, filed via Edgar with Post-Effective Amendment No. 18 on
August 28, 1996, and incorporated herein by reference.
12. Not Applicable.
13. None.
14. None.
15.1 Distribution Plan dated May 14, 1993, filed with Post-Effective Amendment No. 13 on June 30,
1993, and herein incorporated by reference.
15.2 Form of First Amendment to Distribution Plan for Class A Shares filed with Post-Effective
Amendment No. 14 on March 2, 1994.
C-1
<PAGE>
15.3 Distribution Plan for Class B Shares dated May 25, 1994, filed with Post-Effective Amendment
No. 16 on July 13, 1994, and incorporated herein by reference.
15.4 Distribution Plan of National's California Tax Exempt Bonds, Inc. dated January 1, 1994
filed via Edgar with Post-Effective Amendment No. 18 on August 28, 1996, and incorporated
herein by reference.
16. Schedule for computation of yield and effective yield quotations, previously filed and
herein incorporated by reference.
17.* Financial Data Schedule filed herewith and reflected on EDGAR as Exhibit 27.
18. Powers of attorney filed via Edgar with Post-Effective Amendment No. 18 on August 28, 1996,
and incorporated herein by reference.
19.1 Rule 18f-3 Dual Distribution Plan, effective March 15, 1996, filed via Edgar with
Post-Effective Amendment No. 18 on August 28, 1996, and incorporated herein by reference.
19.2 Amended and Restated Dual Distribution Plan, effective May 1, 1996, filed via Edgar with
Post-Effective Amendment No. 18 on August 28, 1996, and incorporated herein by reference.
</TABLE>
- ---------------
* Filed herewith.
Item 25. Persons Controlled by or Under Common Control With Registrant
No person is controlled by, or under common control, with the Registrant.
Item 26. Number of Holders of Securities
As of February 28, 1997, the number of record holders of each class of
securities of the Registrant was as follows:
Number of
Title of Class Record-holders
- --------------------------------------------------- ---------------
Shares of Common Stock--Class A 2,056
Shares of Common Stock--Class B 41
Item 27. Indemnification
Registrant's indemnification provision is set forth in Post-Effective
Amendment No. 13 filed with the Securities and Exchange Commission on June
30, 1993, and is incorporated herein by reference.
Item 28. Business and Other Connections of Investment Adviser
See "Management of the Fund" in the Prospectus and "Services of the Adviser"
and "Directors and Officers" in the Statement of Additional Information which
is included in this Post-Effective Amendment.
For information as to the business, profession, vocation or employment of a
substantial nature of directors and officers of National Securities &
Research Corporation, the Adviser, reference is made to the Advisers' current
Form ADV (SEC File No. 801-8177) filed under the Investment Advisers Act of
1940 and incorporated herein by reference.
Item 29. Principal Underwriter
(a) See "Distribution Plans" and "How to Buy Shares" in the Prospectus and
"The Distributor" and "Plans of Distribution" in the Statement of
Additional Information, both of which are included in this
Post-Effective Amendment to the Registration Statement.
(b) Directors and executive officers of Phoenix Equity Planning Corporation
are as follows:
<TABLE>
<CAPTION>
Name and Position and Offices Position and Offices
Principal Address with Underwriter with Registrant
------------------------------ ------------------------------------ ------------------------------
<S> <C> <C>
Michael E. Haylon Director Executive Vice President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and President Trustee and President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
C-2
<PAGE>
David R. Pepin Executive Vice President, Mutual Executive Vice President
56 Prospect St. Fund Sales and Operations
P.O. Box 150480
Hartford, CT 06115-0480
Leonard J. Saltiel Managing Director, Operations and Vice President
100 Bright Meadow Blvd. Service
P.O. Box 1900
Enfield, CT 06083-1900
Paul A. Atkins Senior Vice President and Sales None
56 Prospect St. Manager
P.O. Box 150480
Hartford, CT 06115-0480
Maris L. Lambergs Senior Vice President, Insurance and None
100 Bright Meadow Blvd. Independent Division
P.O. Box 1900
Enfield, CT 06083-1900
William R. Moyer Senior Vice President and Chief Vice President
100 Bright Meadow Blvd. Financial Officer
P.O. Box 1900
Enfield, CT 06083-1900
John F. Sharry Managing Director, Mutual Fund None
100 Bright Meadow Blvd. Distribution
P.O. Box 1900
Enfield, CT 06083-1900
G. Jeffrey Bohne Vice President, Mutual Fund Customer Secretary
101 Munson Street Service
P.O. Box 810
Greenfield, MA 01302-0810
Eugene A. Charon Vice President and Controller None
100 Bright Meadow Blvd.
P.O. Box 1900
Enfield, CT 06083-1900
Nancy G. Curtiss Vice President and Treasurer, Fund Treasurer
56 Prospect St. Accounting
P.O. Box 150480
Hartford, CT 06115-0480
William E. Keen III Assistant Vice President, Vice President
100 Bright Meadow Blvd. Mutual Fund Regulation
P.O. Box 1900
Enfield, CT 06083-1900
Elizabeth R. Sadowinski Vice President, Administration None
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Thomas N. Steenburg Vice President, Counsel and Assistant Secretary
56 Prospect St. Secretary
P.O. Box 150480
Hartford, CT 06115-0480
</TABLE>
C-3
<PAGE>
(c) Equity Planning received the following commissions or other compensation
from the Registrant during the fiscal year ending April 30, 1996:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Name of Principal Discounts and Redemption and Brokerage Other
Underwriter Commissions Repurchase Commissions Compensation
- ----------------- ---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Equity Planning $17,868 $819 0 $36,185
</TABLE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder include:
Registrant's investment adviser, National Securities & Research Corporation;
Registrant's financial agent, transfer agent and principal underwriter,
Phoenix Equity Planning Corporation; Registrant's dividend disbursing agent
and custodian, State Street Bank and Trust Company. The address of the
Secretary of the Fund is 101 Munson Street, Greenfield, Massachusetts 01301;
the address of National Securities & Research Corporation is 56 Prospect
Street, Hartford, Connecticut 06115-2520; the address of Phoenix Equity
Planning Corporation is 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083-2200; and the address of the custodian is P.O. Box 351,
Boston, Massachusetts 02101.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to the Registration Statment to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Hartford and State of Connecticut on
the 9th day of April, 1997.
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
ATTEST: /s/ Thomas N. Steenburg
Thomas N. Steenburg
Assistant Secretary
By: /s/ Philip R. McLoughlin
Philip R. McLoughlin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons
in the capacities indicated, on this 9th day of April, 1997.
<TABLE>
<CAPTION>
Signature Title
- -------------------------------- ----------------------------
<S> <C>
- --------------------------------
C. Duane Blinn* Director
- --------------------------------
Robert Chesek* Director
- --------------------------------
E. Virgil Conway* Director
Treasurer (principal
- -------------------------------- financial and
Nancy G. Curtiss* accounting officer)
- --------------------------------
Harry Dalzell-Payne* Director
- --------------------------------
Frances E. Jeffries* Director
- --------------------------------
Leroy Keith, Jr.* Director
/s/ Philip R. McLoughlin
- --------------------------------
Philip R. McLoughlin President and Director
- --------------------------------
Everett L. Morris* Director
- --------------------------------
James M. Oates* Director
- --------------------------------
Calvin J. Pedersen* Director
- --------------------------------
Philip R. Reynolds* Director
- --------------------------------
Herbert Roth, Jr.* Director
- --------------------------------
Richard E. Segerson* Director
- --------------------------------
Lowell P. Weicker, Jr.* Director
</TABLE>
By: /s/ Philip R. McLoughlin
*Philip R. McLoughlin Attorney-in-fact
pursuant to powers of attorney filed with
Post-Effective Amendment No. 18.
S1(c)
Exhibit 5.1
Investment Advisory Agreement
<PAGE>
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
FORM OF INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made effective as of the 14th day of March, 1997 by and
between PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC., a Maryland corporation having
a place of business located at 101 Munson Street, Greenfield, Massachusetts (the
"Fund") and NATIONAL SECURITIES & RESEARCH CORPORATION, a New York corporation
having a place of business located at 56 Prospect Street, Hartford, Connecticut
(the "Adviser").
WITNESSETH THAT:
1. The Fund hereby appoints the Adviser to act as investment adviser to
the Fund for the period and on the terms set forth herein. The Adviser accepts
such appointment and agrees to render the services described in this Agreement
for the compensation herein provided.
2. In the event that the Directors desire to retain the Adviser to render
investment advisory services hereunder with respect to one or more series
("Additional Series"), the Fund shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Fund in writing,
whereupon such Additional Series shall become subject to the terms and
conditions of this Agreement.
3. The Adviser shall furnish continuously an investment program for the
Fund and any Additional Series which may become subject to the terms and
conditions set forth herein (sometimes collectively referred to as the "Series")
and shall manage the investment and reinvestment of the assets of each Series,
subject at all times to the supervision of the Directors. In effectuating the
investment program for the Fund, the Adviser shall aggregate a transaction in
accordance with the Statement of Policy with respect to Aggregation of Orders as
most recently adopted by the Fund.
4. With respect to managing the investment and reinvestment of the Series'
assets, the Adviser shall provide, at its own expense:
(a) Investment research, advice and supervision;
(b) An investment program for each Series consistent with its
investment objectives;
(c) Implementation of the investment program for each Series
including the purchase and sale of securities;
(d) Advice and assistance on the general operations of the Fund; and
<PAGE>
(e) Regular reports to the Directors on the implementation of each
Series' investment program.
5. The Adviser shall, for all purposes herein, be deemed to be an
independent contractor.
6. The Adviser shall furnish at its own expense, or pay the expenses of
the Fund, for the following:
(a) Personnel necessary to perform the functions required to manage
the investment and reinvestment of each Series' assets
(including those required for research, statistical and
investment work);
(b) Any Subadviser recommended by the Adviser and appointed to act
on behalf of the Fund.
7. All costs and expenses not specifically enumerated herein as payable by
the Adviser shall be paid by the Fund. Such expenses shall include, but shall
not be limited to, all expenses (other than those specifically referred to as
being borne by the Adviser) incurred in the operation of the Fund and any public
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Directors who are not full-time employees of the
Adviser or any of its affiliates, expenses of Directors' and shareholders'
meetings including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of repurchase and
redemption of shares, expenses of issue and sale of shares (to the extent not
borne by its national distributor under its agreement with the Fund), expenses
of printing and mailing stock certificates representing shares of the Fund,
association membership dues, charges of custodians, transfer agents, dividend
disbursing agents and financial agents, bookkeeping, auditing and legal
expenses. The Fund will also pay the fees and bear the expense of registering
and maintaining the registration of the Fund and its shares with the Securities
and Exchange Commission and registering or qualifying its shares under state or
other securities laws and the expense of preparing and mailing prospectuses and
reports to shareholders. Additionally, if authorized by the Directors, the Fund
shall pay for extraordinary expenses and expenses of a non-recurring nature
which may include, but not be limited to the reasonable and proportionate cost
of any reorganization or acquisition of assets and the cost of legal proceedings
to which the Fund is a party.
8. For providing the services and assuming the expenses outlined herein,
the Fund agrees that the Adviser shall be compensated as follows:
2
<PAGE>
(a) The Fund shall pay the Adviser a monthly fee with respect to
each Series at the annual rate of 0.45% of the Fund's average
aggregate daily net assets up to $1 billion, 0.40% of the Fund's
average aggregate daily net assets from $1 to $2 billion, and
0.35% of the Fund's average aggregate daily net assets in excess
of $2 billion. The amounts payable to the Adviser with respect
to the Fund shall be payable on the last day of each month.
(b) Compensation shall accrue immediately upon the effective date of
this Agreement.
(c) If there is termination of this Agreement during a month, each
Series' fee for that month shall be proportionately computed
upon the average of the daily net asset values of such Series
for such partial period in such month.
9. The services of the Adviser to the Fund are not to be deemed exclusive,
the Adviser being free to render services to others and to engage in other
activities. Without relieving the Adviser of its duties hereunder and subject to
the prior approval of the Directors and subject further to compliance with
applicable provisions of the Investment Company Act of 1940, as amended, the
Adviser may appoint one or more agents to perform any of the functions and
services which are to be provided under the terms of this Agreement upon such
terms and conditions as may be mutually agreed upon among the Fund, the Adviser
and any such agent.
10. The Adviser shall not be liable to the Fund or to any shareholder of
the Fund for any error of judgment or mistake of law or for any loss suffered by
the Fund or by any shareholder of the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith, gross negligence or reckless disregard on the part of the Adviser in
the performance of its duties hereunder.
11. It is understood that:
(a) Directors, officers, employees, agents and shareholders of the
Fund are or may be "interested persons" of the Adviser as
directors, officers, stockholders or otherwise;
(b) Directors, officers, employees, agents and stockholders of the
Adviser are or may be "interested persons" of the Fund as
Directors, officers, shareholders or otherwise; and
(c) The existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder.
3
<PAGE>
12. This Agreement shall become effective with respect to the Fund as of
the date stated above (the "Contract Date") and with respect to any Additional
Series, on the date specified in the notice to the Fund from the Adviser in
accordance with paragraph 2 hereof that the Adviser is willing to serve as
Adviser with respect to such Additional Series. Unless terminated as herein
provided, this Agreement shall remain in full force and effect for a period of
two years following the Contract Date, and, with respect to each Additional
Series, until the next anniversary of the Contract Date following the date on
which such Additional Series became subject to the terms and conditions of this
Agreement and shall continue in full force and effect for periods of one year
thereafter with respect to each Series so long as (a) such continuance with
respect to any such Series is approved at least annually by either the Directors
or by a "vote of the majority of the outstanding voting securities" of such
Series and (b) the terms and any renewal of this Agreement with respect to any
such Series have been approved by a vote of a majority of the Directors who are
not parties to this Agreement or "interested persons" of any such party cast in
person at a meeting called for the purpose of voting on such approval; provided,
however, that the continuance of this Agreement with respect to each Additional
Series is subject to its approval by a "vote of a majority of the outstanding
voting securities" of any such Additional Series on or before the next
anniversary of the Contract Date following the date on which such Additional
Series became a Series hereunder.
Any approval of this Agreement by a vote of the holders of a "majority of
the outstanding voting securities" of any Series shall be effective to continue
this Agreement with respect to such Series notwithstanding (a) that this
Agreement has not been approved by a "vote of a majority of the outstanding
voting securities" of any other Series of the Fund affected thereby and (b) that
this Agreement has not been approved by the holders of a "vote of a majority of
the outstanding voting securities" of the Fund, unless either such additional
approval shall be required by any other applicable law or otherwise.
13. The Fund may terminate this Agreement with respect to the Fund or to
any Series upon 60 days' written notice to the Adviser at any time, without the
payment of any penalty, by vote of the Directors or, as to each Series, by a
"vote of the majority of the outstanding voting securities" of such Series. The
Adviser may terminate this Agreement upon 60 days' written notice to the Fund,
without the payment of any penalty. This Agreement shall immediately terminate
in the event of its "assignment".
14. The terms "majority of the outstanding voting securities", "interested
persons" and "assignment", when used herein, shall have the respective meanings
in the Investment Company Act of 1940, as amended.
4
<PAGE>
15. In the event of termination of this Agreement, or at the request of
the Adviser, the Fund will eliminate all reference to "Phoenix" and/or "Phoenix
Duff & Phelps" from its name, and will not thereafter transact business in a
name using the word "Phoenix" and/or "Phoenix Duff & Phelps" in any form or
combination whatsoever, or otherwise use the word "Phoenix" and/or "Phoenix Duff
& Phelps" as part of its name. The Fund will thereafter in all prospectuses,
advertising materials, letterheads, and other material designed to be read by
investors and prospective investors delete from its name the word "Phoenix"
and/or "Phoenix Duff & Phelps" or any approximation thereof. If the Adviser
chooses to withdraw the Fund's right to use the word "Phoenix" and/or "Phoenix
Duff & Phelps", it agrees to submit the question of continuing this Agreement to
a vote of the Fund's shareholders at the time of such withdrawal.
16. It is expressly agreed that the obligations of the Fund hereunder
shall not be binding upon any of the Directors, shareholders, nominees,
officers, agents or employees of the Fund personally, but bind only the property
of the Fund. The execution and delivery of this Agreement have been authorized
by the Directors and shareholders of the Fund and signed by the President of the
Fund, acting as such, and neither such authorization by such Directors and
shareholders nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or be binding upon or impose any
liability on any of them personally, but shall bind only the property of the
Fund.
17. This Agreement shall be construed and the rights and obligations of
the parties hereunder enforced in accordance with the General Corporation Laws
of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
PHOENIX CALIFORNIA TAX EXEMPT
BONDS, INC.
By: /s/ Philip R. McLoughlin
---------------------------------
Name: Philip R. McLoughlin
Title: President
NATIONAL SECURITIES & RESEARCH
CORPORATION
By: /s/ Michael E. Haylon
---------------------------------
Name: Michael E. Haylon
Title: President
5
Exhibit 9.3
Financial Agent Agreement
<PAGE>
FINANCIAL AGENT AGREEMENT
THIS AGREEMENT made and concluded as of this 11th day of December, 1996 by
and between Phoenix Equity Planning Corporation, a Connecticut corporation
having a place of business located at 100 Bright Meadow Boulevard, Enfield,
Connecticut (the "Financial Agent") and each of the undersigned mutual funds
(hereinafter collectively and singularly referred to as the "Trust").
WITNESSETH THAT:
1. Financial Agent shall keep the books of the Trust and compute the daily
net asset value of shares of the Trust in accordance with instructions received
from time to time from the Board of Trustees of the Trust; which instructions
shall be certified to Financial Agent by the Trust's Secretary. Financial Agent
shall report such net asset value so determined to the Trust and shall perform
such other services as may be requested from time to time by the Trust as are
reasonably incidental to Financial Agent's duties hereunder.
2. Financial Agent shall be obligated to maintain, for the periods and in
the places required by Rule 31a-2 under the Investment Company Act of 1940, as
amended, those books and records maintained by Financial Agent. Such books and
records are the property of the Trust and shall be surrendered promptly to the
Trust upon its request. Furthermore, such books and records shall be open to
inspection and audit at reasonable times by officers and auditors of the Trust.
3. As compensation for its services hereunder during any fiscal year of
the Trust, Financial Agent shall receive, within eight days after the end of
each month, a fee as specified in Schedule A.
4. Financial Agent shall not be liable for anything done or omitted by it
in the exercise of due care in discharging its duties specifically described
hereunder and shall be answerable and accountable only for its own acts and
omissions and not for those of any agent employed by it nor for those of any
bank, trust company, broker, depository, correspondent or other person.
Financial Agent shall be protected in acting upon any instruction, notice,
request, consent, certificate, resolution, or other instrument or paper believed
by Financial Agent to be genuine, and to have been properly executed, and shall,
unless otherwise specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be ascertained by Financial
Agent hereunder a certificate signed by the Secretary of the Trust. Financial
Agent shall be entitled, with respect to questions of law relating to its duties
hereunder, to advice of counsel (which may be counsel for the Trust) and, with
respect to anything done or omitted by it in good faith hereunder in conformity
with the advice of or based upon an opinion of counsel, to be held harmless by
the Trust from all claims of loss or damage. Nothing herein shall protect
Financial Agent against any liability to the Trust or to its respective
shareholders to which Financial Agent would otherwise be subject by reason of
its willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties hereunder. Except as provided in this paragraph, Financial Agent
shall not be entitled to any indemnification by the Trust.
<PAGE>
5. Subject to prior approval of the Board of Trustees of the Trust,
Financial Agent may appoint one or more sub-financial agents to perform any of
the functions and services which are to be provided under the terms of this
Agreement upon such terms and conditions as may be mutually agreed upon by the
Trust, Financial Agent and such sub-financial agent.
6. This Agreement shall continue in effect only so long as (a) such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust or by a vote of a majority of the outstanding voting securities of
the Trust, and (b) the terms and any renewal of such Agreement have been
approved by the vote of a majority of the trustees of the Trust who are not
parties to this Agreement or interested persons, as that term is defined in the
Investment Company Act of 1940, as amended, of any such party, cast in person at
a meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Trust" shall have, for all purposes of this
Agreement, the meaning provided therefor in said Investment Company Act.
7. Either party may terminate the within Agreement by tendering written
notice to the other, whereupon Financial Agent will be relieved of the duties
described herein. This Agreement shall immediately terminate in the event of its
assignment, as that term is defined in said Investment Company Act.
8. This Agreement shall be construed and the rights and obligations of the
parties hereunder enforced in accordance with the laws of the Commonwealth of
Massachusetts.
<PAGE>
9. This Agreement shall become effective on January 1, 1997.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first written above.
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX SERIES FUND
PHOENIX STRATEGIC ALLOCATION FUND, INC.
PHOENIX STRATEGIC EQUITY SERIES FUND
PHOENIX WORLDWIDE OPPORTUNITIES FUND
By: /s/ Philip R. McLoughlin
--------------------------------------
Philip R. McLoughlin
President
PHOENIX EQUITY PLANNING
CORPORATION
By: /s/ David R. Pepin
-------------------------------------
David R. Pepin
Executive Vice President
<PAGE>
SCHEDULE A
FEE SCHEDULE
FEE INFORMATION FOR SERVICES AS FINANCIAL AGENT
Annual Financial Agent Fees shall be based on the following formula:
(1) An incremental schedule applies as follows:
Up to $100 million: 5 basis points on average daily net assets
$100 million to $300 million: 4 basis points on average daily net assets
$300 million thru $500 million: 3 basis points on average daily net assets
Greater than $500 million: 1.5 basis points on average daily net assets
A minimum fee will apply as follows:
Money Market $35,000
Equity $50,000
Balanced $60,000
Fixed Income $70,000
International $70,000
REIT $70,000
(2) An additional charge of $12,000 applies for each additional class of
shares above one, over and above the minimum asset-based fee previously noted.
The following tables indicates the classification and effective date for
each of the applicable fund/series/portfolio:
Classification Series Name
-------------- -----------
Money Market Phoenix Money Market Fund Series
Equity Phoenix Aggressive Growth Fund Series
Phoenix Convertible Fund Series
Phoenix Endowment Equity Portfolio
Phoenix Equity Opportunities Fund
Phoenix Growth Fund Series
Phoenix Micro Cap Fund
Phoenix Mid Cap Portfolio
Phoenix Small Cap Fund
Phoenix Strategic Theme Fund
<PAGE>
Classification Series Name
-------------- -----------
Balanced Phoenix Balanced Fund Series
Phoenix Income and Growth Fund
Phoenix Strategic Allocation Fund, Inc.
Fixed Income Phoenix California Tax Exempt Bonds, Inc.
Phoenix Diversified Income Portfolio
Phoenix Emerging Markets Bond Portfolio
Phoenix High Yield Fund Series
Phoenix Multi-Sector Fixed Income Fund, Inc.
Phoenix Multi-Sector Short Term Bond Fund
Phoenix Tax-Exempt Bond Portfolio
Phoenix U.S. Government Securities Fund Series
International Phoenix International Portfolio
Phoenix Worldwide Opportunities Fund
REIT Phoenix Real Estate Securities Portfolio
Exhibit 9.4
First Amendment to Financial Agent Agreement
<PAGE>
FIRST AMENDMENT TO FINANCIAL AGENT AGREEMENT
THIS AMENDMENT made effective as of the 1st day of January, 1997 amends that
certain Financial Agent Agreement dated December 11, 1996 by and among the
following parties (the "Agreement") as hereinbelow provided.
W I T N E S S E T H :
WHEREAS, due to a scrivener's error, the Phoenix Convertible Fund Series
was incorrectly classified as an "Equity" series rather than a "Balanced" series
for purposes of applying the minimum fee; and
WHEREAS, the parties wish to correct this error and correctly classify the
Phoenix Convertible Fund Series as a "Balanced" series:
NOW, THEREFORE, in consideration of the foregoing premises, Schedule A to
the Agreement is hereby replaced with "Revised Schedule A" attached hereto and
made a part hereof. Except as hereinabove provided, the Agreement shall be and
remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers on this 25th day of February, 1997.
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX SERIES FUND
PHOENIX STRATEGIC ALLOCATION FUND, INC.
PHOENIX STRATEGIC EQUITY SERIES FUND
PHOENIX WORLDWIDE OPPORTUNITIES FUND
By: /s/ Philip R. McLoughlin
----------------------------------------------
Philip R. McLoughlin
President (as to all)
PHOENIX EQUITY PLANNING CORPORATION
By: /s/ David R. Pepin
----------------------------------------------
David R. Pepin
Executive Vice President
<PAGE>
REVISED SCHEDULE A
FEE SCHEDULE
FEE INFORMATION FOR SERVICES AS FINANCIAL AGENT
Annual Financial Agent Fees shall be based on the following formula:
(1) An incremental schedule applies as follows:
Up to $100 million: 5 basis points on average daily net assets
$100 million to $300 million: 4 basis points on average daily net assets
$300 million thru $500 million: 3 basis points on average daily net assets
Greater than $500 million: 1.5 basis points on average daily net assets
A minimum fee will apply as follows:
Money Market $35,000
Equity $50,000
Balanced $60,000
Fixed Income $70,000
International $70,000
REIT $70,000
(2) An additional charge of $12,000 applies for each additional class of
shares above one, over and above the minimum asset-based fee previously noted.
The following tables indicates the classification and effective date for
each of the applicable fund/series/portfolio:
Classification Series Name
-------------- -----------
Money Market Phoenix Money Market Fund Series
Equity Phoenix Aggressive Growth Fund Series
Phoenix Endowment Equity Portfolio
Phoenix Equity Opportunities Fund
Phoenix Growth Fund Series
Phoenix Micro Cap Fund
Phoenix Mid Cap Portfolio
Phoenix Small Cap Fund
Phoenix Strategic Theme Fund
<PAGE>
Classification Series Name
-------------- -----------
Balanced Phoenix Balanced Fund Series
Phoenix Convertible Fund Series
Phoenix Income and Growth Fund
Phoenix Strategic Allocation Fund, Inc.
Fixed Income Phoenix California Tax Exempt Bonds, Inc.
Phoenix Diversified Income Portfolio
Phoenix Emerging Markets Bond Portfolio
Phoenix High Yield Fund Series
Phoenix Multi-Sector Fixed Income Fund, Inc.
Phoenix Multi-Sector Short Term Bond Fund
Phoenix Tax-Exempt Bond Portfolio
Phoenix U.S. Government Securities Fund Series
International Phoenix International Portfolio
Phoenix Worldwide Opportunities Fund
REIT Phoenix Real Estate Securities Portfolio
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