As filed with the Securities and Exchange Commission on June 8, 2000
Registration Nos. 2-83024
811-3714
================================================================================
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. 24 [X]
AND/OR
REGISTRATION STATEMENT
UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 25 [X]
(CHECK APPROPRIATE BOX OR BOXES)
-----------------
PHOENIX-GOODWIN 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)
-----------------
PAMELA S. SINOFSKY
ASSISTANT VICE PRESIDENT AND ASSISTANT COUNSEL
PHOENIX INVESTMENT PARTNERS, LTD.
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 (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
===============================================================================
<PAGE>
PHOENIX-GOODWIN CALIFORNIA TAX EXEMPT BONDS, INC.
CROSS REFERENCE SHEET PURSUANT TO RULE 495(A)
UNDER THE SECURITIES ACT OF 1933
PART A
INFORMATION REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Item Number Form N-1A, Part A Prospectus Caption
----------------------------- ------------------
<S> <C> <C>
1. Front and Back Cover Pages............................... Cover Page, Back Cover Page
2. Risk/Return Summary: Investments, Risks,
Performance.............................................. Investment Risk and Return Summary
3. Risk/Return Summary: Fee Table........................... Fund Expenses
4. Investment Objectives, Principal Investment
Strategies, and Related Risks............................ Investment Risk and Return Summary
5. Management's Discussion of Fund Performance.............. Performance Tables
6. Management, Organization, and Capital Structure.......... Management of the Fund
7. Shareholder Information.................................. Pricing of Fund Shares; Sales Charges; Your
Account; How to Buy Shares; How to Sell Shares;
Things to Know When Selling Shares; Account
Policies; Investor Services; Tax Status of Distributions
8. Distribution Arrangements................................ Sales Charges
9. Financial Highlights Information......................... Financial Highlights
</TABLE>
PART B
INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Item Number Form N-1A, Part B Statement of Additional Information Caption
----------------------------- -------------------------------------------
<S> <C> <C>
10. Cover Page and Table of Contents......................... Cover Page, Table of Contents
11. Fund History............................................. The Fund
12. Description of the Fund and Its Investment Risks......... Investment Objectives and Policies; Investment
Restrictions
13. Management of the Fund................................... Management of the Fund
14. Control Persons and Principal Holders of Securities...... Management of the Fund
15. Investment Advisory and Other Services................... Services of the Adviser; The Distributor;
Distribution Plans; Other Information
16. Brokerage Allocation and Other Practices................. Portfolio Transactions and Brokerage
17. Capital Stock and Other Securities...................... Other Information
18. Purchase, Redemption, and Pricing of Shares.............. Net Asset Value; How to Buy Shares; Investor
Account Services; Redemption of Shares; Tax
Sheltered Retirement Plans
19. Taxation of the Fund..................................... Dividends, Distributions and Taxes
20. Underwriters............................................. The Distributor
21. Calculation of Performance Data.......................... Performance Information
22. Financial Statements..................................... Financial Statements
</TABLE>
PART C
INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH
UNDER THE APPROPRIATE ITEM, SO NUMBERED, IN PART C
OF THIS Registration Statement.
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Investment Risk and Return Summary........... 1
Fund Expenses................................ 5
Management of the Fund....................... 6
Pricing of Fund Shares....................... 7
Sales Charges................................ 8
Your Account................................. 10
How to Buy Shares............................ 11
How to Sell Shares........................... 11
Things You Should Know When Selling Shares... 12
Account Policies............................. 14
Investor Services............................ 15
Tax Status of Distributions.................. 16
Financial Highlights......................... 17
Additional Information....................... 19
[triangle] Phoenix-
Goodwin
California
Tax Exempt
Bonds
<PAGE>
INVESTMENT RISK AND RETURN SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Phoenix-Goodwin California Tax Exempt Bonds has an investment objective to
obtain a high level of current income exempt from California state and local
income taxes, as well as federal income tax, consistent with the preservation of
capital. There is no guarantee that the fund will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[arrow] The fund invests in municipal securities that are tax exempt in
California. 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 that are exempt from California income taxes. The fund will
invest at least 80% of its net assets in municipal securities that are
tax exempt in California and may invest 100% of its assets in such
securities.
[arrow] Securities in which the fund may invest include municipal bonds, notes
and lease obligations and tax-exempt commercial paper. Issuers include
states, territories and possessions of the United States and their
political subdivisions, agencies authorities and instrumentalities,
including Puerto Rico, Guam and the U.S. Virgin Islands.
[arrow] Debt obligations will be rated within the four highest rating
categories at the time of investment and may be of any maturity.
[arrow] Securities are selected using an analytical approach that focuses on
the:
o relative value of the security considering its credit rating; and
o the security's coupon rate, call features, maturity and average life.
[arrow] Issuers are selected based on:
o sector (utility, healthcare, transportation, etc.) and
o the geographic opportunity presented by areas and regions that are
experiencing economic growth.
[arrow] The balance of the fund's assets not invested in tax-exempt securities
may be invested in taxable fixed income securities. Income from these
investments may be subject to federal, state and local taxes.
Temporary Defensive Strategy: When, in the adviser's opinion, abnormal market or
economic conditions warrant the fund may hold taxable securities, retain cash or
invest part or all of its assets in cash equivalents. In such instances, the
fund may not achieve its stated objective.
Phoenix-Goodwin California Tax Exempt Bonds 1
<PAGE>
PRINCIPAL RISKS
If you invest in this fund, you risk that you may lose your investment.
GENERAL
The value of your shares and the level of income you receive are subject to
risks associated with the types of securities selected for fund investment.
Neither the fund nor the adviser can assure you that a particular level of
income will consistently be achieved or that the value of the fund's investments
that supports your share value will increase. If the value of fund investments
decreases, your share value will decrease.
CALIFORNIA BONDS
Certain California Constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could impair the
ability of some California bond issuers to maintain debt service on their
obligations or their ability to maintain tax-exempt income. This could
negatively affect the fund's level of income, capital appreciation and
liquidity.
CREDIT RISK
Credit risk pertains to the issuer's ability to make scheduled interest or
principal payments. Generally, the lower a security's credit rating the greater
chance that the issuer will be unable to make such payments when due.
INTEREST RATE RISK
Interest rate trends can have an affect on the value of your shares. If interest
rates rise, the value of debt securities generally will fall. Because the fund
may hold securities with longer maturities, the net asset value of the fund may
experience greater price fluctuations in response to changes in interest rates
than funds that hold only securities with short-term maturities. Prices of
longer-term securities are affected more by interest rate changes than prices of
shorter-term securities.
LONG-TERM MATURITIES
Fixed income securities with longer maturities may be subject to greater price
fluctuations due to interest rate, tax law and general market changes.
LOWER RATED SECURITIES
Fixed income securities in lower credit rating categories have a greater risk
that the issuer will not pay interest and principal payments on time or at all.
2 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
MUNICIPAL SECURITIES
Principal and interest payments on municipal securities may not be guaranteed by
the issuing body and may be payable only from monies derived from a particular
source (so called "revenue bonds"). If the source does not perform as expected,
principal and income payments may not be made on time or at all. In addition,
the market for municipal securities is often thin and can be temporarily
affected by large purchases and sales, including those by the fund. General
conditions in the financial markets and the size of a particular offering may
also negatively affect municipal securities' returns.
PUERTO RICO BONDS
Certain federal tax credits currently offered to qualifying U.S. manufacturing
firms operating in Puerto Rico will be phased out by January 1, 2006. The effect
this will have on Puerto Rico's economy is still uncertain.
TAX-EXEMPT SECURITIES
Tax-exempt securities may not provide a higher after-tax return than taxable
securities.
Phoenix-Goodwin California Tax Exempt Bonds 3
<PAGE>
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of investing
in Phoenix-Goodwin California Tax Exempt Bonds. The bar chart shows changes in
the fund's Class A Shares performance from year to year over the last ten
years.(1) The table shows how the fund's average annual returns for one, five
and ten years, or for the life of the class compare to those of a broad-based
securities market index. The fund's past performance is not necessarily an
indication of how the fund will perform in the future.
[GRAPHIC OMITTED]
Calendar Year Annual Return (%)
1990 7.17
1991 11.16
1992 6.89
1993 9.74
1994 -5.18
1995 19.16
1996 2.69
1997 8.37
1998 5.06
1999 -3.73
(1) The fund's average annual returns in the chart above do not reflect the
deduction of any sales charges. The returns would have been less than those
shown if sales charges were deducted. During the period shown in the chart
above, the highest return for a quarter was 8.35% (quarter ending March 31,1995)
and the lowest return for a quarter was (3.83%) (quarter ending March 31, 1994).
Year-to-date performance (through June 30, 2000) was ______%.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Average Annual Total Returns(1) Life of the Fund(2)
(for the periods ending 12/31/99) One Year Five Years Ten Years Class A Class B
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares (8.30)% 5.02% 5.40% -- --
------------------------------------------------------------------------------------------------------------------
Class B Shares (8.15)% 5.26% N/A -- 4.12%
------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond % % % %(4) %(5)
Index(3)
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund's average annual returns in the table above reflect the deduction
of the maximum sales charge for an investment in the fund's Class A Shares and a
full redemption in the fund's Class B Shares.
(2) Class B Shares since July 26, 1994.
(3) The Lehman Brothers Municipal Bond Index is an unmanaged but commonly used
measure of long-term, investment-grade, tax-exempt municipal bond total return
performance. The Lehman Brothers Municipal Bond Index performance does not
reflect sales charges.
(4) Index performance since May 31, 1983.
(5) Index performance since July 31, 1994.
4 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
FUND EXPENSES
--------------------------------------------------------------------------------
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the fund.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------ -------
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
Maximum Sales Charge (load) Imposed on Purchases (as a
percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (load) (as a percentage of
the lesser of the value redeemed or the amount invested) None 5%(a)
Maximum Sales Charge (load) Imposed on Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
----------------------------------------------------
CLASS A CLASS B
SHARES SHARES
------ -------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS)
Management Fees 0.45% 0.45%
Distribution and Service (12b-1) Fees(b) 0.25% 1.00%
Other Expenses % %
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES % %
===== =====
</TABLE>
(a) The maximum deferred sales charge is imposed on Class B Shares redeemed
during the first year; thereafter, it decreases 1% annually to 2% during the
fourth and fifth years and to 0% after the fifth year.
(b) Distribution and Service 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.
("NASD").
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. In the case of Class B Shares, it is
assumed that your shares are converted to Class A after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
Phoenix-Goodwin California Tax Exempt Bonds 5
<PAGE>
--------------------------------------------------------------------------------
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A $ $ $ $
--------------------------------------------------------------------------------
Class B $ $ $ $
--------------------------------------------------------------------------------
You would pay the following expenses if you did not redeem your shares:
--------------------------------------------------------------------------------
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class B $ $ $ $
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
THE ADVISER
Phoenix Investment Counsel, Inc., ("Phoenix") is the investment adviser to the
fund and is located at 56 Prospect Street, Hartford, CT 06115. Phoenix also acts
as the investment adviser for 14 fund companies totaling 38 mutual funds, as
subadviser to two fund companies totaling three mutual funds and as adviser to
institutional clients. As of December 31, 1999, Phoenix had $25.7 billion in
assets under management. Phoenix has acted as an investment adviser for over
sixty years.
Subject to the direction of the fund's Board of Trustees, Phoenix is responsible
for managing the fund's investment program, the general operations and the
day-to-day management of the fund. Phoenix manages the fund's assets to conform
with the investment policies as described in this prospectus. The fund pays
Phoenix a monthly investment management fee that is accrued daily against the
value of the fund's net assets at the following rates.
--------------------------------------------------------------------------------
$1+ billion
$1st billion through $2 billion $2+ billion
--------------------------------------------------------------------------------
Management Fee 0.45% 0.40% 0.35%
--------------------------------------------------------------------------------
During the fund's last fiscal year, the fund paid total management fees of
$________. The ratio of management fees to average net assets for the fiscal
year ended April 30, 2000 was 0.45%.
PORTFOLIO MANAGEMENT
Timothy Heaney is the portfolio manager of the fund and as such is primarily
responsible for the day-to-day management of the fund's portfolio. Mr. Heaney
has managed the fund since September 1997 and previously co-managed the fund
from March 1996. Mr. Heaney has been a Vice President of the fund since May
1996. He is Managing Director, Fixed Income (since
6 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
December 1997) of Phoenix, and was previously Director, Fixed Income Research
(September 1996 to December 1997) and Investment Analyst (January 1995 to
September 1996). He served as Investment Analyst of Phoenix Home Life from
November 1992 until December 1994. Mr. Heaney is also portfolio manager of
Phoenix-Goodwin Tax-Exempt Bond Fund of Phoenix Multi-Portfolio Fund.
PRICING OF THE FUND SHARES
--------------------------------------------------------------------------------
HOW IS THE SHARE PRICE DETERMINED?
The fund calculates a share price for each class of its shares. The share price
is based on the net assets of the fund and the number of outstanding shares. In
general, the fund calculates net asset value by:
o adding the values of all securities and other assets of the fund,
o subtracting liabilities, and
o dividing the result by the total number of outstanding shares of
the fund.
Asset Value: The fund's investments are valued at market value. If market
quotations are not available, the fund determines a "fair value" for an
investment according to rules and procedures approved by the Trustees. Foreign
and domestic debt securities (other than short-term investments) are valued on
the basis of broker quotations or valuations provided by a pricing service
approved by the Trustees when such prices are believed to reflect the fair value
of such securities. Foreign and domestic equity securities are valued at the
last sale price or, if there has been no sale that day, at the last bid price,
generally. Short-term investments having a remaining maturity of sixty days or
less are valued at amortized cost, which the Trustees have determined
approximates market value.
Liabilities: Class specific expenses, distribution fees, service fees and other
liabilities are deducted from the assets of each class. Expenses and liabilities
that are not class specific (such as management fees) are allocated to each
class in proportion to each class' net assets, except where an alternative
allocation can be more fairly made.
Net Asset Value: The liability allocated to a class plus any other expenses are
deducted from the proportionate interest of such class in the assets of the
fund. The resulting amount for each class is then divided by the number of
shares outstanding of that class to produce each class' net asset value per
share.
The net asset value per share of each class of the fund is determined on days
when the New York Stock Exchange (the "NYSE") is open for trading as of the
close of trading (normally 4:00 PM eastern time). The fund will not calculate
its net asset values per share on days when the NYSE is closed for trading. If
the fund holds securities that are traded on foreign
Phoenix-Goodwin California Tax Exempt Bonds 7
<PAGE>
exchanges that trade on weekends or other holidays when the fund does not price
its shares, the net asset value of the fund's shares may change on days when
shareholders will not be able to purchase or redeem the fund's shares.
AT WHAT PRICES ARE SHARES PURCHASED?
All investments received by the fund's authorized agents prior to the close of
regular trading on the NYSE (normally 4:00 PM eastern time) will be executed
based on that day's net asset value. Shares credited to your account from the
reinvestment of fund distributions will be in full and fractional shares that
are purchased at the closing net asset value on the next business day on which
the fund's net asset value is calculated following the dividend record date.
SALES CHARGES
--------------------------------------------------------------------------------
WHAT ARE THE CLASSES AND HOW DO THEY DIFFER?
The fund presently offers two classes of shares that have different sales and
distribution charges (see "Fund Expenses" previously in this prospectus). The
fund has adopted distribution and service plans allowed under Rule 12b-1 of the
Investment Company Act of 1940 that authorize the fund to pay distribution and
service fees for the sale of its shares and for services provided to
shareholders.
WHAT ARRANGEMENT IS BEST FOR YOU?
The different classes permit you to choose the method of purchasing shares that
is most beneficial to you. In choosing a class, consider the amount of your
investment, the length of time you expect to hold the shares, whether you decide
to receive distributions in cash or to reinvest them in additional shares, and
any other personal circumstances. Depending upon these considerations, the
accumulated distribution and service fees and contingent deferred sales charges
of one class may be more or less than the initial sales charge and accumulated
distribution and service fees of another class of shares bought at the same
time. Because distribution and service fees are paid out of the fund's assets on
an ongoing basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
CLASS A SHARES. If you purchase Class A Shares, you will pay a sales charge at
the time of purchase equal to 4.75% of the offering price (4.99% of the amount
invested). The sales charge may be reduced or waived under certain conditions.
Class A Shares are not subject to any charges by the fund when redeemed. Class A
Shares have lower distribution and service fees (0.25%) and pay higher dividends
than Class B Shares.
CLASS B SHARES. If you purchase Class B Shares, you will not pay a sales charge
at the time of purchase. If you sell your Class B Shares within the first five
years after they are purchased, you
8 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
will pay a sales charge of up to 5% of your shares' value. See "Deferred Sales
Charge Alternative--Class B Shares" below. This charge declines to 0% over a
period of 5 years and may be waived under certain conditions. Class B Shares
have higher distribution and service fees (1.00%) and pay lower dividends than
Class A Shares. Class B Shares automatically convert to Class A Shares eight
years after purchase. Purchases of Class B Shares may be inappropriate for any
investor who may qualify for reduced sales charges of Class A Shares and anyone
who is over 85 years of age. The underwriter may decline purchases in such
situations.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A Shares is the net asset value plus a sales
charge that varies depending on the size of your purchase (see "Class A
Shares--Reduced Sales Charges: Combination Purchase Privilege" in the Statement
of Additional Information). Shares purchased based on the automatic reinvestment
of income dividends or capital gains distributions are not subject to any sales
charges. The sales charge is divided between your investment dealer and the
funds' underwriter (Phoenix Equity Planning Corporation or "PEPCO").
SALES CHARGE YOU MAY PAY TO PURCHASE CLASS A SHARES
SALES CHARGE AS
A PERCENTAGE OF
-----------------------------------------
AMOUNT OF NET
TRANSACTION OFFERING AMOUNT
AT OFFERING PRICE PRICE INVESTED
--------------------------------------------------------------------------------
Under $50,000 4.75% 4.99%
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.75 2.83
$500,000 but under $1,000,000 2.00 2.04
$1,000,000 or more None None
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B Shares are purchased without an initial sales charge; however, shares
sold within a specified time period are subject to a declining contingent
deferred sales charge ("CDSC") at the rates listed below. The sales charge will
be multiplied by the then current market value or the initial cost of the shares
being redeemed, whichever is less. No sales charge will be imposed on increases
in net asset value or on shares purchased through the reinvestment of income
dividends or capital gains distributions. To minimize the sales charge, shares
not subject to any charge will be redeemed first, followed by shares held the
longest time. To calculate the amount of shares owned and time period held, all
Class B Shares purchased in any month are considered purchased on the last day
of the preceding month.
DEFERRED SALES CHARGE YOU MAY PAY TO SELL CLASS B SHARES
YEAR 1 2 3 4 5 6+
---------------------------------------------------------------------------
CDSC 5% 4% 3% 2% 2% 0%
Phoenix-Goodwin California Tax Exempt Bonds 9
<PAGE>
YOUR ACCOUNT
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
Your financial advisor can assist you with your initial purchase as well as all
phases of your investment program. If you are opening an account by yourself,
please follow the instructions outlined below.
STEP 1.
Your first choice will be the initial amount you intend to invest.
Minimum INITIAL investments:
o $25 for individual retirement accounts, or accounts that use the
systematic exchange privilege, or accounts that use the
Investo-Matic program (see below for more information on the
Investo-Matic program).
o There is no initial dollar requirement for defined contribution
plans, profit-sharing plans, or employee benefit plans. There is
also no minimum for reinvesting dividends and capital gains into
another account.
o $500 for all other accounts.
Minimum ADDITIONAL investments:
o $25 for any account.
o There is no minimum for defined contribution plans, profit-sharing
plans, or employee benefit plans. There is also no minimum for
reinvesting dividends and capital gains into an existing account.
The fund reserves the right to refuse any purchase order for any reason.
STEP 2.
Your second choice will be what class of shares to buy. The fund offers two
classes of shares for individual investors. Each has different sales and
distribution charges. Because all future investments in your account will be
made in the share class you choose when you open your account, you should make
your decision carefully. Your financial advisor can help you pick the share
class that makes the most sense for your situation.
STEP 3.
Your next choice will be how you want to receive any dividends and capital gain
distributions. Your options are:
o Receive both dividends and capital gain distributions in additional
shares;
10 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
o Receive dividends in additional shares and capital gain distributions
in cash;
o Receive dividends in cash and capital gain distributions in
additional shares; or
o Receive both dividends and capital gain distributions in cash.
No interest will be paid on uncashed distribution checks.
HOW TO BUY SHARES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------- ----------------------------------------------------------------------------
TO OPEN AN ACCOUNT
----------------------------------- ----------------------------------------------------------------------------
<S> <C>
Through a financial advisor Contact your advisor.
Some advisors may charge a fee and may set
different minimum investments or
limitations on buying shares.
----------------------------------- ----------------------------------------------------------------------------
Through the mail Complete a New Account Application and send it with a check payable to the
fund. Mail them to: State Street Bank, P.O. Box 8301, Boston, MA
02266-8301.
----------------------------------- ----------------------------------------------------------------------------
Through express delivery Complete a New Account Application and send it with a check payable to the
fund. Send them to: Boston Financial Data Services, Attn: Phoenix Funds,
66 Brooks Drive, Braintree, MA 02184.
----------------------------------- ----------------------------------------------------------------------------
By Federal Funds wire Call us at (800)243-1574 (press 1, then 0).
----------------------------------- ----------------------------------------------------------------------------
By Investo-Matic Complete the appropriate section on the application and send it with your
initial investment payable to the fund. Mail them to: State Street Bank,
P.O. Box 8301, Boston, MA 02266-8301.
----------------------------------- ----------------------------------------------------------------------------
By telephone exchange Call us at (800)243-1574 (press 1, then 0).
----------------------------------- ----------------------------------------------------------------------------
</TABLE>
HOW TO SELL SHARES
--------------------------------------------------------------------------------
You have the right to have the fund buy back shares at the net asset value next
determined after receipt of a redemption order by the fund's Transfer Agent or
an authorized agent. In the case of a Class B Share redemption, you will be
subject to the applicable deferred sales charge, if any, for such shares.
Subject to certain restrictions, shares may be redeemed by telephone or in
writing. In addition, shares may be sold through securities dealers, brokers or
agents who may charge customary commissions or fees for their services. The fund
does not charge any redemption fees. Payment for shares redeemed is made within
seven days; however,
Phoenix-Goodwin California Tax Exempt Bonds 11
<PAGE>
redemption proceeds will not be disbursed until each check used for purchases of
shares has been cleared for payment by your bank, which may take up to 15 days
after receipt of the check.
------------------------------------ -------------------------------------------
TO SELL SHARES
------------------------------------ -------------------------------------------
Through a financial advisor Contact your advisor. Some advisors may
charge a fee and may set different minimums
on redemptions of accounts.
------------------------------------ -------------------------------------------
Through the mail Send a letter of instruction and any share
certificates (if you hold certificate
shares) to: State Street Bank, P.O. Box
8301, Boston, MA 02266-8301. Be sure to
include the registered owner's name, fund
and account number, number of shares or
dollar value you wish to sell.
------------------------------------ -------------------------------------------
Through express delivery Send a letter of instruction and any share
certificates (if you hold certificate
shares) to: Boston Financial Data Services,
Attn: Phoenix Funds, 66 Brooks Drive,
Braintree, MA 02184. Be sure to include the
registered owner's name, fund and account
number, and number of shares or dollar
value you wish to sell.
------------------------------------ -------------------------------------------
By telephone For sales up to $50,000, requests can be
made by calling (800)243-1574.
------------------------------------ -------------------------------------------
By telephone exchange Call us at (800)243-1574 (press 1, then 0).
------------------------------------ -------------------------------------------
THINGS YOU SHOULD KNOW WHEN SELLING SHARES
--------------------------------------------------------------------------------
You may realize a taxable gain or loss (for federal income tax purposes) if you
redeem shares of the fund. The fund reserves the right to pay large redemptions
"in-kind" (in securities owned by the fund rather than in cash). Large
redemptions are those over $250,000 or 1% of the fund's net assets. Additional
documentation will be required for redemptions by organizations, fiduciaries, or
retirement plans, or if redemption is requested by anyone but the shareholder(s)
of record. Transfers between broker-dealer "street" accounts are governed by the
accepting broker-dealer. Questions regarding this type of transfer should be
directed to your financial advisor. Redemption requests will not be honored
until all required documents in proper form have been received. To avoid delay
in redemption or transfer, shareholders having questions about specific
requirements should contact the fund's Transfer Agent at (800) 243-1574.
12 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
REDEMPTIONS BY MAIL
[arrow] If you are selling shares held individually, jointly, or as custodian
under the Uniform Gifts to Minors Act or Uniform Transfers to Minors
Act.
Send a clear letter of instructions if all of these apply:
o The proceeds do not exceed $50,000.
o The proceeds are payable to the registered owner at the address on
record.
Send a clear letter of instructions with a signature guarantee when any
of these apply:
o You are selling more than $50,000 worth of shares.
o The name or address on the account has changed within the last 60
days.
o You want the proceeds to go to a different name or address than on
the account.
[arrow] If you are selling shares held in a corporate or fiduciary account,
please contact the fund's Transfer Agent at (800) 243-1574.
If required, the signature guarantee on your request must be made 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.
SELLING SHARES BY TELEPHONE
The Transfer Agent will use reasonable procedures to confirm that telephone
instructions are genuine. Address and bank account information are verified,
redemption instructions are taped, and all redemptions are confirmed in writing.
The individual investor bears the risk from instructions given by an
unauthorized third party that the Transfer Agent reasonably believed to be
genuine.
The Transfer Agent may modify or terminate the telephone redemption privilege at
any time with 60 days notice to shareholders.
During times of drastic economic or market changes, telephone redemptions may be
difficult to make or temporarily suspended.
Phoenix-Goodwin California Tax Exempt Bonds 13
<PAGE>
ACCOUNT POLICIES
--------------------------------------------------------------------------------
ACCOUNT REINSTATEMENT PRIVILEGE
For 180 days after you sell your Class A or B Shares, you can purchase Class A
Shares of any fund at net asset value, with no sales charge, by reinvesting all
or part of your proceeds, but not more. Send your written request to State
Street Bank, P.O. Box 8301, Boston, MA 02266-8301. You can call us at (800)
243-1574 for more information.
Please remember, a redemption and reinvestment are considered to be a sale and
purchase for tax-reporting purposes. Class B shareholders who have had the
contingent deferred sales charge waived because they are in the Systematic
Withdrawal Program are not eligible for this reinstatement privilege.
REDEMPTION OF SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, if your account balance is
less than $200, you may receive a notice requesting you to bring the balance up
to $200 within 60 days. If you do not, the shares in the account will be sold at
net asset value, and a check will be mailed to the address of record.
EXCHANGE PRIVILEGES
You should carefully read the prospectus of the fund into which you want to
exchange before deciding to make an exchange. You can obtain a prospectus from
your financial advisor or by calling us at (800) 243-4361 or accessing our Web
site at www.phoenixinvestments.com.
o You may exchange shares for another fund in the same class of shares;
e.g., Class A for Class A. Exchange privileges are limited and may
not be available for all Phoenix Funds, and the fund's distributor
has the right to reject or suspend them.
o Exchanges may be made by phone (800) 243-1574 or by mail (State
Street Bank, P.O. Box 8301, Boston, MA 02266-8301).
o The amount of the exchange must be equal to or greater than the
minimum initial investment required.
o The exchange of shares is treated as a sale and purchase for federal
income tax purposes.
o Because excessive trading can hurt fund performance and harm other
shareholders, the Fund reserves the right to temporarily or
permanently end exchange privileges or reject an order from anyone
who appears to be attempting to time the market, including investors
who request more than one exchange in any 30-day period. The fund's
underwriter has entered into agreements with certain market timing
firms
14 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
permitting them to exchange by telephone. These privileges are
limited, and the fund distributor has the right to reject or suspend
them.
RETIREMENT PLANS
Shares of the fund may be used as investments under the following qualified
prototype retirement plans: traditional IRA, rollover IRA, SEP-IRA, SIMPLE IRA,
Roth IRA, 401(k) plans, profit-sharing, money purchase pension plans, and 403(b)
plans. For more information, call (800) 243-4361.
INVESTOR SERVICES
--------------------------------------------------------------------------------
INVESTO-MATIC is a systematic investment plan that allows you to have a
specified amount automatically deducted from your checking or savings account
and then deposited into your mutual fund account. Just complete the
Investo-Matic Section on the application and include a voided check.
SYSTEMATIC EXCHANGE allows you to automatically move money from one Phoenix Fund
to another on a monthly, quarterly, semiannual or annual basis. Shares of one
Phoenix Fund will be exchanged for shares of the same class of another fund at
the interval you select. To sign up, just complete the Systematic Exchange
Section on the application. Exchange privileges are limited and may not be
available for all Phoenix Funds, and the fund's distributor has the right to
reject or suspend them.
TELEPHONE EXCHANGE lets you exchange shares of one fund for the same class of
shares in another fund, using our customer service telephone service. See the
Telephone Exchange Section on the application. Exchange privileges are limited
and may not be available for all Phoenix Funds, and the fund's distributor has
the right to reject or suspend them.
SYSTEMATIC WITHDRAWAL PROGRAM allows you to periodically redeem a portion of
your account on a predetermined monthly, quarterly, semiannual, or annual basis.
Sufficient shares will be redeemed on the 15th of the month at the closing net
asset value so that the payment is made about the 20th of the month. The program
also provides for redemptions on or about the 10th, 15th, or 25th with proceeds
directed through Automated Clearing House (ACH) to your bank. The minimum
withdrawal is $25, and minimum account balance requirements continue.
Shareholders in the program must own fund shares worth at least $5,000.
Phoenix-Goodwin California Tax Exempt Bonds 15
<PAGE>
TAX STATUS OF DISTRIBUTIONS
The fund plans to make distributions from net investment income monthly and to
distribute net realized capital gains, if any, at least annually. Distributions
of short-term capital gains and net investment income are taxable to
shareholders as ordinary income. Long-term capital gains, if any, distributed to
shareholders and which are designated by the fund as capital gains
distributions, are taxable to shareholders as long-term capital gain
distributions regardless of the length of time you have owned your shares.
The fund may invest a portion of its assets in securities that generate income
that is not exempt from federal or state income tax. Income exempt from federal
tax may be subject to state and local income tax. Any capital gains distributed
by the fund may be taxable.
Unless you elect to receive distributions in cash, dividends and capital gain
distributions are paid in additional shares. All distributions, cash or
additional shares, are subject to federal income tax and may be subject to
state, local and other taxes.
16 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
These tables are intended to help you understand the fund's financial
performance over the past five years. Certain information reflects financial
results for a single fund share. The total returns in the tables represent the
rate that an investor would have earned or lost on an investment in the fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, independent accountants. Their
report, together with the fund's financial statements, are included in the
fund's most recent Annual Report, which is available upon request.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
YEAR ENDED APRIL 30,
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.12 $12.72 $12.77 $12.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.64 0.65 0.66 0.67
Net realized and unrealized gain 0.11 0.47 0.04 0.20
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.75 1.12 0.70 0.87
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.63) (0.65) (0.66) (0.67)
Distributions in excess of
net investment income -- -- -- (0.01)
Distributions from net realized gains (0.06) (0.07) (0.09) (0.03)
Distributions in excess of accumulated
net realized gains -- -- -- (0.02)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.69) (0.72) (0.75) (0.73)
------ ------ ------ ----- ------
Change in net asset value 0.06 0.40 (0.05) 0.14
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.18 $13.12 $12.72 $12.77
====== ====== ====== ====== ======
Total return(1) 5.92% 8.84% 5.56% 6.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $95,230 $102,312 $109,358 $113,806
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.00% 0.96% 0.93% 0.99%
Net investment income 4.72% 4.90% 5.13% 5.15%
Portfolio turnover 14% 9% 17% 20%
-----------------------
</TABLE>
(1) Maximum sales charge is not reflected in total return calculation.
Phoenix-Goodwin California Tax Exempt Bonds 17
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED APRIL 30,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.13 $12.73 $12.77 $12.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.56 0.56 0.56(4)
Net realized and unrealized gain (loss) 0.12 0.46 0.05 0.20
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.66 1.02 0.61 0.76
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.53) (0.55) (0.56) (0.56)
Distributions in excess of net investment
income -- -- -- (0.01)
Distributions from net realized gains (0.06) (0.07) (0.09) (0.03)
Distributions in excess of accumulated net
realized gains -- -- -- (0.02)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.59) (0.62) (0.65) (0.62)
------ ------ ------ ------ ------
Change in net asset value 0.07 0.40 (0.04) 0.14
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.20 $13.13 $12.73 $12.77
====== ====== ====== ====== ======
Total return(1) 5.11% 8.10% 4.84% 6.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands) $1,897 $1,562 $1,359 $1,258
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses 1.75% 1.71% 1.68% 1.78%
Net investment income 3.97% 4.15% 4.37% 4.32%
Portfolio turnover rate 14% 9% 17% 20%
</TABLE>
-----------------------------
(1) Maximum sales charge is not reflected in total return calculation.
(2) Annualized.
(3) Not annualized.
(4) Computed using average shares outstanding.
18 Phoenix-Goodwin California Tax Exempt Bonds
<PAGE>
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
The fund has filed a Statement of Additional Information about the fund, dated
August 28, 2000 with the Securities and Exchange Commission. The Statement
contains more detailed information about the fund. It is incorporated into this
prospectus by reference and is legally part of the prospectus. You may obtain a
free copy of the Statement:
[arrow] by writing to Phoenix Equity Planning Corporation, 100 Bright Meadow
Blvd., P.O. Box 2200, Enfield, Connecticut 06083-2200 or
[arrow] by calling (800) 243-4361.
You may also obtain information about the fund from the Securities and Exchange
Commission:
[arrow] through its internet site (http://www.sec.gov),
[arrow] by visiting its Public Reference Room in Washington, DC,
[arrow] by writing to its Public Reference Section, Washington, DC 20549-0102
(a fee may be charged), or
[arrow] by electronic request at [email protected] (a fee may be charged).
Information about the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
SHAREHOLDER REPORTS
The fund semiannually mails to its shareholders detailed reports containing
information about the fund's investments. The fund's Annual Report contains a
detailed discussion of the market conditions and investment strategies that
significantly affected the fund's performance from May 1 through April 30. You
may request a free copy of the fund's Annual and Semiannual Reports:
[arrow] by writing to Phoenix Equity Planning Corporation, 100 Bright Meadow
Blvd., P.O. Box 2200, Enfield, Connecticut 06083-2200 or
[arrow] by calling (800) 243-4361.
CUSTOMER SERVICE: (800) 243-1574
MARKETING: (800) 243-4361
TELEPHONE ORDERS: (800) 367-5877
TELECOMMUNICATION DEVICE (TTY): (800) 243-1926
SEC File Nos. 2-83024 and 811-3714 [recycled logo] Printed on recycled paper
using soybean ink
Phoenix-Goodwin California Tax Exempt Bonds 19
<PAGE>
PHOENIX-GOODWIN CALIFORNIA TAX EXEMPT BONDS
101 Munson Street
Greenfield, Massachusetts 01301
STATEMENT OF ADDITIONAL INFORMATION
August 28, 2000
This Statement of Additional Information is not a prospectus, but expands
upon and supplements the information contained in the current Prospectus of
Phoenix-Goodwin California Tax Exempt Bonds (the "Fund"), dated August 28, 2000,
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
PAGE
The Fund ................................................................ 1
Investment Objective and Policies ....................................... 1
Investment Restrictions ................................................. 1
Investment Techniques.................................................... 2
Risk Factors............................................................. 5
Performance Information.................................................. 11
Portfolio Turnover....................................................... 12
Portfolio Transactions and Brokerage..................................... 12
Services of the Adviser ................................................. 13
Net Asset Value ......................................................... 14
How to Buy Shares ....................................................... 14
Alternative Purchase Arrangements ....................................... 15
Investor Account Services ............................................... 17
How to Redeem Shares .................................................... 19
Dividends, Distributions and Taxes ...................................... 20
Tax Sheltered Retirement Plans .......................................... 21
The Distributor ......................................................... 22
Distribution Plans....................................................... 24
Management of the Fund................................................... 24
Additional Information .................................................. 30
Appendix................................................................. 32
Customer Service--(800) 243-1574
Marketing--(800) 243-4361
Telephone Orders--(800) 367-5877
Telecommunication Device (TTY)--(800) 243-1926
PXP 692B (8/00)
<PAGE>
THE FUND
Phoenix-Goodwin California Tax Exempt Bonds (the "Fund") is a diversified
open-end management investment company which was organized as a Maryland
corporation in 1983. Prior to August 27, 1999, the Fund was known as Phoenix
California Tax Exempt Bonds, Inc., and from August 27, 1999 to August 28, 2000,
the Fund was named Phoenix-Goodwin Tax Exempt Bonds, Inc. The Fund was
reorganized as a Delaware business trust in August 2000 and renamed
"Phoenix-Goodwin California Tax Exempt Bonds."
The Fund's Prospectus describes the investment objectives of the Fund and the
principal strategies that the Fund will employ in seeking to achieve its
investment objective. The following discussion describes the Fund's investment
policies and techniques and supplements the description of the Fund's principal
strategies in the Prospectus.
INVESTMENT OBJECTIVES 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 United
States, its territories and possessions and their political subdivisions,
agencies, authorities and instrumentalities, the interest from which, 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 that 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 "qualified"
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).
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust with
respect to the Fund. Except as otherwise stated, these investment restrictions
are "fundamental" policies. A "fundamental" policy is defined in the 1940 Act to
mean that the restriction cannot be changed without the vote of a "majority of
the outstanding voting securities" of the Fund. A majority of the outstanding
voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of
the voting securities present at a meeting if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy, or (b)
more than 50% of the outstanding voting securities.
The Fund may not:
(1) With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S. Government securities and other
investment companies), if: (a) such purchase would, at the time, cause more
than 5% of the Fund's total assets taken at market value to be invested in the
securities of such issuer; or (b) such purchase would, at the time, result in
more than 10% of the outstanding voting securities of such issuer being held by
the Fund.
(2) Purchase securities if, after giving effect to the purchase, more than
25% of its total assets would be invested in the securities of one or more
issuers conducting their principal business activities in the same industry
(excluding the U.S. Government or its agencies or instrumentalities).
(3) Borrow money, except (i) in amounts not to exceed one third of the value
of the Fund's total assets (including the amount borrowed) from banks, and (ii)
up to an additional 5% of its total assets from banks or other lenders for
temporary purposes. For purposes of this restriction, (a) investment techniques
such as margin purchases, short sales, forward commitments, and roll
transactions, (b) investments in instruments such as futures contracts, swaps,
and options and (c) short-term credits extended in connection with trade
clearance and settlement, shall not constitute borrowing.
(4) Issue "senior securities" in contravention of the 1940 Act. Activities
permitted by SEC exemptive orders or staff interpretations shall not be deemed
to be prohibited by this restriction.
1
<PAGE>
(5) Underwrite the securities issued by other persons, except to the extent
that, in connection with the disposition of portfolio securities, the Fund may
be deemed to be an underwriter under applicable law.
(6) Purchase or sell real estate, except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in mortgage-related
securities and other securities that are secured by real estate or interests
therein, (iv) hold and sell real estate acquired by the Fund as a result of the
ownership of securities.
(7) Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell derivatives (including, but not limited to, options, futures
contracts and options on futures contracts) whose value is tied to the value of
a financial index or a financial instrument or other asset (including, but not
limited to, securities indexes, interest rates, securities, currencies and
physical commodities).
(8) Make loans, except that the Fund may (i) lend portfolio securities, (ii)
enter into repurchase agreements, (iii) purchase all or a portion of an issue of
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities and (iv)
participate in an interfund lending program with other registered investment
companies.
If any percentage restriction described above for the Fund is adhered to at
the time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the Fund's assets will not constitute a
violation of the restriction.
INVESTMENT TECHNIQUES
The fund may utilize the following practices or techniques in pursuing its
investment objective.
TAX-EXEMPT BONDS
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
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
2
<PAGE>
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.
CALLABLE MUNICIPAL BONDS AND MUNICIPAL LEASE OBLIGATIONS
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 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 other
potential buyers; the willingness of dealers to undertake to make a market in
the security; the nature of marketplace trades; the obligation's ratings and, if
the security is unrated, factors generally considered by a rating agency. If a
municipal lease obligation is determined to be illiquid, it will be subject to a
Fund's overall limit on investments in illiquid securities.
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FINANCIAL FUTURES AND RELATED OPTIONS
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. 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
pledged account with the Fund's custodian bank to collateralize fully the
position and thereby ensure that it is not leveraged.
The extent to which the 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."
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OPTIONS
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.
A call option on a security gives the purchaser of the option the right to
buy the underlying security from the writer at the exercise price at any time
prior to the expiration of the contract, regardless of the market price of the
security during the option period. A written call option is "covered" if,
throughout the life of the option (1) the Fund owns the optioned securities, (2)
the Fund maintains in a pledged account with its Custodian, any asset, including
equity securities, as long as the asset is liquid, unencumbered and marked to
market daily with a value sufficient to meet its obligations under the call, or
3) if the fund owns an offsetting call option. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract.
The Fund may also write covered call options on securities indices. Through
the writing of call index options, the Fund can achieve many of the same
objectives as through the use of call options on individual securities. Call
options on securities indices are similar to call options on a security except
that, rather than the right to take delivery of a security at a specified price,
a call option on a securities index gives the holder the right to receive, upon
the exercise of the option, an amount of cash if the closing level of the
securities index upon which the call option is based is greater than the
exercise price of the option. The writing of option contracts is a highly
specialized activity which involves investment techniques and risks different
from those ordinarily associated with investment companies.
The Fund may purchase options to close out a position, (i.e. a "closing
purchase transaction"--the purchase of a call option on the same security with
the same exercise price and expiration date as the call option which it has
previously written on any particular security). When a security is sold from the
Fund's portfolio, the Fund will first effect a closing purchase transaction so
as to close out any existing call option on that security, realizing a profit or
loss depending on whether the amount paid to purchase a call option is less or
more than the amount received from the sale thereof. In addition, the Fund may
wish to purchase a call option to hedge its portfolio against any anticipated
increase in the price of securities it intends to purchase or to purchase a put
option to hedge its portfolio against an anticipated decline in securities
prices.
The writing of options involves certain risks. During the option period, the
covered call writer has, in return for the premium on the option, given up the
opportunity to profit from a price increase in the underlying securities above
the exercise price, but, as long as its obligation as a writer continues, has
retained the risk of loss should the price of the underlying security decline.
The writer of an option has no control over the time when it may be required to
fulfill its obligation as a writer of the option. Once an option writer has
received an exercise notice, it cannot effect a closing purchase transaction in
order to terminate its obligation under the option and must deliver the
underlying securities at the exercise price. There can be no assurance that a
liquid market will exist when the Fund seeks to close out an option position.
Furthermore, if trading restrictions or suspensions are imposed on the options
market, the Fund may be unable to close out an option position.
TAXABLE BONDS
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 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 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.
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 issues. 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
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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 currently provides that if revenues of local government entities
in two consecutive fiscal 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. State governmental entities must allocate 50% of like
excess revenues to a State School Fund before implementing revision of tax
rates.
At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amended Article XIIIB and
Article XVI 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 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 designated state officials
determine that annual expenditures per student and average class size meet
certain criteria set forth in Article XVI, Section 8.5.
Proposition 98 and Proposition 111, which took effect on July 1, 1990,
amended Article XVI to require that California provide a minimum level of
funding for public schools and community colleges. Currently, commencing with
the 1990-91 fiscal year, state moneys to support school districts and community
college districts may not be less than the greater of: (a) an amount equaling
the percentage of state general revenue funds appropriated under Article XIIIB
for school districts and community college districts in the fiscal year 1986-87,
or (b) depending on the rate by which growth in California per capita personal
income exceeds or falls short of growth in per capita general revenue funds, a
formulaic amount determined by prior year total allocations from the state
General Fund plus local tax proceeds adjusted for criteria allowed 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
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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.
Substantially increased General Fund revenues, above initial budget
projections, in the 1994-95, 1995-96 and 1996-97 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.
On November 5, 1996, voters approved Proposition 218, entitled the "Right to
Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives.
Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature. The State legislative analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local governments would be reduced by several hundred million dollars a year
under this Proposition.
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.
After suffering through a severe recession, since the start of 1994 the
State's economy has been on a steady recovery. Employment increased by over
430,000 non-farm jobs in 1997. 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. The rate of economic
growth in California in 1997, in terms of job gains, exceeded that of the rest
of the United States. The unemployment rate, while still higher than the
national average, fell to 5.9% in early 1998, compared to over 10% during the
recession.
The recession seriously affected State tax revenues and caused an increase in
expenditures for health and welfare programs. 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 six
years, and the State accumulated a budget deficit of about $2.8 billion at its
peak at June 30, 1993. The State's cash condition became so serious from late
spring 1992 until 1995, the State had to rely on the issuance of short-term
notes which matured in a subsequent fiscal year to finance its ongoing deficit
and pay current
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obligations. With the repayment of the last of these deficit notes in April,
1996, the State does not plan to rely further on external borrowing across
fiscal years, but will continue its normal cash flow borrowing.
On August 18, 1997, the Governor signed the 1997-98 Budget Act which provides
for General Fund and Special Fund expenditures of approximately $67.2 billion
and projects a 97-98 fiscal year end reserve of $112 million. For the second
year in a row, the State budget contains a large increase in funding for K-14
education, reflecting strong revenues which have exceeded initial budgeted
amounts. The Budget Act reflects a $1.235 billion pension case judgment payment,
and returns funding of the State's pension contribution to the quarterly basis
existing prior to the deferral actions invalidated by the courts. Because of the
effect of the pension payment, most other State programs were continued at
1996-97 levels. Health and welfare costs are contained, continuing generally the
grant levels from prior years, as part of the initial implementation of the new
CalWORKs welfare reform program. Unlike prior years, this Budget Act does not
depend on uncertain federal budget actions. About $300 million in federal funds,
already included in the federal FY 1997 and 1998 budgets, are included in the
Budget Act to offset incarceration costs for illegal immigrants. The Budget Act
contains no tax increases and no tax reductions. The Renters Tax Credit was
suspended for another year, saving approximately $500 million. After enactment
of the Budget Act, and prior to the end of the Legislative Session, the
Legislature and the Governor reached certain agreements related to State
expenditures and taxes. Legislation signed by the Governor includes a variety of
phased-in tax cuts, conformity with certain provisions of the federal tax reform
law passed earlier in the year, and reform of funding for county trial courts,
with the State to assume greater financial responsibility.
The Governor's proposed budget for fiscal year 1998-1999 proposes total State
spending of $70.6 billion (excluding the expenditure of federal funds and
selected bond funds), which is up 4.7% from the current year's budget. This
total includes $55.4 billion in General Fund spending (a 4.5% increase from the
current year) and $15.2 billion in special funds spending (a 5.3% increase). The
Governor's proposed budget anticipates a $296 million reserve for economic
uncertainties. The new budget reflects agreements reached in the prior year in
the areas of welfare reform, education, state tax relief, and the financial
restructuring of the State's trial court system. The budget contains no tax
changes and relatively few major programmatic changes.
The May 1998 Revision to the Governor's proposed budget increases the General
Fund revenue forecast by nearly $1.8 billion in 1997-98 and $2.5 billion in
1998-99. The May Revision provides for a balanced budget and a budget reserve
for economic uncertainties of $1.6 billion. In the May Revision the
administration proposed, among other things, a two-step reduction in the State's
vehicle license fee (VLF) which, when fully phased in, would reduce State
revenues by more than $3 billion annually. Since VLF is a primary source of
revenue for local governments, the May Revision proposed continuous
appropriation from the General Fund to replace that loss in revenues.
The VLF proposal met significant opposition in the Legislature and continuing
disagreement over the nature and extent of the proposed tax cut delayed final
adoption of the 1998-99 budget. Local government concern about the potential
impact of the VLF proposal on local government revenues underscores the extent
to which California county and other local government budgets are affected by
State budget decisions beyond their control.
In early August, 1998 the Governor and leaders of the State Legislature
reached agreement on a $76 billion State budget that includes a $1.4 billion tax
cut. The main feature of the tax cut is a 25% reduction in the VLF, with future
reductions contingent upon higher than forecast State revenues. The budget
accord included significant additional funding for public schools and community
colleges intended, among other things, to increase the length of the California
school year and extend the class size reduction initiatives already under way.
The budget accord also included a 7.9% increase in welfare recipients' monthly
checks as well as a variety of smaller tax credits and cuts, including an
increase in the income tax credit for dependents, a modest renters' credit and a
number of tax credits and cuts aimed at specific industries important to the
California economy. The budget must be approved by a two-thirds vote of the
State Senate and Assembly. The Governor may exercise a line-item veto to ensure
the final budget includes sufficient reserves.
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 a 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. The
bankruptcy filing stemmed from approximately $1.7 billion in losses suffered by
the County's investment pool due to investments in high risk "derivative"
securities. On June 12, 1996, it emerged from bankruptcy after the successful
sale of $880 million in municipal bonds allowed the County to pay off the last
of its creditors. On January 7, 1997, the County returned to the municipal bond
market with a $136 million bond issue maturing in 13 years at an insured yield
of 7.23%. In December, 1997, Moody's raised its ratings on $325 million of
Orange County pension obligation bonds to Baa3 from Ba. In February 1998 Fitch
assigned outstanding Orange County pension obligation bonds a BBB rating.
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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 related to the 1997 northern California floods with
potential State liability of approximately $2 billion; (ii) cases seeking to
compel the State to pay Part B ambulance and physician services co-payments
under the Medicare and Medicaid Acts; (iii) a lawsuit challenging two sections
of the State tax laws; (iv) a lawsuit seeking reimbursement for alleged
state-mandated costs involving potential State liability of over $1 billion; (v)
lawsuits related to contamination at the Stringfellow toxic waste site; (vi)
various lawsuits challenging budget appropriations and fund transfers; (vii) a
lawsuit challenging the appropriation of funds in the Cigarette and Tobacco
Products Surtax Fund for programs which were allegedly not health education or
tobacco related disease research; and (viii) lawsuits concerning reductions in
Aid to Families with Dependent Children (AFDC) with potential State liability
estimated at $831 million.
Due to the State's continuing budget problems, the State's general obligation
bonds were downgraded in July 1994 from "Aa" to "A1" by Moody's, from "A+" to
"A" by S&P, and from "AA" to "A" by Fitch. All three ratings companies expressed
uncertainty in the State's ability to balance its budget by 1996. However, in
1996, citing California's improving economy and budget situation, both Fitch and
Standard & Poor's raised their ratings from A to A+. In October, 1997, Fitch
raised its rating from A+ to AA- referring to California's fundamental
strengths, the extent of economic recovery and the return of financial
stability. 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.
In October 1997 the Governor issued Executive Order W-163-97 stating that
Year 2000 solutions would be a State priority and requiring each agency of the
State, no later than December 31, 1998, to address Year 2000 problems in their
essential systems and protect those systems from corruption by non-compliant
systems, in accordance with the Department of Information Technology's
California 2000 Program. There can be no assurance that steps being taken by
state or local government agencies with respect to the Year 2000 problem will be
sufficient to avoid any adverse impact upon the budgets or operations of those
agencies or upon the California Trust.
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 0.8% in fiscal
1992, reflecting the effects of the last recession in the U.S. economy, the
growth pattern continued thereafter with real gross domestic product increases
of 2.8% and 7.1% for fiscal 1996 and 1997, respectively. Factors contributing to
Puerto Rico's more than 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.
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 1997, manufacturing generated $19.8
billion or 41.2% of gross domestic product and accounted for 14.3% of total
employment; as compared with fiscal 1996, when it generated $19.1 billion, or
41.8%, of gross domestic product and accounted for 15.3% of total employment. 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 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.
The service sector, which includes hotel and related services, and which
currently accounts for approximately 48.8% of total employment, accounted for
$18.4 billion, or 38.3%, of Puerto Rico's gross domestic product in fiscal 1997,
as compared with $17.5 billion, or 38.5%, of gross domestic product in fiscal
1996. The service 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 has also contributed to increased economic
activity in fiscal 1997. The growth in the construction industry has been
evidenced by an increase of 12.2% in construction investment for fiscal 1997
over fiscal 1996.
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Tourism has grown in each fiscal year since fiscal 1985. More than 4.3 million
visitors spent over $2.0 billion in Puerto Rico in fiscal 1997. San Juan has
become the largest home port for cruise ships in the Caribbean and the second
largest home port for cruise ships in the world. Twenty-five U.S. and
international airlines offer scheduled service to and from San Juan, and a major
U.S. airline uses San Juan as a hub for its intra-Caribbean operations. This
reflects the importance of Puerto Rico as a tourist destination and as a
transportation hub in the Caribbean.
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 resulted in the rate of
growth of public sector debt exceeding the rate of growth of gross domestic
product. During fiscal years 1992 to 1997, public sector debt increased 38.4%,
while gross product rose 35.4%. At the end of fiscal 1997, short-term debt
outstanding relative to total debt was approximately 8.4%.
FUTURES AND RELATED 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.
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
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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.
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.
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 Composite Stock Price Index (the
"S&P 500"), Dow Jones Industrial Average, Europe Australia Far East Index
(EAFE), Consumer 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.
Average annual return and yield are computed separately for Class A and Class
B Shares in accordance with the formulas specified by the Commission. The yield
will be computed by dividing the Fund's net investment income over a 30-day
period by an average value (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 12-month period to
derive the Fund's yield. For the 30-day period ending April 30, 2000, the Class
A Shares yield was ___% and the Class B Shares yield was ___%.
For the 1, 5 and 10 year periods ended April 30, 2000, the average annual
total return of the Class A Shares was ____%, ____% and ____%, respectively. For
the one year period ended April 30, 2000, and since inception (July 26, 1994)
through April 30, 2000 for Class B Shares, the average annual total return was
____% and ____% 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
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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, 2000 was ______%.
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 TURNOVER
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 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. Historical portfolio
turnover rates can be found under the heading "Financial Highlights" located in
the Fund's Prospectus.
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 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
12
<PAGE>
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 inconsistent 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.
The Adviser may use its broker/dealer affiliates, or other firms that sell
shares of the Fund, to buy and sell securities for the Fund, provided they have
the execution capability and that their commission rates are comparable to those
of other unaffiliated broker/dealers. Directors of PXP Securities Corp. or its
affiliates receive indirect benefits from the Fund as a result of its usual and
customary brokerage commissions that PXP Securities Corp. may receive for acting
as broker to the Fund in the purchase and sale of portfolio securities. The
investment advisory agreement does not provide for a reduction of the advisory
fee by any portion of the brokerage fees generated by portfolio transactions of
the Fund that PXP Securities Corp. may receive.
SERVICES OF THE ADVISER
The investment adviser to the Fund is Phoenix Investment Counsel, Inc. ("PIC"
or "Adviser"), which is located at 56 Prospect Street, Hartford, Connecticut
06115-0480. PIC also acts as the investment adviser for 14 fund companies
totaling 38 mutual funds, as subadviser to two fund companies totaling three
mutual funds, and as adviser to institutional clients. PIC has acted as an
investment adviser for over sixty years. PIC was originally organized in 1932 as
John P. Chase, Inc. As of December 31, 1999, PIC had approximately $25.7 billion
in assets under management. Philip R. McLoughlin, a Director and officer of the
Fund, is a director of PIC. All other executive officers of the Fund are
officers of PIC.
All of the outstanding stock of PIC is owned by Phoenix Equity Planning
Corporation ("Equity Planning" or "Distributor"), a subsidiary of Phoenix
Investment Partners, Ltd. ("PXP"). Phoenix Home Life Mutual Insurance Company
("Phoenix Home Life") of Hartford, Connecticut is a majority shareholder of PXP.
Phoenix Home Life is in the business of writing ordinary and group life and
health insurance and annuities. Its principal offices are located at One
American Row, Hartford, Connecticut 06115-2520. Equity Planning, a mutual fund
distributor, acts as the national distributor of the Fund's shares and as
financial agent of the Fund. The principal office of Equity Planning is located
at 100 Bright Meadow Boulevard, Enfield, Connecticut 06082.
PXP is a publicly-traded independent registered investment advisory firm and
has served investors for over 70 years. It manages over $_____ billion in assets
(as of June 30, 2000) through its investment partners: Aberdeen Fund Managers,
Inc. (Aberdeen) in Aberdeen, London, Singapore and Fort Lauderdale; Duff &
Phelps Investment Management Co. (Duff & Phelps) in Chicago and Cleveland; Roger
Engemann & Associates, Inc. (Engemann) in Pasadena; Seneca Capital Management
LLC (Seneca) in San Francisco; Phoenix/Zweig Advisers LLC (Zweig) in New York;
and Phoenix Investment Counsel, Inc. (Goodwin, Hollister, and Oakhurst
divisions) in Hartford, Sarasota and Scotts Valley, CA, respectively.
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<PAGE>
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 Distributor 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 Investment
Advisory 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, 1998, 1999 and 2000 amounted to $488,031, $455,088 and
$_______, respectively.
The current Investment Advisory Agreement was approved by the Board of
Trustees on November 19, 1996 and by the shareholders on March 14, 1997.
Effective June 1, 1998, National Securities & Research Corporation ("National")
assigned its investment advisory agreement to PIC and PIC now serves as the
Adviser for the Fund. PIC and National are both subsidiaries of PXP. The
Investment Advisory Agreement will continue in effect from year to year if
specifically approved annually by a majority of the Trustees who are not
interested persons of the parties thereto, as defined in the 1940 Act, and by
either (a) the Board of Trustees 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 Trustees 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.
The Fund, its Adviser and Distributor have each adopted a Code of Ethics
pursuant to Rule 17-j1 under the Investment Company Act of 1940. Personnel
subject to the Codes of Ethics may purchase and sell securities for their
personal accounts, including securities that may be purchased, sold or held by
the Fund, subject to certain restrictions and conditions. Generally, personal
securities transactions are subject to preclearance procedures, reporting
requirements and holding period rules. The Codes also restrict personal
securities transactions in private placements, initial public offerings and
securities in which the Fund has a pending order.
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. 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 Trustees or their delegates. Any assets and liabilities
initially expressed in foreign currency values will be converted into United
States dollar values at the mean between the bid and ask quotations of such
currencies against United States dollars as last quoted by any recognized
dealer. If an event were to occur after the value of an investment was so
established but before the net asset value per share was determined, which was
likely to materially change the net asset value, then the instrument would be
valued using fair value considerations by the Trustees or their delegates. If at
any time 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 Trustees although the actual calculations may be made by
persons acting pursuant to the direction of the Trustees.
HOW TO BUY SHARES
The minimum initial investment is $500 and the minimum subsequent investment
is $25. However, 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 Distributor, or pursuant to the Systematic Exchange
privilege or for an individual retirement account (IRA). In addition, there are
no subsequent investment minimum amounts in connection with the reinvestment of
dividend or capital gain distributions. Completed applications for the purchase
of shares should be mailed to: Phoenix Funds, c/o State
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Street Bank and Trust Company, P.O. Box 8301, Boston, MA 02266-8301. See the
Fund's current Prospectus for more information.
The Fund has authorized one or more brokers to accept on its behalf purchase
and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
ALTERNATIVE PURCHASE ARRANGEMENTS
Shares may be purchased from investment dealers at a price equal to their net
asset value per share, plus a sales charge which, at the election of the
purchaser, may be imposed either (i) at the time of the purchase (the "initial
sales charge alternative") or (ii) on a contingent deferred basis (the "deferred
sales charge alternative"). Orders received by dealers prior to the close of
trading on the New York Stock Exchange are confirmed at the offering price
effective at that time, provided the order is received by the Authorized Agent
prior to its close of business.
The alternative purchase arrangements permit an investor to choose the method
of purchasing shares that is more 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 and services fees and contingent deferred sales charges on Class B
Shares would be less than the initial sales charge and accumulated distribution
services fee on Class A Shares purchased at the same time.
Dividends paid by the Fund, if any, with respect to each Class of Shares will
be calculated in the same manner at the same time on the same day, except that
fees such as higher distribution and services fees and any incremental transfer
agency costs relating to each Class of Shares will be borne exclusively by that
class. See "Dividends, Distributions and Taxes."
CLASS A SHARES
Class A Shares incur a sales charge when they are purchased and enjoy the
benefit of not being subject to any sales charge when they are redeemed. Class A
Shares are subject to ongoing distribution and services fees at an annual rate
of 0.25% of the Fund's aggregate average daily net assets attributable to the
Class A Shares. In addition, certain purchases of Class A Shares qualify for
reduced initial sales charges.
CLASS B SHARES
Class B Shares do not incur a sales charge when they are purchased, but they
are subject to a sales charge if they are redeemed within five years of
purchase. The deferred sales charge may be waived in connection with certain
qualifying redemptions.
Class B Shares are subject to ongoing distribution and services fees at an
aggregate annual rate of up to 1.00% of the Fund's aggregate average daily net
assets attributable to the Class B Shares. Class B Shares enjoy the benefit of
permitting all of the investor's dollars to work from the time the investment is
made. The higher ongoing distribution and services fees paid by Class B Shares
will cause such shares to have a higher expense ratio and to pay lower
dividends, to the extent any dividends are paid, than those related to Class A
Shares. Class B Shares will automatically convert to Class A Shares eight years
after the end of the calendar month in which the shareholder's order to purchase
was accepted. The purpose of the conversion feature is to relieve the holders of
the Class B Shares that have been outstanding for a period of time sufficient
for the adviser and the Distributor to have been compensated for distribution
expenses related to the Class B Shares from most of the burden of such
distribution related expenses.
Class B Shares include all shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period ending
eight years after the end of the month in which the shares were issued. At the
end of this period, Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution and services fees. Such
conversion will be on the basis of the relative net asset value of the two
classes without the imposition of any sales load, fee or other charge.
For purposes of conversion to Class A Shares, 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) convert to Class A, an equal pro rata
portion of the Class B Share dividends in the sub-account will also convert to
Class A Shares.
CLASS A SHARES--REDUCED INITIAL SALES CHARGES
Investors choosing Class A Shares may be entitled to reduced sales charges.
The ways in which sales charges may be avoided or reduced are described below.
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QUALIFIED PURCHASERS. If you fall within any one of the following categories,
you will not have to pay a sales charge on your purchase of Class A Shares: (1)
trustee, director or officer of the Phoenix Funds, the Phoenix-Engemann Funds,
Phoenix-Seneca Funds or any other mutual fund advised, subadvised or distributed
by the Adviser, Distributor or any of their corporate affiliates (an "Affiliated
Phoenix Fund"); (2) any director or officer, or any full-time employee or sales
representative (for at least 90 days) of the Adviser or Distributor; (3)
registered representatives and employees of securities dealers with whom
Distributor 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 Distributor; (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, Distributor
and/or their corporate affiliates; (8) any employee or agent who retires from
Phoenix Home Life, Distributor and/or their corporate affiliates; (9) 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 or any other Affiliated Phoenix Fund qualified plan; (11) any
Phoenix Home Life separate account which funds group annuity contracts offered
to qualified employee benefit plans; (12) any state, county, city, department,
authority or similar 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, Fund
company, or bank Fund department which exercises discretionary authority and
holds the account in a fiduciary, agency, custodial or similar capacity, if in
the aggregate such accounts held by such entity equal or exceed $1,000,000; (15)
any person who is investing redemption proceeds from investment companies other
than the Phoenix Funds or any other Affiliated Phoenix Fund 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 Phoenix Fund purchase and that a sales
charge was paid; (16) any deferred compensation plan established for the benefit
of any Phoenix Fund or any other Affiliated Phoenix Fund trustee or director;
provided that sales to persons listed in (1) through (16) above are made upon
the written assurance of the purchaser that the purchase is made for investment
purposes and that the shares so acquired will not be resold except to the Fund;
(17) purchasers of Class A Shares bought through investment advisers 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;
(18) 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 are made through
a broker or agent or other financial intermediary that has made special
arrangements with the Distributor for such purchases; or (19) 401(k)
participants in the Merrill Lynch Daily K Plan (the "Plan") if the Plan has at
least $3 million in assets or 500 or more eligible employees; or clients of
investment advisors or financial planners who buy shares for their own accounts
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 the investors described in (17) through (19) may be
charged a fee by the broker, agent or financial intermediary for purchasing
shares).
COMBINATION PURCHASE PRIVILEGE. Your purchase of any class of shares of this
or any other Affiliated Phoenix Fund (other than Phoenix-Goodwin Money Market
Fund Series Class A Shares), if made at the same time by the same "person," will
be added together to determine whether the combined sum entitles you to an
immediate reduction in sales charges. A "person" is defined in this and the
following sections as (a) any individual, their spouse and minor children
purchasing shares for his or their own account (including an IRA account)
including his or their own trust; (b) a trustee or other fiduciary purchasing
for a single trust, estate or single fiduciary account (even though more than
one beneficiary may exist); (c) multiple employer trusts or Section 403(b) plans
for the same employer; (d) multiple accounts (up to 200) under a qualified
employee benefit plan or administered by a third party administrator; or (e)
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 of record in the name, or nominee name, of the entity
placing the order.
An "Affiliated Phoenix Fund" means any other mutual fund advised, subadvised
or distributed by the Adviser or Distributor or any corporate affiliate of
either or both the Adviser and Distributor provided such other mutual fund
extends reciprocal privileges to shareholders of the Phoenix Fund.
LETTER OF INTENT. If you sign a Letter of Intent, your purchase of any class
of shares of this or any other Affiliated Phoenix Fund (other than
Phoenix-Goodwin Money Market Fund Series Class A Shares), if made by the same
person within a 13-month period, will be added together to determine whether you
are entitled to an immediate reduction in sales charges. Sales charges are
reduced based on the overall amount you indicate that you will buy under the
Letter of Intent. The Letter of Intent is a mutually non-binding arrangement
between you and the Distributor. Since the Distributor doesn't know whether you
will ultimately fulfill the Letter of Intent, shares worth 5% of the amount of
each purchase will be set aside until you fulfill the Letter of Intent. When you
buy enough shares to fulfill the Letter of Intent, these shares will no longer
be restricted. If, on the other hand, you do not satisfy the Letter of Intent,
or otherwise wish to sell any restricted shares, you will be given the choice of
either buying enough shares to fulfill the Letter of Intent or paying the
difference between any sales charge you previously paid and the
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otherwise applicable sales charge based on the intended aggregate purchases
described in the Letter of Intent. You will be given 20 days to make this
decision. If you do not exercise either election, the Distributor will
automatically redeem the number of your restricted shares needed to make up the
deficiency in sales charges received. The Distributor will redeem restricted
Class A Shares before Class C or B Shares, respectively. Oldest shares will be
redeemed before selling newer shares. Any remaining shares will then be
deposited to your account.
RIGHT OF ACCUMULATION. Your purchase of any class of shares of this or any
other Affiliated Phoenix Fund, if made over time by the same person may be added
together to determine whether the combined sum entitles you to a prospective
reduction in sales charges. You must provide certain account information to the
Distributor to exercise this right.
ASSOCIATIONS. Certain groups or associations may be treated as a "person" and
qualify for reduced Class A Share sales charges. The group or association must:
(1) have been in existence for at least six months; (2) have a legitimate
purpose other than to purchase mutual fund shares at a reduced sales charge; (3)
work through an investment dealer; or (4) not be a group whose sole reason for
existing is to consist of members who are credit card holders of a particular
company, policyholders of an insurance company, customers of a bank or a
broker-dealer or clients of an investment adviser.
CLASS B SHARES--WAIVER OF SALES CHARGES
The CDSC is waived on the redemption (sale) of Class B Shares if the
redemption is made (a) 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) within one year of disability, as defined in Code Section 72(m)(7);
(c) as a mandatory distribution upon reaching age 70 1/2 under any retirement
plan qualified under Code Sections 401, 408 or 403(b) or resulting from the
tax-free return of an excess contribution to an IRA; (d) by 401(k) plans using
an approved participant tracking system for participant hardships, death,
disability or normal retirement, and loans which are subsequently repaid; (e)
from the Merrill Lynch Daily K Plan ("Plan") invested in Class B Shares, in
which such shares the Distributor has not paid the dealer the Class B sales
commission; (f) based on the exercise of exchange privileges among Class B
Shares of this or any other Affiliated Phoenix Fund; (g) based on any direct
rollover transfer of shares from an established Affiliated Phoenix Fund
qualified plan into an Affiliated Phoenix Fund IRA by participants terminating
from the qualified plan; and (h) based on the systematic withdrawal program. If,
as described in condition (a) above, an account is transferred to an account
registered in the name of a deceased's estate, the CDSC 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 subject to the applicable CDSC.
CONVERSION FEATURE--CLASS B SHARES
Class B Shares will automatically convert to Class A Shares of the same
Portfolio eight years after they are purchased. Conversion will be on the basis
of the then prevailing net asset value of Class A and B Shares. There is no
sales load, fee or other charge for this feature. Class B Shares acquired
through dividend or distribution reinvestments will be converted into Class A
Shares at the same time that other Class B Shares are converted based on the
proportion that the reinvested shares bear to purchased Class B Shares. The
conversion feature is subject to the continuing availability of an opinion of
counsel or a ruling of the Internal Revenue Service that the assessment of the
higher distribution fees and associated costs with respect to Class B Shares
does not result in any dividends or distributions constituting "preferential
dividends" under the Code, and that the conversion of shares does not constitute
a taxable event under federal income tax law. If the conversion feature is
suspended, Class B Shares would continue to be subject to the higher
distribution fee for an indefinite period. Even if the Fund was unable to obtain
such assurances, it might continue to make distributions if doing so would
assist in complying with its general practice of distributing sufficient income
to reduce or eliminate federal taxes otherwise payable by the Fund.
INVESTOR ACCOUNT SERVICES
The Fund offers accumulation plans, withdrawal plans and reinvestment and
exchange privileges. Certain privileges may not be available in connection with
all classes. In most cases, changes to account services may be accomplished over
the phone. Inquiries regarding policies and procedures relating to shareholder
account services should be directed to Shareholder Services at (800) 243-1574.
Broker/dealers may impose their own restrictions and limits on accounts held
through the broker/dealer. Please consult your broker/dealer for account
restriction and limit information.
EXCHANGES
Under certain circumstances, shares of any Affiliated Phoenix Fund may be
exchanged for shares of the same Class of another Affiliated Phoenix Fund 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 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 of any other Affiliated
Phoenix Fund, if currently offered. 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 exchanges
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with Share Classes that carry a contingent deferred sales charge, the CDSC
schedule of the original shares purchased continues to apply. The exchange of
shares is treated as a sale and purchase for federal income tax purposes (see
also "Dividends, Distributions and Taxes").
SYSTEMATIC EXCHANGES. If the conditions above have been met, you or your
broker may, by telephone or written notice, elect to have shares exchanged for
the same class of shares of another Affiliated Phoenix Fund automatically on a
monthly, quarterly, semi-annual or annual basis or may cancel this privilege at
any time. If you maintain an account balance 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), you may direct that shares be
automatically exchanged at predetermined intervals for shares of the same class
of another Affiliated Phoenix Fund. This requirement does not apply to Phoenix
"Self Security" program participants. Systematic exchanges will be executed upon
the close of business on the 10th day of each month or the next succeeding
business day. Systematic exchange forms are available from the Distributor.
DIVIDEND REINVESTMENT ACROSS ACCOUNTS
If you maintain an account balance 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), you 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 Affiliated Phoenix Funds at
net asset value. You should obtain a current prospectus and consider the
objectives and policies of each fund carefully before directing dividends and
distributions to another fund. Reinvestment election forms and prospectuses are
available from Equity Planning. Distributions may also be mailed to a second
payee and/or address. 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 your account are repurchased or redeemed or
transferred between the record date and the payment date of a dividend or
distribution, you will receive cash for the dividend or distribution regardless
of the distribution option selected.
INVEST-BY-PHONE
This expedited investment service allows a shareholder to make an investment
in an account by requesting a transfer of funds from the balance of their bank
account. Once a request is phoned in, Equity Planning will initiate the
transaction by wiring a request for monies to the shareholder's commercial bank,
savings bank or credit union via Automated Clearing House (ACH). The
shareholder's bank, which must be an ACH member, will in turn forward the monies
to Equity Planning for credit to the shareholder's account. ACH is a computer
based clearing and settlement operation established for the exchange of
electronic transactions among participating depository institutions.
To establish this service, please complete an Invest-by-Phone Application and
attach a voided check if applicable. Upon Equity Planning's acceptance of the
authorization form (usually within two weeks) shareholders may call toll free
(800) 367-5877 prior to 3:00 p.m. (New York time) to place their purchase
request. Instructions as to the account number and amount to be invested must be
communicated to Equity Planning. Equity Planning will then contact the
shareholder's bank via ACH with appropriate instructions. The purchase is
normally credited to the shareholder's account the day following receipt of the
verbal instructions. The Fund may delay the mailing of a check for redemption
proceeds of Fund shares purchased with a check or via Invest-by-Phone service
until the Fund has assured itself that good payment has been collected for the
purchase of the shares, which may take up to 15 days. The Fund and Equity
Planning reserve the right to modify or terminate the Invest-by-Phone service
for any reason or to institute charges for maintaining an Invest-by-Phone
account.
SYSTEMATIC WITHDRAWAL PROGRAM
The Systematic Withdrawal Program allows you to periodically redeem a portion
of your account on a predetermined monthly, quarterly, semiannual or annual
basis. A sufficient number of full and fractional shares will 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 your 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.
Shareholders participating in the Systematic Withdrawal Program must own
shares of a Fund worth $5,000 or more, as determined by the then current net
asset value per share, and elect to have all dividends reinvested. The purchase
of shares while participating in the withdrawal program will ordinarily be
disadvantageous to the Class A Shares investor since a sales charge will be paid
by the investor on the purchase of Class A Shares at the same time as 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.
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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. Class B shareholders redeeming more shares than the
percentage permitted by the withdrawal program will 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 the
purchase.
HOW TO REDEEM 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.
The Fund has authorized one or more brokers to accept on its behalf purchase
and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
authorized designee.
Redemptions by Class B shareholders will be subject to the applicable
deferred sales charge, if any.
REDEMPTION OF SMALL ACCOUNTS
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 30 days' written notice to the shareholder mailed to the
address of record. During the 30-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.
BY MAIL
Shareholders may redeem shares by making written request, executed in the
full name of the account, directly to Phoenix Funds, c/o State Street Bank and
Trust Company, P.O. Box 8301, Boston, MA 02266-8301. However, when certificates
for shares are in the possession of the shareholder, they must be mailed or
presented, duly endorsed in the full name of the account, with a written request
to Equity Planning that the Fund redeem the shares. 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.
BY CHECK
You may elect to redeem shares held in your account by check. Checks will be
sent to you upon receipt by Equity Planning of a completed application and
signature card (attached to the application). If the signature card accompanies
your initial account application, the signature guarantee section of the form
may be disregarded. However, the Fund reserves the right to require that all
signatures be guaranteed prior to the establishment of a check writing service
account. When an authorization form is submitted after receipt of the initial
account application, all signatures must be guaranteed regardless of account
value.
Checks may be drawn payable to any person in an amount of not less than $500,
provided that immediately after the payment of redemption proceeds the balance
in your account is $500 or more.
When a check is presented to Equity Planning for payment, a sufficient number
of full and fractional shares in your account will be redeemed to cover the
amount of the check. The number of shares to be redeemed will be determined on
the date the check is received by the Transfer Agent. Presently there is no
charge to you for the check writing service, but this may be changed or modified
in the future upon two weeks written notice to shareholders. Checks drawn from
Class B accounts are subject to the applicable deferred sales charge, if any.
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The checkwriting procedure for redemption enables you to receive income
accruing on the shares to be redeemed until such time as the check is presented
to Equity Planning for payment. Inasmuch as canceled checks are returned to
shareholders monthly, no confirmation statement is issued at the time of
redemption.
Shareholders utilizing withdrawal checks will be subject to Equity Planning's
rules governing checking accounts. You should make sure that there are
sufficient shares in your account to cover the amount of any check drawn. If
insufficient shares are in the account and the check is presented to Equity
Planning on a banking day on which the Fund does not redeem shares (for example,
a day on which the New York Stock Exchange is closed), or if the check is
presented against redemption proceeds of an investment made by check which has
not been in the account for at least fifteen calendar days, the check may be
returned marked "Non-sufficient Funds" and no shares will be redeemed. You may
not close your account by a withdrawal check because the exact value of the
account will not be known until after the check is received by Equity Planning.
REDEMPTION IN KIND
To the extent consistent with state and federal law, the Fund may make
payment of the redemption price either in cash or in kind. However, the Fund has
elected to pay in cash all requests for redemption by any shareholder of record,
limited in respect to each shareholder during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period. This election has been made pursuant to Rule 18f-1 under the Investment
Act of 1940 and is irrevocable while the Rule is in effect unless the Securities
and Exchange Commission, by order, permits the withdrawal thereof. In case of a
redemption in kind, securities delivered in payment for shares would be readily
marketable and valued at the same value assigned to them in computing the net
asset value per share of the Fund. A shareholder receiving such securities would
incur brokerage costs when selling the securities.
ACCOUNT REINSTATEMENT 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) 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 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 "qualified 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.
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
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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 regardless of how long shareholders have held the Fund
shares. The maximum federal capital gains rate for individuals is 20% with
respect to capital assets held more than 12 months. The maximum capital gains
rate for corporate shareholders is the same as the maximum tax rate for ordinary
income. 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. 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 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 October 31 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 a regulated investment company such as the Fund that invests
substantially in tax-exempt investments. 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.
Pursuant to Code section 852(b)(7), any dividend declared by a fund to
shareholders of record in October, November and December of any year and payable
to shareholders of record on a specified date in such a month 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
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 (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 are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, SIMPLE IRA, Roth IRA,
401(k), Profit-Sharing, Money Purchase Pension Plans and 403(b) Retirement
Plans. Write or call Equity Planning (800) 243-4361 for further information
about the plans.
21
<PAGE>
MERRILL LYNCH DAILY K PLAN
Class A Shares of a Fund are made available to Merrill Lynch Daily K Plan
(the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and,
on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker/dealer
funds not advised or managed by Merrill Lynch Asset Management L.P. ("MLAM")
that are made available pursuant to a Service Agreement between Merrill Lynch
and the fund's principal underwriter or distributor and in funds advised or
managed by MLAM (collectively, the "Applicable Investments").
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or alliance
arrangement with Merrill Lynch, and, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more
in assets, excluding money market funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by a Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement.
Alternatively, Class B Shares of a Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B Shares of a Fund convert to Class A Shares once the Plan has reached $5
million invested in Applicable Investments, or after the normal holding period
of seven years from the initial date of purchase.
THE DISTRIBUTOR
Phoenix Equity Planning Corporation ("Equity Planning") acts as the
Distributor for the Fund and as such will conduct a continuous offering pursuant
to a "best efforts" arrangement requiring the Distributor 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 and an affiliate
of the Adviser. Shares of the Fund may be purchased through investment dealers
who have sales agreements with the Distributor. The Distributor 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. During the
fiscal years ended April 30, 1998, 1999, and 2000, purchasers of Fund shares
paid aggregate sales charges of $69,141, $42,581 and $______, respectively, of
which the Distributor received net commissions of $15,777, $7,674 and $_____,
respectively, for its services, the balance being paid to dealers. For the
fiscal year ended April 30, 2000, the Distributor received net commissions of
$_____ for Class A Shares and deferred sales charges of $_____ for Class B
Shares.
The Underwriting Agreement may be terminated at any time on not more than 60
days written notice, without payment of a penalty, by the Distributor, 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
Distribution Plans or in any related agreements. The Underwriting Agreement will
terminate automatically in the event of its assignment.
DEALER CONCESSIONS
Dealers with whom the Distributor has entered into sales agreements received
a discount or commission as set forth below:
<TABLE>
<CAPTION>
AMOUNT OF
TRANSACTION SALES CHARGE AS A PERCENTAGE SALES CHARGE AS A PERCENTAGE DEALER DISCOUNT
AT OFFERING PRICE OF OFFERING PRICE OF AMOUNT INVESTED PERCENTAGE OF OFFERING PRICE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under $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 2.75 2.83 2.25
$500,000 but under $1,000,000 2.00 2.04 1.75
$1,000,000 or more None None None
</TABLE>
In addition to the dealer discount on purchases of Class A Shares, the
Distributor intends to pay investment dealers a sales commission of 4% of the
sale price of Class B Shares sold by such dealers. This sales commission will
not be paid to dealers for sales of Class B or Class C Shares purchased by
401(k) participants of the Merrill Lynch Daily K Plan (the "Plan") due to waiver
22
<PAGE>
of the CDSC for these Plan participants' purchases. Your broker, dealer or
investment adviser may also charge you additional commissions or fees for their
services in selling shares to you provided they notify the Distributor of their
intention to do so.
Dealers and other entities who enter into special arrangements with the
Distributor may receive compensation for the sale and promotion of shares of the
Funds and/or for providing other shareholder services. Such fees are in addition
to the sales commissions referenced above and may be based upon the amount of
sales of fund shares by a dealer; the provision of assistance in marketing of
fund shares; access to sales personnel and information dissemination services;
provision of recordkeeping and administrative services to qualified employee
benefit plans; and other criteria as established by the Distributor. Depending
on the nature of the services, these fees may be paid either from the Funds
through distribution fees, service fees or transfer agent fees or, in some
cases, the Distributor may pay certain fees from its own profits and resources.
From its own profits and resources, the Distributor does intend to: (a) sponsor
training and educational meetings and provide additional compensation to
qualifying dealers in the form of trips, merchandise or expense reimbursements;
(b) from time to time pay special incentive and retention fees to qualified
wholesalers, registered financial institutions and third party marketers; (c)
pay broker/dealers an amount equal to 1% of the first $3 million of Class A
Share purchases by an account held in the name of a qualified employee benefit
plan with at least 100 eligible employees, 0.50% on the next $3 million, plus
0.25% on the amount in excess of $6 million; and (d) excluding purchases as
described in (c) above, pay broker/dealers an amount equal to 1% of the amount
of Class A Shares sold above $1 million but under $3 million, 0.50% on the next
$3 million, plus 0.25% on the amount in excess of $6 million. If part or all of
such investment, including investments by qualified employee benefit plans, is
subsequently redeemed within one year of the investment date, the broker-dealer
will refund to the Distributor such amounts paid with respect to the investment.
In addition, the Distributor may pay the entire applicable sales charge on
purchases of Class A Shares to selected dealers and agents. From its own profits
and resources, the Distributor intends to pay the following additional
compensation to Merrill Lynch, Pierce, Fenner & Smith, Inc., 0.25% on sales of
Class A and B shares, 0.10% on sales of Class C shares, 0.10% on sales of Class
A shares sold at net asset value, and 0.10% annually on the average daily net
asset value of fund shares on which Merrill Lynch is broker of record and which
such shares exceed the amount of assets on which Merrill Lynch is broker of
record as of July 1, 1999. Any dealer who receives more than 90% of a sales
charge may be deemed to be an "underwriter" under the Securities Act of 1933.
Equity Planning reserves the right to discontinue or alter such fee payment
plans at any time.
From its own resources or pursuant to the Plan, and subject to the dealers'
prior approval, the Distributor may provide additional compensation to
registered representatives of dealers in the form of travel expenses, meals, and
lodging associated with training and educational meetings sponsored by the
Distributor. The Distributor may also provide gifts amounting in value to less
than $100, and occasional meals or entertainment, to registered representatives
of dealers. Any such travel expenses, meals, lodging, gifts or entertainment
paid will not be preconditioned upon the registered representatives' or dealers'
achievement of a sales target. The Distributor may, from time to time, reallow
the entire portion of the sales charge on Class A Shares 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.
ADMINISTRATIVE SERVICES
Equity Planning also acts as financial agent of the Fund and as such performs
administrative, bookkeeping and pricing functions for the Fund. For its services
as financial agent, Equity Planning will be paid a fee equal to the sum of (1)
the documented cost of fund accounting and related services provided by PFPC,
Inc., as subagent, to the financial agent, plus (2) the documented cost to the
financial agent to provide financial reporting and tax services and oversight of
the subagent's performance. The current fee schedule of PFPC, Inc. is based upon
the average of the aggregate daily net asset values of the Fund, at the
following incremental annual rates.
First $200 million .085%
$200 million to $400 million .05%
$400 million to $600 million .03%
$600 million to $800 million .02%
$800 million to $1 billion .015%
Greater than $1 billion .0125%
Percentage rates are applied to the aggregate daily net asset values of the
Fund. PFPC, Inc. also charges minimum fees and additional fees for each
additional class of fund shares. Equity Planning retains PFPC, Inc. as subagent
for each of the funds for which Equity Planning serves as financial agent. PFPC,
Inc. agreed to a modified fee structure and waived certain charges. Because
PFPC, Inc.'s arrangement would have favored smaller funds over larger funds,
Equity Planning reallocates PFPC, Inc.'s overall asset-based charges among all
funds for which it serves as financial agent on the basis of the relative net
assets of each fund. As a result, the PFPC, Inc. charges to the Fund are
expected to be slightly less than the amount that would be found through direct
application of the table illustrated above. For its services during the Fund's
fiscal year ended April 30, 2000, Equity Planning received $________.
23
<PAGE>
DISTRIBUTION PLANS
The Fund has adopted a distribution plan for each class of shares (i.e., a
plan for the Class A Shares, a plan for the Class B Shares, and a plan for the
Class B Shares; collectively, the "Plans") in accordance with Rule 12b-1 under
the Act, to compensate the Distributor for the services it provides and for the
expenses it bears under the Underwriting Agreement. Each class of shares pays a
service fee at a rate of 0.25% per annum of the average daily net assets of such
class of the Fund and on Class B Shares a distribution fee at a rate of 0.75%
per annum on average daily net assets.
From the Service Fee, the Distributor expects to pay a quarterly fee to
qualifying broker-dealer firms, as compensation for providing personal services
and/or the maintenance of shareholder accounts, with respect to shares sold by
such firms. This fee will not exceed on an annual basis 0.25% of the average
annual net asset value of such shares, and will be in addition to sales charges
on Fund shares which are reallowed to such firms. To the extent that the entire
amount of the Service Fee is not paid to such firms, the balance will serve as
compensation for personal and account maintenance services furnished by the
Distributor.
On a quarterly basis, the Fund's Trustees 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 Trustees
and by a majority of the Trustees 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 Trustees"). The
Trustees have concluded that there is a reasonable likelihood that each Plan
will benefit the Fund and each affected class of shareholders.
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 Trustees 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 Trustees
who are not "interested persons" shall be committed to the discretion of the
Trustees who are not "interested persons." Each Plan may be terminated at any
time by vote of a majority of the Plan Trustees or a majority of the outstanding
shares of the applicable class of the Fund.
For the fiscal year ended April 30, 2000, the Fund paid Rule 12b-1 fees in the
amount of $______ of which the Distributor received $______, unaffiliated
broker-dealers received $______ and W.S. Griffith & Co., Inc., an affiliate,
received $____. The Rule 12b-1 payments were used for: compensating dealers
($______), compensating sales personnel ($______), advertising ($______),
printing and mailing prospectuses to other than current shareholders
($______), service costs ($______) and other costs ($______).
No interested person of the Fund and no Trustee who is not an interested
person of the Fund, as that term is defined in the Investment Company Act of
1940, had any direct or indirect financial interest in the operation of the
Plan.
The National Association of Securities Dealers, Inc. ("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 Trustees to suspend
distribution plan fees or amend the Plans.
MANAGEMENT OF THE FUND
The Fund is an open-end management investment company known as a mutual fund.
The Trustees of the Fund ("Trustees") are responsible for the overall
supervision of the Fund and perform the various duties imposed on Trustees by
the Investment Company Act of 1940 and Delaware business trust law.
TRUSTEE AND OFFICERS
The Trustees 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 Trustee and executive officer is 56 Prospect Street, Hartford, Connecticut,
06115-0480.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
Robert Chesek (66) Trustee Trustee/Director (1981-present) and Chairman (1989-1994), Phoenix
49 Old Post Road Funds. Trustee, Phoenix-Aberdeen Series Fund Phoenix Duff & Phelps
Wethersfield, CT 06109 Institutional Mutual Funds (1996-present) and Phoenix-Seneca Funds
(2000-present).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
E. Virgil Conway (71) Trustee Chairman, Metropolitan Transportation Authority (1992-present).
9 Rittenhouse Road Trustee/Director, Consolidated Edison Company of New York, Inc.
Bronxville, NY 10708 (1970-present), Pace University (1978-present), Atlantic Mutual
Insurance Company (1974-present), HRE Properties (1989-present),
Greater New York Councils, Boy Scouts of America (1985-present),
Union Pacific Corp. (1978-present), Blackrock Freddie Mac Mortgage
Securities Fund (Advisory Director) (1990-present), Centennial
Insurance Company (1974-present), Josiah Macy, Jr., Foundation
(1975-present), The Harlem Youth Development Foundation
(1987-present). Chairman, (1998-present), Accuhealth Trism, Inc.
(1994-present), Realty Foundation of New York (1972-present), and
New York Housing Partnership Development Corp. (1985-present).
Vice Chairman Academy of Political Science (1985-present) and
Director/Trustee, Phoenix Funds (1993-present). Trustee,
Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present) and Phoenix-Seneca Funds
(2000-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Chairman/Member, Audit Committee of the City of
New York (1981-1996). Advisory Director, Blackrock Fannie Mae
Mortgage Securities Fund (1989-1996) and Fund Directions
(1993-1998). Chairman, Financial Accounting Standards Advisory
Council (1992-1995).
Harry Dalzell-Payne (71) Trustee Director/Trustee, Phoenix Funds (1993-present). Trustee,
330 East 39th Street Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps Institutional
Apartment 29G Mutual Funds (1996-present) and Phoenix-Seneca Funds
New York, NY 10016 (1999-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Formerly a Major General of the British Army.
*Francis E. Jeffries (69) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee,
6585 Nicholas Blvd. Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps Institutional
Apt. 1601 Mutual Funds (1996-present) and Phoenix-Seneca Funds
Naples, FL 33963 (2000-present). Director, Duff & Phelps Utilities Income Inc.
(1987-present), Duff & Phelps Utilities Tax-Free Income Inc.
(1991-present) and Duff & Phelps Utility and Corporate Bond Trust
Inc. (1993-present). Director, The Empire District Electric
Company (1984-present). Director (1989-1997), Chairman of the
Board (1993-1997), President (1989-1993), and Chief Executive
Officer (1989-1995), Phoenix Investment Partners, Ltd.
Leroy Keith, Jr. (61) Trustee Chairman (1995-present) and Chief Executive Officer (1995-1999),
Chairman Carson Products Company. Director/Trustee, Phoenix Funds
Carson Products Company (1980-present). Trustee, Phoenix-Aberdeen Series Fund, Phoenix
64 Ross Road Duff & Phelps Institutional Mutual Funds (1996-present) and
Savannah, GA 30750 Phoenix-Seneca Funds (2000-present). Director, Equifax Corp.
(1991-present) and Evergreen International Fund, Inc.
(1989-present). Trustee, Evergreen Liquid Trust, Evergreen Tax
Exempt Trust, Evergreen Tax Free Fund, Master Reserves Tax Free
Trust, and Master Reserves Trust.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
*Philip R. McLoughlin (53) Trustee and Chairman (1997-present), Director (1995-present), Vice Chairman
President (1995-1997) and Chief Executive Officer (1995-present), Phoenix
Investment Partners, Ltd. Director (1994-present) and Executive
Vice President, Investments (1988-present), Phoenix Home Life
Mutual Insurance Company. Director/Trustee and President, Phoenix
Funds (1989-present). Trustee and President, Phoenix-Aberdeen
Series Fund and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities Tax-Free Income
Inc. (1995-present) and Duff & Phelps Utility and Corporate Bond
Trust Inc. (1995-present). Trustee, Phoenix-Seneca Funds
(1999-present). Director (1983-present) and Chairman
(1995-present), Phoenix Investment Counsel, Inc. Director
(1984-present) and President (1990-1999), Phoenix Equity Planning
Corporation. Chairman and Chief Executive Officer,
Phoenix/Zweig/Advisors LLC (1999-present). PXRE Corporation
(Delaware) (1985-present) and World Trust Fund (1991-present).
Director and Executive Vice President, Phoenix Life and Annuity
Company (1996-present). Director and Executive Vice President, PHL
Variable Insurance Company (1995-present). Director, Phoenix
Charter Oak Trust Company (1996-present). Director and Vice
President, PM Holdings, Inc. (1985-present). Director
(1992-present) and President (1992-1994), W.S. Griffith & Co.,
Inc. Director, PHL Associates, Inc. (1995-present).
Everett L. Morris (72) Trustee Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present), Phoenix-Aberdeen
Colts Neck, NJ 07722 Series Fund, Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present) and Phoenix-Seneca Funds (2000-present). Director,
Duff & Phelps Utilities Tax-Free Income Inc. (1991-present) and
Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993-present).
*James M. Oates (54) Trustee Chairman, IBEX Capital Markets, Inc. (formerly, IBEX Capital
Managing Director Markets LLC) (1997-present). Managing Director, Wydown Group
The Wydown Group (1994-present). Director, Phoenix Investment Partners, Ltd.
IBEX Capital Markets, Inc. (1995-present). Director/Trustee, Phoenix Funds (1987-present).
60 State Street Trustee, Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps
Suite 950 Institutional Mutual Funds (1996-present) and Phoenix-Seneca
Boston, MA 02109 Funds (2000-present). Director, AIB Govett Funds (1991-present),
Investors Financial Service Corporation (1995-present), Investors
Bank & Trust Corporation (1995-present), Plymouth Rubber Co.
(1995-present), Stifel Financial (1996-present), Command Systems,
Inc. (1998-present), Connecticut River Bancorp (1998-present) and
Endowment for Health (1999-present). Vice Chairman, Massachusetts
Housing-Partnership (1998-2000). Director, Blue Cross and Blue
Shield of New Hampshire (1994-1999).
*Calvin J. Pedersen (58) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee,
Phoenix Investment Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Partners, Ltd. Institutional Mutual Funds (1996-present). President and Chief
55 East Monroe Street Executive Officer, Duff & Phelps Utilities Tax-Free Income Inc.
Suite 3600 (1995-present), Duff & Phelps Utilities Income Inc.
Chicago, IL 60603 (1994-present) and Duff & Phelps Utility and Corporate Bond Trust
Inc. (1995-present). Director (1986-present), President
(1993-2000) and Executive Vice President (1992-1993), Phoenix
Investment Partners, Ltd.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
Herbert Roth, Jr. (71) Trustee Director/Trustee, Phoenix Funds (1980-present), Phoenix-Aberdeen
134 Lake Street Series Fund, Phoenix Duff & Phelps Institutional Mutual Funds
P.O. Box 909 (1996-present) and Phoenix-Seneca Funds (2000-present). Director,
Sherborn, MA 01770 Boston Edison Company (1978-present), Landauer, Inc. (medical
services) (1970-present), Tech Ops./ Sevcon, Inc. (electronic
controllers) (1987-present), and Mark IV Industries (diversified
manufacturer) (1985-present). Member, Directors Advisory Council,
Phoenix Home Life Mutual Insurance Company (1998-present).
Director, Phoenix Home Life Mutual Insurance Company (1972-1998).
Richard E. Segerson (54) Trustee Managing Director, Northway Management Company (1998-present).
102 Valley Road Director/Trustee, Phoenix Funds (1993-present). Trustee,
New Canaan, CT 07840 Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present) and Phoenix-Seneca Funds
(2000-present). Managing Director, Mullin Associates (1993-1998).
Lowell P. Weicker, Jr. (69) Trustee Trustee/Director, Phoenix Funds (1995-present). Trustee,
731 Lake Avenue Phoenix-Aberdeen Series Fund, Phoenix Duff & Phelps Institutional
Greenwich, CT 06830 Mutual Funds (1996-present) and Phoenix-Seneca Funds
(2000-present). Director, UST Inc. (1995-present), HPSC Inc.
(1995-present), Burroughs Wellcome Fund (1996-present) and
Compuware (1996-present). Visiting Professor, University of
Virginia (1997-present). Director, Duty Free International, Inc.
(1997). Chairman, Dresing, Lierman, Weicker (1995-1996). Governor
of the State of Connecticut (1991-1995).
Michael E. Haylon (42) Executive Director and Executive Vice President, Investments, Phoenix
Vice Investment Partners, Ltd. (1995-present). Director (1994-present),
President President (1995-present), Executive Vice President (1994-1995),
Vice President (1991-1994), Phoenix Investment Counsel, Inc.
Director, Phoenix Equity Planning Corporation (1995-present).
Executive Vice President, Phoenix Funds (1993-present) and
Phoenix-Aberdeen Series Fund (1996-present). Executive Vice
President (1997-present), Vice President (1996-1997), Phoenix Duff
& Phelps Institutional Mutual Funds. Senior Vice President,
Securities Investments, Phoenix Home Life Mutual Insurance Company
(1993-1995).
John F. Sharry (48) Executive President, Retail Division (1999-present), Executive Vice
Vice President, Retail Division (1997-1999), Phoenix Investment
President Partners, Ltd. Managing Director, Retail Distribution, Phoenix
Equity Planning Corporation (1995-present). Executive Vice
President, Phoenix Funds (1998-present) and Phoenix-Aberdeen
Series Funds (1998-present). Managing Director, Director and
National Sales Manager, Putnam Mutual Funds (1992-1995).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
James D. Wehr (43) Senior Vice Senior Vice President (1998-present), Managing Director, Fixed
President Income (1996-1998), Vice President (1991-1996), Phoenix Investment
Counsel, Inc. Senior Vice President (1997-present), Vice President
(1988-1997) Phoenix Multi-Portfolio Fund; Senior Vice President
(1997-present), Vice President (1990-1997) Phoenix Series Fund; Senior
Vice President (1997-present), Vice President (1993-1997)
Phoenix-Goodwin California Tax Exempt Bonds, Inc., and Senior Vice
President (1997-present), Vice President (1996-1997) Phoenix Duff &
Phelps Institutional Mutual Funds. Senior Vice President (1997-present)
Phoenix-Goodwin Multi-Sector Fixed Income Fund, Inc., Phoenix-Goodwin
Multi-Sector Short Term Bond Fund, Phoenix-Oakhurst Income & Growth
Fund and Phoenix-Oakhurst Strategic Allocation Fund, Inc. Managing
Director, Public Fixed Income, Phoenix Home Life Insurance Company
(1991-1995).
Robert Driessen (52) Vice President and Vice President and Compliance Officer, Phoenix Investment
Assistant Secretary Partners, Ltd. (1999-present) and Phoenix Investment Counsel, Inc.
(1999-present). Vice President, Phoenix Funds, Phoenix-Aberdeen
Series Fund, Phoenix Duff & Phelps Institutional Mutual Funds
(1999-present). Compliance Officer (2000-present) and Associate
Compliance Officer (1999), PXP Securities Corporation. Vice
President, Risk Management Liaison, Bank of America (1996-1999).
Vice president, Securities Compliance, The Prudential Insurance
Company of America (1993-1996). Branch Chief/Financial Analyst,
Securities and Exchange Commission, Division of Investment
Management (1972-1993).
Timothy M. Heaney (35) Vice Managing Director, Fixed Income (1997-present), Director, Fixed
President Income Research (1996-1997), Investment Analyst (1995-1996),
Phoenix Investment Counsel, Inc. Vice President, Phoenix-Goodwin
California Tax Exempt Bonds, Inc. and Phoenix Multi-Portfolio Fund
(1996-present). Investment Analyst, Phoenix Home Life Mutual
Insurance Company (1992-1994).
William R. Moyer (55) Vice Executive Vice President and Chief Financial Officer
100 Bright Meadow Blvd. President (1999-present), Senior Vice President and Chief Financial Officer
P.O. Box 2200 (1995-1999), Phoenix Investment Partners, Ltd. (1995-present).
Enfield, CT 06083-2200 Senior Vice President (1990-present), Chief Financial Officer
(1996-present), Finance (until 1996), and Treasurer (1998-present
and 1994-1996), Phoenix Equity Planning Corporation. Director
(1998-present), Senior Vice President (1990-present), Chief
Financial Officer (1996-present) and Treasurer (1994-present),
Phoenix Investment Counsel, Inc. Treasurer (1999-present), Vice
President and Chief Financial Officer, Duff & Phelps Investment
Management Co. (1996-1999). Vice President, Phoenix Funds
(1990-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present) and Phoenix Aberdeen Series Fund (1996-present).
Vice President, Investment Products Finance, Phoenix Home Life
Mutual Insurance Company (1990-1995). Senior Vice President, Chief
Financial Officer, W.S. Griffith & Co., Inc. (1992-1995) and
Townsend Financial Advisers, Inc. (1993-1995).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE FUND DURING THE PAST 5 YEARS
--------------------- ------------- -----------------------
<S> <C> <C>
Nancy G. Curtiss (47) Treasurer Vice President, Fund Accounting (1994-present) and Treasurer
(1996-present), Phoenix Equity Planning Corporation. Treasurer,
Phoenix Funds (1994-present), Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present) and Phoenix-Aberdeen Series Fund
(1996-present). 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 (52) Secretary Vice President and General Manager, Phoenix Home Life Mutual
101 Munson Street and Clerk Insurance Co. (1993-present). Vice President, Transfer Agent
Greenfield, MA 01301 Operations (1993-1996), Senior Vice President (1999-present), Vice
President (1996-1999), Mutual Fund Customer Service, Phoenix
Equity Planning Corporation. Secretary/Clerk, Phoenix Funds
(1993-present), Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present) and Phoenix-Aberdeen Series Fund (1996-present).
Vice President, Home Life of New York Insurance Company
(1984-1992).
</TABLE>
----------------------
*Indicates that the Trustee(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, 2000,
the Trustees received aggregate remumeration of $______. For services on the
Boards of the various Phoenix Funds, each Trustee 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
Trustee who serves on the Audit Committee receives a retainer at the annual rate
of $2,000 and $2,000 per joint Audit Committee meeting attended. Each Trustee
who serves on the Nominating Committee receives a retainer at the annual rate of
$1,000 and $1,000 per joint Nominating Committee meeting attended. Each Trustee
who serves on the Executive Committee and who is not an interested person of the
Fund receives a retainer at the annual rate of $2,000 and $2,000 per joint
Executive 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 Trustees. Costs are allocated equally to each of the Series
and Funds within the Fund Complex. 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
by the Adviser and receive no compensation from the Fund.
For the Fund's last fiscal year ending April 30, 2000, the Trustees 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 (14 FUNDS)
NAME FROM FUND OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES
--------------------- ------------ ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Robert Chesek $* $
E. Virgil Conway+ $ $
Harry Dalzell-Payne+ $ $
Francis E. Jeffries $* $
Leroy Keith, Jr. $ None None $
Philip R. McLoughlin+ $ for any for any $
Everett L. Morris+ $ Trustee Trustee $
James M. Oates+ $ $
Calvin J. Pedersen $ $
Herbert Roth, Jr.+ $ $
Richard E. Segerson $* $
Lowell P. Weicker, Jr. $ $
</TABLE>
------------------
* This compensation (and the earnings thereon) was deferred pursuant to the
Directors' Deferred Compensation Plan. At June 30, 2000, the total amount of
deferred compensation (including interest and other accumulation earned on the
original amounts
29
<PAGE>
deferred) accrued for Messrs. Chesek, Jeffries, Morris, Roth and Segerson was
$_______, $_______, $_______, $_______ and $_______, respectively. At present,
by agreement among the Fund, the Distributor and the electing director, director
fees that are deferred are paid by the Fund to the Distributor. The liability
for the deferred compensation obligation appears only as a liability of the
Distributor.
+ Messrs. Conway, Dalzell-Payne, McLoughlin, Morris, Oates and Roth are members
of the Executive Committee.
On _______, 2000, the Trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of _______, 2000 with respect
to each person who owns of record, or is known by the Fund to own of record, or
beneficially own 5% or more of any Class of the Fund's equity securities.
<TABLE>
<CAPTION>
Name of Shareholder Class Number of Shares Percent of Class
------------------- ----- ---------------- ----------------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith
4800 Deer Lake Dr. E. 3rd Fl.
Jacksonville, FL 32246-6484
NFSC FEBO
Bill & Sadaye Kasuga Trust
Hiroshi William Kasuga
29353 Quailwood Drive
Rancho Palos Verdes, CA 90275-4926
Toshio Takayama
Joan Takayama Ttees Takayama
Family Trust DTD 4/9/88
9200 Orchid Dr.
Westminster, CA 92683-7316
Phoenix Investment Counsel
100 Bright Meadow Blvd.
Enfield, CT 06082-1957
BA Investment Services, Inc.
185 Berry Street, 3rd floor
San Francisco, CA 94107-1729
</TABLE>
ADDITIONAL INFORMATION
CAPITAL STOCK
The Fund was incorporated as a Maryland corporation on April 7, 1983 and has
undergone several name changes. Most recently (until August 28, 2000), the Fund
was known as Phoenix-Goodwin California Tax Exempt Bonds, Inc. The Fund was
reorganized as a Delaware business trust in August 2000.
The capitalization of the Fund consists solely of an unlimited number of
shares of beneficial interest. The Fund currently offers shares in one Fund
which has different classes. Holders of shares of the Fund have equal rights
with regard to voting, redemptions, dividends, distributions, and liquidations
with respect to the Fund. Shareholders vote on the election of Trustees. On
matters affecting an individual class (such as approval of matters relating to a
Plan of Distribution for a particular class of shares), a separate vote of that
Class is required. The Trust does not hold regular meetings of shareholders. The
Trustees will call a meeting when at least 10% of the outstanding shares so
request in writing. If the Trustees fail to call a meeting after being so
notified, the Shareholders may call the meeting. The Trustees will assist the
Shareholders by identifying other shareholders or mailing communications, as
required under Section 16(c) of the 1940 Act.
Shares are fully paid, non-assessable, redeemable and fully transferable when
they are issued. Shares do not have cumulative voting rights, preemptive rights
or subscription rights. The assets received by the Trust for the issue or sale
of shares of the Fund, and any class thereof and all income, earnings, profits
and proceeds thereof, are allocated to Fund, and class, respectively, subject
only to the rights of creditors, and constitute the underlying assets of the
Fund or class. The underlying assets of the Fund are required to be segregated
on the books of account, and are to be charged with the expenses in respect to
the Fund and with a share of the general expenses of the Trust. Any general
expenses of the Trust not readily identifiable as belonging to a particular
class will be allocated by or under the direction of the Trustees as they
determine fair and equitable.
30
<PAGE>
Unlike the stockholders of a corporation, there is a possibility that the
shareholders of a business trust such as the Trust may be personally liable for
debts or claims against the Trust. The Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust. The Declaration of Trust provides for indemnification
out of the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability, which
is considered remote, is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
FINANCIAL STATEMENTS
The financial statements for the Fund's fiscal year ended April 30, 2000,
appearing in the Fund's 2000 Annual Report to Shareholders, are incorporated
herein by reference.
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 independent accountants
will be sent to shareholders each year, and is available without charge upon
request.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110 has been
selected as the independent accountants for the Fund. PricewaterhouseCoopers LLP
audits the Fund's annual financial statements and expresses an opinion thereon.
CUSTODIANS AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), P.O. Box 351, Boston,
MA 02101, serves as custodian of the Fund's assets.
Equity Planning, 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, CT
06083-2200, acts as Transfer Agent for the Fund (the "Transfer Agent"). As
compensation, Equity Planning receives a fee equivalent to $22.25 for each
designated daily dividend shareholder account, plus out-of-pocket expenses.
Transfer Agent fees are also utilized to offset costs and fees paid to
subtransfer agents employed by Equity Planning. State Street Bank and Trust
Company serves as a subtransfer agent pursuant to a Subtransfer Agency
Agreement.
31
<PAGE>
APPENDIX
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa Group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S CORPORATION'S BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB-B-CCC-CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
32
<PAGE>
PHOENIX-GOODWIN CALIFORNIA TAX EXEMPT BONDS
PART C -- OTHER INFORMATION
ITEM 23. EXHIBITS
a.1 Articles of Incorporation of the Registrant, previously filed and
filed via EDGAR as Exhibit 1.1 with Post-Effective Amendment No.
20 on August 8, 1997, and herein incorporated by reference.
a.2 Articles of Amendment of Registrant, filed with Post-Effective
Amendment No. 16 on July 13, 1994, and filed via EDGAR as Exhibit
1.2 with Post-Effective Amendment No. 20 on August 8, 1997 and
incorporated herein by reference.
a.3 Articles Supplementary of Registrant, filed with Post-Effective
Amendment No. 16 on July 13, 1994, and filed via EDGAR as Exhibit
1.3 with Post-Effective Amendment No. 20 on August 8, 1997 and
incorporated herein by reference.
b.1 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 as Exhibit 2.1 with Post-Effective
Amendment No. 18 on August 28, 1996, and incorporated herein by
reference.
c. 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 b.1.
d.1 Investment Advisory Agreement between Registrant and National
Securities & Research Corporation dated March 14, 1997, assigned
to Phoenix Investment Counsel, Inc. effective June 1, 1998, filed
via EDGAR as Exhibit 5.1 with Post-Effective Amendment No. 22 on
August 18, 1998, and incorporated herein by reference.
e.1 Underwriting Agreement between Registrant and Phoenix Equity
Planning Corporation dated November 19, 1997 filed via EDGAR as
Exhibit 6.1 with Post-Effective Amendment No. 22 on August 18,
1998, and incorporated herein by reference.
e.2 Form of Sales Agreement between Phoenix Equity Planning
Corporation and dealers filed via EDGAR as Exhibit 6.2 with
Post-Effective Amendment No. 22 on August 18, 1998, and
incorporated herein by reference.
e.3 Form of Supplement to Phoenix Family of Funds Sales Agreement
filed via EDGAR as Exhibit 6.3 with Post-Effective Amendment No.
22 on August 18, 1998, and incorporated herein by reference.
e.4 Form of Financial Institution Sales Contract for the Phoenix
Family of Funds filed via EDGAR as Exhibit 6.4 with Post-Effective
Amendment No. 22 on August 18, 1998, and incorporated herein by
reference.
f. None.
g. Custodian Contract between Registrant and State Street Bank and
Trust Company dated May 1, 1997, filed via EDGAR as Exhibit 8 with
Post-Effective Amendment No. 22 on August 18, 1998, and
incorporated herein by reference.
h.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 filed via
EDGAR as Exhibit 9.1 with Post-Effective Amendment No. 20 on
August 8, 1997 and incorporated herein by reference.
h.2 Sub-transfer Agent Agreement between Phoenix Equity Planning
Corporation and State Street Bank and Trust Company dated June 1,
1994, filed with Post-Effective Amendment No. 16 on July 13, 1994
and filed via EDGAR as Exhibit 9.2 with Post-Effective Amendment
No. 20 on August 8, 1997 and incorporated herein by reference.
h.3 Amended and Restated Financial Agent Agreement between Registrant
and Phoenix Equity Planning Corporation dated November 19, 1997
and filed via EDGAR as Exhibit 9.3 with Post-Effective Amendment
No. 22 on August 18, 1998, and incorporated herein by reference.
C-1
<PAGE>
h.4 First Amendment to Financial Agent Agreement between Registrant
and Phoenix Equity Planning Corporation dated March 23, 1998 and
filed via EDGAR as Exhibit 9.4 with Post-Effective Amendment No.
22 on August 18, 1998, and incorporated herein by reference.
h.5 Second Amendment to Financial Agent Agreement between Registrant
and Phoenix Equity Planning Corporation dated July 31, 1998 and
filed via EDGAR as Exhibit 9.5 with Post-Effective Amendment No.
22 on August 18, 1998, and incorporated herein by reference.
i. Opinion of counsel as to legality of the Shares, filed with
Post-Effective Amendment No. 16 on July 13, 1994, and filed via
EDGAR as Exhibit 10 with Post-Effective Amendment No. 20 on August
8, 1997 and incorporated herein by reference.
j. Consent of Independent Accountants.
k. Not Applicable.
l. None.
m.1 Amended and Restated Distribution Plan for Class A Shares
effective August 27, 1997, and filed via EDGAR as Exhibit 13.1
with Post-Effective Amendment No. 22 on August 18, 1998 and
incorporated herein by reference.
m.2 Amended and Restated Distribution Plan for Class B Shares
effective August 27, 1997, and filed via EDGAR as Exhibit 13.2
with Post-Effective Amendment No. 22 on August 18, 1998 and
incorporated herein by reference.
n. Financial Data Schedule.
o.1* Amended and Restated Rule 18f-3 Multi-Class Distribution Plan,
effective May 1, 1999, and filed via EDGAR herewith.
o.2* First Amendment to the Amended and Restated Plan Pursuant to Rule
18f-3, dated February 24, 2000, filed via EDGAR herewith.
p.* Codes of Ethics of the Fund, the Adviser and the Distributor.
q.* Powers of Attorney for Messrs. Pedersen and Roth, filed with
Post-Effective Amendment No. 23 on June 25, 1999 and herein
incorporated by reference. Powers of attorney for each of the
other trustees filed via EDGAR herewith.
----------
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
No person is controlled by, or under common control, with the Fund.
ITEM 25. 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus and "Services of the
Adviser" and "Management of the Fund" in the Statement of Additional
Information. For information as to the business, profession, vocation or
employment of a substantial nature of directors and officers of Phoenix
Investment Counsel, Inc., the Adviser, reference is made to the Advisers'
current Form ADV (SEC File No. 801-5995) filed under the Investment Advisers Act
of 1940 and incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Phoenix Equity Planning Corporation also serves as the principal
underwriter for the following other registrants:
Phoenix-Aberdeen Series Fund, Phoenix-Aberdeen Worldwide
Opportunities Fund, Phoenix Duff & Phelps Institutional Mutual Funds,
Phoenix-Engemann Funds, Phoenix Equity Series Fund, Phoenix-
C-2
<PAGE>
Euclid Funds, Phoenix-Goodwin Multi-Sector Fixed Income Fund, Inc.,
Phoenix-Goodwin Multi-Sector Short Term Bond Fund, Phoenix Investment
Trust 97, Phoenix Multi-Portfolio Fund, Phoenix-Oakhurst Income &
Growth Fund, Phoenix-Oakhurst Strategic Allocation Fund, Inc.,
Phoenix-Seneca Funds, Phoenix Series Fund, Phoenix Strategic Equity
Series Fund, Phoenix-Zweig Trust, Phoenix Home Life Variable
Universal Life Account, Phoenix Home Life Variable Accumulation
Account, PHL Variable Accumulation Account, Phoenix Life and Annuity
Variable Universal Life Account and PHL Variable Separate Account
MVA1.
(b) Directors and executive officers of Phoenix Equity Planning
Corporation are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES WITH
BUSINESS ADDRESS WITH DISTRIBUTOR REGISTRANT
------------------ -------------------- -------------------------
<S> <C> <C>
Michael E. Haylon Director Executive Vice President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and Chairman Director and President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
William R. Moyer Director, Executive Vice Vice President
100 Bright Meadow Blvd. President, Chief Financial
P.O. Box 1900 Officer and Treasurer
Enfield, CT 06083-1900
John F. Sharry President, Retail Division Executive Vice President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Barry Mandinach Executive Vice President, None
900 Third Avenue Chief Marketing Officer,
New York, NY 10022 Retain Division
Robert Tousingnant Executive Vice President, None
100 Bright Meadow Blvd. Chief Sales Officers,
P.O. Box 2200 Retail Division
Enfield, CT 06083-2200
G. Jeffrey Bohne Vice President, Mutual Fund Secretary
101 Munson Street Customer Service
P.O. Box 810
Greenfield, MA 01302-0810
Robert S. Dreissen Vice President, Compliance Vice President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Jacqueline M. Porter Assistant Vice President Assistant Treasurer
56 Prospect St. Financial Reporting
P.O. Box 150480
Hartford, CT 06115-0480
</TABLE>
C-3
<PAGE>
(c) To the best of the Registrant's knowledge, no commissions or other
compensation was received be any principal underwriter who is not an affiliated
person of the Registrant or an affiliated person of such affiliated person,
directly or indirectly, from the Registrant during the Registrant's last fiscal
year.
ITEM 28. 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, Phoenix Investment Counsel, Inc.; 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 Phoenix Investment
Counsel, Inc. 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 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund duly caused this amendment to the registration statement
to be signed on its behalf by the undersigned, duly authorized, in City of
Hartford and State of Connecticut on the 8th day of June, 2000.
PHOENIX-GOODWIN CALIFORNIA
TAX EXEMPT BONDS, INC.
ATTEST: /s/ Pamela Sinofsky By: /s/ Philip R. McLoughlin
---------------------- --------------------------
Pamela Sinofsky Philip R. McLoughlin
Assistant Secretary President
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities indicated, on this 8th day of June, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Director
------------------------------------------------------------
Robert Chesek*
Director
------------------------------------------------------------
E. Virgil Conway*
/s/ Nancy G. Curtiss Treasurer (Principal
------------------------------------------------------------ Financial and
Nancy G. Curtiss Accounting Officer)
Director
------------------------------------------------------------
Harry Dalzell-Payne*
Director
------------------------------------------------------------
Francis E. Jeffries*
Director
------------------------------------------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin President and Director
------------------------------------------------------------ (Principal Executive Officer)
Philip R. McLoughlin Director
------------------------------------------------------------
Everett L. Morris*
Director
------------------------------------------------------------
James M. Oates*
Director
------------------------------------------------------------
Calvin J. Pedersen*
Director
------------------------------------------------------------
Herbert Roth, Jr.*
Director
------------------------------------------------------------
Richard E. Segerson*
Director
------------------------------------------------------------
Lowell P. Weicker, Jr.*
</TABLE>
By: /s/ Philip R. McLoughlin
--------------------------------------------------------
* Philip R. McLoughlin, Attorney-in-fact
pursuant to powers of attorney.
