As filed with the Securities and Exchange Commission on February 27, 1996
Registration No. 33-31243
File No. 811-5909
================================================================================
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. 9
[x]
and/or
REGISTRATION STATEMENT
Under the
INVESTMENT COMPANY ACT OF 1940
[x]
Amendment No. 11
[x]
(Check appropriate box or boxes)
----------
Phoenix Multi-Sector Fixed Income Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
----------
101 Munson Street, Greenfield, Massachusetts 01301
(Address of Principal Executive Offices) (Zip Code)
c/o Phoenix Equity Planning Corporation - Customer Service
(800) 243-1574
Registrant's Telephone Number
----------
Philip R. McLoughlin, Esq.
Vice Chairman and Chief Executive Officer
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, Connecticut 06115
(Name and Address of Agent for Service)
----------
It is proposed that this filing will become effective (check appropriate
box):
[x] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on 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.
Declaration Pursuant to Rule 24f-2
Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed the notice required by Rule 24f-2 with
respect to its fiscal year ended October 31, 1995 on December 28, 1995.
================================================================================
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
Cross Reference Sheet
Required by Rule 495
Under the Securities Act of 1933
PART A
Information Required in Prospectus
<TABLE>
<CAPTION>
Item Number Prospectus Caption
----------------------------------------------- --------------------------------------------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fund Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Introduction; Investment Objective and
Policies; Additional Information
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities Dividends, Distributions and Taxes; Net Asset Value; How
to Buy Shares; Additional Information
7. Purchase of Securities Being Offered Net Asset Value; How to Buy Shares; Alternative Sales
Arrangements; Investor Accounts and Services Available;
Distribution Plans
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceeding Not Applicable
</TABLE>
PART B
Information Required in Statement of Additional Information
<TABLE>
<CAPTION>
Item Number Statement of Additional Information
----------------------------------------------- --------------------------------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Cover Page; General Information
13. Investment Objectives and Policies Investment Objective; Cover Page; Investment
Restrictions; Investment Policies
14. Management of the Fund Services of the Adviser; Other Information;
Directors and Officers
15. Control Persons and Principal Holders Not Applicable
of Securities
16. Investment Advisory and Other Services Services of the Adviser
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Net Asset Value; How to Buy Shares
19. Purchase, Redemption and Pricing of Net Asset Value; How to Buy Shares; Exchange Privileges;
Securities Being Offered How to Redeem Shares
20. Tax Status Dividends, Distributions and Taxes
21. Underwriter The National Distributor
22. Calculations of Performance Data Performance Data
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
PROSPECTUS
PHOENIX MULTI-SECTOR
FIXED INCOME FUND, INC.
PROSPECTUS
FEBRUARY 28, 1996
[Phoenix Duff & Phelps logo] Phoenix Duff & Phelps
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
101 Munson Street
Greenfield, MA 01301
PROSPECTUS
February 28, 1996
Phoenix Multi-Sector Fixed Income Fund, Inc. (the "Fund") is a
diversified, open-end management investment company with an investment
objective to maximize current income consistent with the preservation of
capital. The Fund will seek to achieve its objective by investing in the
following sectors of the fixed income securities markets: (a) securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities; (b) debt securities issued by
foreign issuers, including foreign governments and their political
subdivisions; (c) securities rated investment grade by a nationally
recognized statistical rating organization and (d) high yield, high risk
fixed income securities. There can be no assurance that the Fund's investment
objective will be achieved.
In pursuing its objective, except as limited below, the Fund may invest
its assets in each or any combination of these market sectors in any
proportion deemed advisable by the Fund's investment adviser. The Fund will
not, however, invest more than 35% of its assets, determined at the time of
investment in high yield, high risk fixed income securities ("junk bonds").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. No dealer, salesperson or
any other person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as
having been authorized by the Fund, Adviser or Distributor. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state in which, or to any person to
whom, it is unlawful to make such an offer. Neither the delivery of this
Prospectus nor any sale hereunder shall, under any circumstances, create any
implication that information herein is correct at any time subsequent to its
date. Investors should read and retain this Prospectus for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated February 28, 1996, which has been filed with
the Securities and Exchange Commission (the "Commission") and which is
available upon request and at no charge by calling 800-243-4361 or by writing
to Phoenix Equity Planning Corporation at 100 Bright Meadow Boulevard, P.O.
Box 2200, Enfield, Connecticut 06083-2200. The Statement of Additional
Information is incorporated herein by reference.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, credit union, or affiliated entity, and are not
federally insured or otherwise protected by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency and involve
investment risk, including possible loss of principal.
================================================================================
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
CUSTOMER SERVICE: (800) 243-1574
MARKETING: (800) 243-4361
TELEPHONE ORDERS/EXCHANGES: (800) 367-5877
TELECOMMUNICATION DEVICE (TTY): (800) 243-1926
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
INTRODUCTION 3
FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 6
PERFORMANCE INFORMATION 7
INVESTMENT OBJECTIVE AND POLICIES 7
INVESTMENT TECHNIQUES AND RELATED RISKS 11
INVESTMENT RESTRICTIONS 14
PORTFOLIO TURNOVER 14
MANAGEMENT OF THE FUND 15
DISTRIBUTION PLANS 16
HOW TO BUY SHARES 17
INVESTOR ACCOUNTS AND SERVICES AVAILABLE 21
NET ASSET VALUE 24
HOW TO REDEEM SHARES 24
DIVIDENDS, DISTRIBUTIONS AND TAXES 25
ADDITIONAL INFORMATION 26
APPENDIX 26
</TABLE>
2
<PAGE>
INTRODUCTION
This Prospectus describes the shares offered by and the operations of
Phoenix Multi-Sector Fixed Income Fund, Inc. (the "Fund"). The Fund is a
diversified, open-end management investment company established as a
corporation under the laws of Maryland. The Fund's investment objective is to
maximize current income consistent with the preservation of capital.
The Investment Adviser
National Securities & Research Corporation ("National" or the "Adviser") is
the investment adviser of the Fund and its professional staff selects and
supervises the investments in the Fund's portfolio. National is a subsidiary
of Phoenix Duff & Phelps Corporation and, prior to November 1, 1995, was an
indirect subsidiary of Phoenix Home Life Mutual Insurance Company. For
managing, or directing the investments of the Fund, the Adviser receives a
fee which is accrued daily and payable monthly, at an annual rate of: .55% on
the first $1 billion of the Fund's average aggregate daily net assets, .50%
of average aggregate daily net assets between $1 billion and $2 billion, and
.45% of average aggregate daily net assets in excess of $2 billion. See
"Management of the Fund."
Distributor and Distribution Plans
Phoenix Equity Planning Corporation ("Equity Planning" or "Distributor")
serves as National Distributor of the Fund's shares. See "Distribution Plans"
and the Statement of Additional Information. Equity Planning also acts as
financial agent and as such receives a quarterly fee based on the average of
the aggregate daily net asset values of the Fund at an annual rate of $300
per $1 million. Equity Planning also serves as the Fund's transfer agent.
The Fund has adopted distribution plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the
distribution plan adopted for Class A Shares, the Fund shall reimburse the
Distributor up to a maximum annual rate of 0.30% of the Fund's average daily
Class A Share net assets for distribution expenditures incurred in connection
with the sale and promotion of Class A Shares and for furnishing shareholder
services. Although the Class A Shares Plan continues to provide for a 0.30%
distribution fee, the Distributor has voluntarily agreed to limit the Rule
12b-1 fee charged to Class A Shares to 0.25% for the fiscal year 1996.
Pursuant to the distribution plan adopted for Class B Shares, the Fund shall
reimburse the Distributor up to a maximum annual rate of 1.00% of the Fund's
average daily Class B Share net assets for distribution expenditures incurred
in connection with the sale and promotion of Class B Shares and for
furnishing shareholder services. See "Distribution Plans."
Purchase of Shares
The Fund offers two classes of shares which may be purchased at a price
equal to their net asset value per share plus a sales charge which, at the
election of the purchaser may be imposed (i) at the time of purchase (the
"Class A Shares"), or (ii) on a contingent deferred basis (the "Class B
Shares").
Completed applications for the purchase of shares should be mailed to the
Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box 8301,
Boston, MA 02266-8301.
Class A Shares are offered to the public at the next determined net asset
value after receipt of the order by State Street Bank and Trust Company plus
a maximum sales charge of 4.75% of the offering price (4.99% of the amount
invested) on single purchases of less than $50,000. The sales charge for
Class A Shares is reduced on a graduated scale on single purchases of $50,000
or more and subject to other conditions stated below. See "How to Buy
Shares," "How to Obtain Reduced Sales Charges on Class A Shares" and "Net
Asset Value."
Class B Shares are offered to the public at the next determined net asset
value after receipt of an order by State Street Bank and Trust Company with
no sales charge. Class B Shares are subject to a sales charge if they are
redeemed within five years of purchase. See "How to Buy Shares" and "Deferred
Sales Charge Alternative--Class B Shares."
Shares of each class represent an identical interest in the investment
portfolio of the Fund and generally have the same rights except that Class B
Shares bear the cost of higher distribution fees which cause the Class B
Shares to have a higher expense ratio and to receive lower dividends than
Class A Shares. See "How To Buy Shares."
Minimum Initial and Subsequent Investments
The minimum initial investment is $500 ($25 if using the bank draft
investing program designated "Investo-Matic"), and the minimum subsequent
investment is $25. Exceptions to the minimum and subsequent investment
amounts are available under certain circumstances. See "How to Buy Shares."
Redemption Price
Class A Shares may be redeemed at any time at the net asset value per share
next computed after receipt of a redemption request by Equity Planning, the
Fund's transfer agent. Class B shareholders redeeming shares within five
years of the date of purchase will normally be assessed a contingent deferred
sales charge. See "How to Redeem Shares."
Risk Factors
There can be no assurance that the Fund will achieve its investment
objective. In addition, special risks may be presented by the particular
types of securities in which the Fund may invest. For example, the Fund may
invest up to 35% of its total assets, in below investment grade securities.
Such securities are sometimes referred to as "junk bonds." Investing in junk
bonds involves risks not typically associated with investment in higher-rated
securities, including overall greater risk of non-payment of interest and
principal and potentially greater sensitivity to general economic conditions
and changes in interest rates. In addition, investors should consider risks
inherent in foreign debt securities, including foreign exchange rate
fluctuations and exchange controls. See "Investment Objective and Policies."
3
<PAGE>
FUND EXPENSES
The following table illustrates fees and expenses a shareholder will
incur. The fees and expenses are set forth in the table for the fiscal year
ended October 31, 1995.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
---------------- ------------------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) 4.75% None
Maximum Sales Load Imposed on Reinvested
Dividends None None
Deferred Sales Load (as a percentage of None 5% during the first
original purchase price or redemption year, decreasing 1%
proceeds, as applicable) annually to 2%
during the fourth
and fifth years;
thereafter decreasing
to 0% after the fifth
year
Redemption Fee None None
Exchange Fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets for
the year ended October 31, 1995)
Management Fees .55% .55%
12b-1 Fees (a) .25% 1.00%
Other Operating Expenses .30% .30%
--------------- -----------------------
Total Fund Operating Expenses 1.10% 1.85%
=============== =======================
</TABLE>
(a) "Rule 12b-1 Fees" represent an asset-based sales charge that, for a
long-term shareholder, may be higher than the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. ("NASD").
While the Distribution Plan for Class A Shares continues to provide for a
0.30% distribution fee, the Distributor has voluntarily agreed to continue to
limit the fee to 0.25% for the fiscal year 1996.
4
<PAGE>
<TABLE>
<CAPTION>
Cumulative Expenses
Paid for the Period
Example* 1 year 3 years 5 years 10 years
------------------------------------------------------------------- ------ ------- ------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a hypothetical
$1,000 investment assuming (1) 5% annual return and (2) redemption
at the end of each time period:
Class A Shares $58 $81 $105 $175
Class B Shares $69 $88 $120 $197
An investor would pay the following expenses on the same $1,000
investment assuming (1) 5% annual return and (2) no redemption at
the end of each time period:
Class A Shares $58 $81 $105 $175
Class B Shares $19 $58 $100 $197
</TABLE>
*The purpose of the above table is to help the investor understand the
various costs and expenses that the investor will bear, directly or
indirectly. The Example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. See
"Management of the Fund," "Distribution Plans," and "How to Buy Shares."
5
<PAGE>
FINANCIAL HIGHLIGHTS
The following table sets forth certain financial information for each class
of shares for the Fund. This financial information has been audited by Price
Waterhouse LLP, independent accountants. Their opinion and the Fund's
Financial Statements and notes thereto are incorporated by reference in the
Statement of Additional Information. The Statement of Additional Information
and the Fund's most recent Annual Report (which contains a discussion of the
Fund's performance) are available at no charge upon request by calling (800)
243-4361.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
From
Year Ended October 31 Inception
----------------------------------------------------- 12/18/89 to
1995 1994 1993 1992 1991 10/31/90
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $11.94 $14.13 $13.29 $12.81 $11.11 $11.91
Income from investment operations
Net investment income 0.96 0.76 1.14 1.24 1.22((2)) 1.01((2))
Net realized and unrealized gain
(loss) 0.61 (1.35) 1.08 .50 1.71 (.78)
------ ------ ------ ----- ----- -------
Total from investment operations 1.57 (0.59) 2.22 1.74 2.93 .23
------ ------ ------ ----- ----- -------
Less distributions
Dividends from net investment
income (0.95) (0.77) (1.19) (1.21) (1.23) (1.03)
Dividends in excess of net
investment income -- (0.05) (0.02) -- -- --
Dividends from net realized gains -- (0.63) (0.17) (0.05) -- --
Tax Return of Capital -- (0.15) -- -- -- --
------ ------ ------ ----- ----- -------
Total distributions (0.95) (1.60) (1.38) (1.26) (1.23) (1.03)
------ ------ ------ ----- ----- -------
Change in net asset value 0.62 (2.19) 0.84 0.48 1.70 0.80
------ ------ ------ ----- ----- -------
Net asset value, end of period $12.56 $11.94 $14.13 $13.29 $12.81 $11.11
====== ====== ====== ===== ===== =======
Total return((1)) 13.83% (4.57%) 17.55% 14.11% 27.56% 1.85%
Ratios/supplemental data:
Net assets, end of period
(thousands) $168,875 $172,966 $176,859 $141,627 $68,139 $8,667
Ratio to average net assets of:
Operating expenses 1.10% 1.13% 1.29% 1.48% 1.50% 1.20%
Net investment income 8.10% 7.05% 8.27% 9.42% 10.13% 9.59%
Portfolio turnover 201% 123% 207% 116% 180% 2%
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------
From
Year Ended October 31, Inception
---------------------------- 1/3/92 to
1995 1994 1993 10/31/92
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $11.93 $14.10 $13.25 $13.02
Income from investment operations
Net investment income 0.86 .68 1.04 0.94
Net realized and unrealized gain
(loss) 0.61 (1.36) 1.08 0.21
------- ----- ----- -----
Total from investment operations 1.47 (0.68) 2.12 1.15
------- ----- ----- -----
Less distributions
Dividends from net investment
income (0.86) (0.67) (1.08) (0.92)
Dividends in excess of net
investment income -- (0.05) (0.02) --
Dividends from net realized gains -- (0.63) (0.17) --
Tax Return of Capital -- (0.14) -- --
------- ----- ----- -----
Total distributions (0.86) (1.49) (1.27) 0.92
------- ----- ----- -----
Change in net asset value 0.61 (2.17) 0.85 0.23
------- ----- ----- -----
Net asset value, end of period $12.54 $11.93 $14.10 $13.25
======= ===== ===== =====
Total return((1)) 12.96% (5.21%) 16.78% 8.81%((4))
Ratios/supplemental data:
Net assets, end of period
(thousands) $144,020 $156,629 $193,064 $82,522
Ratio to average net assets of:
Operating expenses 1.85% 1.78% 1.99% 2.18%((3))
Net investment income 7.30% 6.46% 7.36% 8.47%((3))
Portfolio turnover 201% 123% 207% 116%
</TABLE>
((1)) Maximum sales charges are not reflected in the total return
calculation.
((2)) Includes reimbursement of operating expenses by investment adviser of
$0.04 and $0.38, respectively.
((3)) Annualized
((4)) Not annualized
6
<PAGE>
PERFORMANCE INFORMATION
The Fund may, from time to time, include its yield and total return in
advertisements, sales literature or reports to current and prospective
shareholders. Both yield and total return figures are computed separately for
Class A and Class B Shares in accordance with formulas specified by the
Securities and Exchange Commission. Yield and total return are based on
historical earnings and are not intended to indicate future performance.
The yield of the Fund will be computed by dividing the Fund's net
investment income over a 30-day period by an average value of invested assets
(using the average number of shares entitled to receive dividends and the
maximum offering price per share at the end of the period), all in accordance
with applicable regulatory requirements. Such amount will be compounded for
six months and then annualized for a twelve month period to derive the Fund's
yield for each class.
Standardized quotations of average annual total return for Class A and
Class B Shares will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in either Class A or Class B
Shares over a period of 1, 5 and 10 years (or the life of the class of shares
of the Fund). Standardized total return quotations reflect the deduction of a
proportional share of each Class's expenses (on an annual basis), deduction
of the maximum initial sales load in the case of Class A Shares or the
maximum contingent deferred sales charge applicable to a complete redemption
of the investment in the case of Class B Shares, and assume that all
dividends and distributions on Class A and Class B Shares are reinvested when
paid. It is expected that the performance of Class A Shares will be better
than that of Class B Shares as a result of lower distribution fees and
certain incrementally lower expenses paid by Class A Shares. The Fund also
may quote supplementally a rate of total return over different periods of
time or by means of aggregate, average and year-by- year or other types of
total return figures. In addition the Fund may from time to time publish
material citing historical volatility for shares of the Fund.
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 rating services
such as Morningstar, Inc. Additionally, the Fund may compare its performance
results to other investment or savings vehicles (such as certificates of
deposit) and may refer to results published in various publications such as
Changing Times, Forbes, Fortune, Money, Barrons, Business Week and Investor's
Daily, Stanger's Mutual Fund Monitor, The Stanger Register, Stanger's
Investment Adviser, The Wall Street Journal, The New York Times, Consumer
Reports, Registered Representative, Financial Planning, Financial Services
Weekly, Financial World, U.S. News and World Report, Standard and Poor's, The
Outlook, and Personal Investor. The Fund may from time to time illustrate the
benefits of tax deferral by comparing taxable investments to investments made
through tax-deferred retirement plans. The total return may also be used to
compare the performance of the Fund against certain widely acknowledged
outside standards or indices for stock and bond market performance, such as
the Standard & Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial
Average, Europe Australia Far East Index (EAFE), Consumer Price Index,
Shearson Lehman Corporate Index and Shearson Lehman T-Bond Index. The S&P 500
is a commonly quoted market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 stocks relative to the base
period 1941-43. The S&P 500 is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks
of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
Advertisements, sales literature and communications may contain
information about the Fund or Advisor's current investment strategies and
management style. Current strategies and style may change to allow the Fund
to respond quickly to a changing market and economic conditions. From time to
time, the Fund may discuss specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Fund may
separate its cumulative and average annual returns into income results and
capital gains or losses; or cite separately as a return figure the equity or
bond portion of the Fund's portfolio; or compare the Fund's equity or bond
return figure to well-known indices of market performance including but not
limited to: the S&P 500 Index, Dow Jones Industrial Average, First Boston
High Yield Index and Salomon Brothers Corporate and Government Bond Indices.
Performance information for the Fund reflects only the performance of a
hypothetical investment in Class A or Class B Shares of the Fund during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the portfolio, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future. For a description of
the methods used to determine total return for the Fund, see the Statement of
Additional Information.
The Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Fund and a comparison of that
performance to a securities market index.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize current income consistent
with the preservation of capital. The investment objective of the Fund is a
fundamental policy
7
<PAGE>
which may not be changed without the approval of the holders of a majority of
the outstanding shares of the Fund. There can be no assurance that the Fund's
investment objective will be achieved.
The Fund will seek to achieve its objective by investing at least 65% of
its total assets in the following sectors of the fixed income securities
markets: (a) securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies, authorities or instrumentalities ("U.S.
Government Securities"); (b) debt securities issued by foreign issuers,
including foreign governments and their political subdivisions ("Foreign
Securities"); (c) securities rated at the time of purchase as investment
grade by a NRSRO ("Investment Grade Securities"); and (d) high yield, high
risk fixed income securities commonly referred to as "junk bonds". The Fund's
assets generally will be invested in each market sector, but the Fund may
invest any amount of its assets in any one sector (except for high yield,
high risk corporate fixed income securities, in which sector the Fund will
not invest more than 35% of its assets determined at the time of investment)
and may choose not to invest in a sector in order to achieve its investment
objective. The Adviser believes that by following this strategy, the Fund's
net asset value is likely to be more stable than that of a fund which invests
in only one of these four fixed income sectors. Greater stability would occur
because, in general, broad diversification over several market sectors tends
to reduce volatility. For certain of the risk considerations involved in an
investment in the Fund, see "Risk Factors."
The Fund invested in the following dollar weighted average percentages of
assets as rated by Standard & Poor's ("S&P"), or having a comparable rating
according to Moody's Investor's Services, Inc., Duff & Phelps Credit Rating
Co. or Fitch Investor Services, during the fiscal period ending October 31,
1995.
<TABLE>
<CAPTION>
Rating S&P
-------- ------
<S> <C>
AAA 21.5%
AA 8.0%
A 5.0%
BBB 16.7%
BB 17.8%
B 2.2%
CCC 1.2%
Unrated 23.2
</TABLE>
U.S. Government Securities
The U.S. Government Securities in which the Fund may invest are (1) U.S.
Treasury obligations, which differ only in their interest rates, maturities
and times of issuance and include U.S. Treasury bills (maturities of one year
or less), U.S. Treasury notes (maturities of one to 10 years) and U.S.
Treasury bonds (generally maturities of greater than 10 years); and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government (such as Government National Mortgage
Association ("GNMA") Certificates), (b) the right of the issuer to borrow an
amount limited to a specific line of credit from the U.S. Treasury (which
line of credit is equal to the face value of the government obligation), (c)
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality, or (d) the creditworthiness of
the instrumentality. The Fund may invest in U.S. Government Securities
denominated in foreign currencies, such as U.S. Treasury obligations and
securities issued by GNMA, FNMA, FHLMC and SLMA (each as defined below). An
example of such an agency issue in which the Fund invests is PERLS (Principal
Exchange Rate Linked Securities), which are bonds whose principal repayment,
while paid in U.S. dollars, is linked to the level of the exchange rate
between the U.S. dollar and the currency of one or more countries.
Examples of agencies and instrumentalities that issue U.S. Government
Securities in which the Fund will invest are GNMA, the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), and Student Loan Marketing Association ("SLMA"). GNMA is a wholly
owned corporate instrumentality of the United States and is authorized to
borrow from the U.S. Treasury without limitation to meet its payment
obligations on the mortgage-backed securities which it issues and guarantees.
FNMA is a federally chartered but privately owned corporation which
guarantees the timely payment of principal of and interest on the
certificates it issues; the guarantee is not backed by the U.S. government.
FHLMC and SLMA are corporate instrumentalities of the United States which
guarantee the timely payment of interest on and the ultimate payment of
principal of their certificates; the guarantee is not backed by the U.S.
Government. With respect to obligations issued or guaranteed by U.S.
Government agencies, authorities and instrumentalities, guarantees as to the
timely payment of principal and interest do not extend to the value of the
Fund's shares. In addition, the market value of U.S. Government Securities
fluctuates as interest rates change.
These securities may also include collateralized mortgage- backed
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs").
CMOs are hybrid instruments with characteristics of both mortgage-backed and
mortgage pass-through securities. Similar to a bond, interest and pre-paid
principal on a CMO are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC,
or FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. REMICs are similar to CMOs and are
fixed pools of mortgages with multiple classes of interests held by
investors. Mortgages backing U.S.
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Government Securities may include, among others, conventional 30-year
fixed-rate mortgages, graduated-payment mortgages, 15-year mortgages and
adjustable-rate mortgages.
The Fund may also invest in pass-through securities that are derived from
mortgages. A pass-through security is formed when mortgages are pooled
together and undivided interests in the pool or pools are sold. The cash flow
from the mortgages is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee).
Mortgage pass-through securities, CMOs and REMICs are sometimes referred
to as "derivatives," as their value is derived from the performance or value
of such underlying instruments. The value of these instruments can fluctuate
to a greater degree than other debt securities in response to changes in
interest rates and under some circumstances the market for these securities
can be less liquid. Mortgage backed securities may also be subject to
prepayment risk. Prepayment rates are important because of their effect on
the yield and price of securities. Prepayments occur when the holder of an
individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass- through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity
would indicate. Although the specific pattern of prepayments is estimated and
reflected in the price paid for pass-through securities at the time of
purchase, the actual prepayment behavior of the relevant mortgages cannot be
known at that time. Therefore, it is not possible to predict accurately the
realized yield or average life of a particular issue of pass- through
securities. Prepayments that occur faster than estimated adversely affect
yields for pass-throughs purchased at a premium (that is, a price in excess
of principal amount) and may cause a loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. Furthermore, the
proceeds from prepayments usually are reinvested at current market rates,
which may be higher than, but usually are lower than, the rates earned on the
original pass-through securities. This reinvestment risk is increased in the
case of GNMA securities because principal is repaid monthly rather than in a
lump sum at maturity. Prepayments on a pool of mortgage loans are influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgaged properties and servicing decisions.
Generally, however, prepayments on fixed rate mortgage loans will increase
during a period of falling interest rates and decrease during a period of
rising interest rates. Mortgage-backed securities may decrease in value as a
result of increases in interest rates and may benefit less than other fixed
income securities or decline in value from declining interest rates because
of the risk of prepayment.
The Fund may purchase pass-through securities at a premium or at a
discount. The values of pass-through securities in which the Fund may invest
will fluctuate with changes in interest rates. The value of such securities
varies inversely with interest rates, except that when interest rates
decline, the value of pass-through securities may not increase as much as
other debt securities because of the prepayment feature. Changes in the value
of such securities will not affect interest income from those obligations but
will be reflected in the Fund's net asset value.
Foreign Securities
The Foreign Securities in which the Fund may invest are issued by foreign
issuers in developed countries considered creditworthy by the Adviser and in
so-called emerging market countries. The Fund will invest in government
obligations supported by the authority to levy taxes sufficient to ensure the
payment of all principal and interest due on such obligations. Because
foreign government obligations, like U.S. Government obligations, are
generally guaranteed as to principal and interest by the government issuing
the security, the principal risk of investing in foreign government
obligations is that the foreign government will not, or will be unable to,
meet its obligations. The Fund may also purchase securities of
non-governmental issuers considered creditworthy by the Adviser. For a
discussion of the risks considerations of investing in foreign securities,
see "Risk Factors." While a portion of the Fund's assets normally will be
invested in securities issued abroad and denominated in foreign currencies
("non-U.S. dollar securities"), that amount may vary depending on the
relative yield of such securities, the relative strength of the economies and
the financial markets of such countries, the relative interest rates
available in such countries and the relationship of such countries'
currencies to the U.S. dollar. Investments in non-U.S. dollar securities and
currency will be evaluated on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth rate forecasts, balance
of payments status, and economic policies) as well as technical and political
data. Normally, the Fund invests approximately 10-20% of its assets in
non-U.S. dollar securities; however, the Fund does not intend to invest more
than 50% of its assets in such securities. The Fund may hold foreign currency
for hedging purposes to protect against declines in the U.S. dollar value of
foreign securities held by the Fund and against increases in the U.S. dollar
value of the foreign securities which the Fund might purchase.
Investment Grade Securities
Investment Grade Securities of domestic issuers in which the Fund may
invest are all types of long- or short-term debt obligations ("Debt
Obligations"), such as bonds, debentures, notes, equipment lease
certificates, equipment trust certificates, asset-backed securities,
commercial and residential pass-through securities, collateralized mortgage
obligations (including REMICs) issued by private issuers ("private label
CMOs"), conditional sales contracts and commercial paper (including
obligations secured by such instruments). The Fund may invest in Investment
Grade Securities of U.S. issuers denominated in foreign currencies. The
Investment Grade Securities that the Fund may purchase
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consist of securities rated in the top four rating categories by a NRSRO.
Securities rated Baa or BBB are medium grade investment obligations that may
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments, in the case of such obligations, than is the
case for higher grade securities.
High Yield-High Risk Securities
High Yield-High Risk Securities of domestic issuers in which the Fund may
invest are preferred and preference stock and Debt Obligations. The Fund may
invest in High Yield- High Risk Securities of domestic issuers which are
denominated in foreign currencies. The High Yield-High Risk Securities that
the Fund may purchase are securities in the lower rating categories of the
NRSROs (BB through CCC and Ba through Caa), and unrated securities. (The fact
that certain securities are unrated does not necessarily reflect the level of
quality or risk that may be associated with such securities. Some issuers do
not seek to have their securities rated.) These lower rated and comparable
unrated securities, while selected for their relatively high yield, may be
subject to greater fluctuations in market value and greater risks of loss of
income and principal than higher rated securities. High yields often reflect
the greater risks associated with the securities that offer such yields.
Because of these greater risks, High Yield-High Risk Securities often carry
lower ratings.
Economic conditions can sometimes narrow the spreads between yields on
lower rated (or comparable unrated) securities and yields on higher rated
securities. If these spreads narrow to such a degree that the Adviser
believes that the yields available on lower rated or comparable unrated
securities do not justify the higher risks associated with those securities,
the Fund may invest in higher rated or comparable unrated securities.
Investments in high yield, high risk pass-through securities are subject to
prepayment and reinvestment risks similar to those described above under "The
Fund and its Investment Objective and Policies--U.S. Government Securities."
High Yield-High Risk Securities may also include increasing rate notes.
Increasing rate notes are high yielding, high risk securities with maturities
ranging from two to five years, whose interest rates increase under specified
conditions. They are issued as temporary financing with the intent of being
replaced in six months or less. Accordingly, investments in these securities
can result in the Fund having a higher than normal portfolio turnover rate.
See "Portfolio Turnover."
Some High Yield-High Risk Securities are convertible into or exchangeable
for equity securities or carry the right--in the form of a warrant or as part
of a unit with the security--to acquire equity securities. The Fund would
ordinarily purchase these securities for their yield characteristics rather
than for the purpose of exercising the associated rights to obtain equity
securities. However, if the Fund obtains equity securities, the Fund may hold
these equity securities for such period of time as the Adviser deems prudent,
provided that the value of such equity securities will not at any time exceed
2% of the Fund's assets.
The Adviser evaluates the purchase of High Yield-High Risk Securities for
the Fund primarily through the exercise of its own investment and credit
analysis and on the ratings assigned by NRSROs. The Fund will not invest in
High Yield Securities rated lower than CCC/Caa by a NRSRO. Such securities
are regarded, on balance, as being of poor standing and predominantly
speculative with respect to the capacity to pay interest and repay principal
in accordance with the terms of the obligation. Although such securities will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions. For a
more complete description of ratings of high yield securities obligations,
see the Appendix.
As a fundamental policy, the Fund's investments in High Yield-High Risk
Securities will be limited to not more than 35% of its assets. This
restriction applies at the time of investment and any subsequent change in
the percentage due to changes in market value of portfolio securities or
other changes in the total assets will not be considered a violation of this
restriction. Because of the additional risks associated with investments in
these securities, an investor may wish to consider carefully the manner in
which the Fund seeks its objective, and the investor's ability to assume
these risks, before investing in the Fund.
General Investment Policies
For temporary defensive purposes part or all of the Fund's assets may be in
cash or invested in cash equivalents at the discretion of the Adviser. At
times when the Adviser determines that Fund assets should be in cash or
invested in cash equivalents for temporary defensive purposes, the Fund will
not be investing in accordance with its investment objective. The Adviser
will convert Fund assets to cash or invest in cash equivalents for temporary
defensive purposes during periods of rising interest rates, unstable pricing
and currency exchange or in response to extreme market fluctuations.
The Fund expects that, under normal market conditions, the maturity of any
single portfolio security will not exceed 30 years in the U.S. Government
Securities sector, 15 years in the Foreign Securities sector, and 25 years in
the Investment Grade Securities and High Yield-High Risk Securities sectors.
However, the dollar-weighted average maturity of the securities in such
sectors of the Fund's portfolio may vary significantly from time to time,
based on such factors as the Adviser's expectations as to future changes in
interest or exchange rates, the maturity schedules and possible prepayment of
bonds held by the Fund and the characteristics and maturities of securities
available in the market for purchase by the Fund at various future times. The
adjustment of the Fund's dollar-weighted average maturity through the sale of
portfolio holdings and the reinvestment of sale proceeds in securities of
different maturities may cause the Fund's portfolio turnover rate to be
higher than if the Fund had held its holdings until their maturity. For a
discussion of portfolio turnover rate, see "Portfolio Turnover." As a
fundamental policy, the Fund may borrow money from banks to the extent
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permitted under the 1940 Act. As an operating (non- fundamental) policy, the
Fund does not intend to borrow any amount in excess of 10% of its assets, and
would do so only for temporary emergency or administrative purposes. In
addition, to avoid the potential leveraging of its assets, the Fund will not
make additional investments when its borrowings are in excess of 5% of its
total assets. If the Fund should determine to expand its ability to borrow
beyond this current operating policy, the Prospectus would be amended and
shareholders would be notified.
INVESTMENT TECHNIQUES AND RELATED RISKS
In addition to the investment policies described above, the Fund may
utilize the following investment practices or techniques.
Zero Coupon, Step Coupon and PIK Bonds
The Fund may invest up to 15% of its assets, determined at the time of
investment, in any combination of zero coupon bonds, step coupon bonds and
bonds on which interest is payable in kind ("PIK bonds"), in the aggregate. A
zero coupon bond is a bond that does not pay interest currently for its
entire life. Step coupon bonds frequently do not entitle the holder to any
periodic payments of interest for some initial period after the issuance of
the obligation; thereafter, step coupon bonds pay interest for fixed periods
of time at particular interest rates (a "step coupon bond"). In the case of a
zero coupon bond, the nonpayment of interest on a current basis may result
from the bond's having no stated interest rate, in which case the bond pays
only principal at maturity and is initially issued at a discount from face
value. Alternatively, a zero coupon obligation may provide for a stated rate
of interest, but provide that such interest is not payable until maturity, in
which case the bond may initially be issued at par. The value to the investor
of a zero coupon or step coupon bond is represented by the economic accretion
either of the difference between the purchase price and the nominal principal
amount (if no interest is stated to accrue) or of accrued, unpaid interest
during the bond's life or payment deferral period. PIK bonds are obligations
which provide that the issuer thereof may, at its option, pay interest on
such bonds in cash or in the form of additional debt securities. Such
securities benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who
are willing to defer receipt of such cash. The Fund will accrue income on
such investments for tax and accounting purposes, which is distributable to
shareholders from available cash or liquidated assets. See "Risk Factors" for
additional information concerning the characteristics of zero coupon bonds,
step coupon bonds and PIK bonds. See also "Dividends, Distributions and
Taxes."
Options and Other Hedging Activities
The Fund may write and purchase options, including over-the- counter
options, for hedging purposes. The Fund may also engage in foreign currency
exchange transactions and in transactions involving interest rate futures
contracts and options thereon as a hedge against changes in exchange and
interest rates. For more information regarding the Fund's options activities,
see the Statement of Additional Information.
Loan Participations
The Fund may invest up to 5% of its net assets, determined at the time of
investment, in loan participations. A loan participation agreement involves
the purchase of a share of a loan made by a bank to a company in return for a
corresponding share of the borrower's principal and interest payments. Loan
participations of the type in which the Fund may invest include interests in
both secured and unsecured corporate loans. See the Statement of Additional
Information.
Trading of Securities
The Fund may trade securities from its portfolio which are not subject to
options, or which are not held in a segregated account with its custodian,
for short-term (less than one year) profits in order to take advantage of
differentials in prices and yields or of fluctuations in interest rates,
consistent with its investment objective.
Reverse Repurchase Agreements and Dollar Roll Agreements
The Fund may enter into reverse repurchase agreements and dollar roll
agreements. A dollar roll agreement is identical to a reverse repurchase
agreement except for the fact that substantially identical securities may be
repurchased. Under a reverse repurchase agreement or a dollar roll agreement,
the Fund sells securities and agrees to repurchase them, or substantially
similar securities in the case of a dollar roll agreement, at a mutually
agreed upon date and price. Reverse repurchase agreements and dollar roll
agreements are considered a form of borrowing. At the time the Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will
establish and maintain a segregated account with its Custodian containing
U.S. Government Securities, cash or other liquid high-grade debt securities
having a value not less than the repurchase price (including accrued
interest). The Fund's ability to enter into reverse repurchase agreements and
dollar roll agreements is limited by the requirement to maintain assets in
segregated accounts, by requirements relating to the Fund's status as a
regulated investment company under the Code, and by the Fund's overall
limitations on borrowing. Furthermore, because dollar roll transactions may
be for terms ranging between one and six months, they may be deemed to be
"illiquid" and subject to the Fund's overall limitations on investment in
illiquid securities.
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may
cause losses. Reverse repurchase agreements and dollar roll agreements
involve the risk that the market value of the securities to be repurchased by
the Fund may decline below the price at which the Fund is obligated to
repurchase. Also, in the event the buyer of securities under a reverse
repurchase agreement or a dollar roll agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement or the dollar roll agreement may effectively be
restricted pending such decision.
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Repurchase Agreements
The Fund may enter into repurchase agreements with respect to U.S.
Government Securities. Repurchase agreements may be entered into only with
registered broker- dealers or government securities dealers ("dealers") and
depository institutions ("banks") believed by National to present minimum
credit risk in accordance with guidelines approved by the Fund's Directors.
National will review and monitor the creditworthiness of such dealers and
banks. Under such agreements, the dealer or bank agrees, upon entering into
the contract, to repurchase a security it sells at a time and price, mutually
agreed upon with the purchaser of such security, thereby determining the
yield during the term of the agreement. This results in a fixed rate of
return insulated from market fluctuations during such period. The seller
under a repurchase agreement will be required to maintain the value of the
securities subject to the agreement at not less than the repurchase price,
and such value will be determined on a daily basis by marking the underlying
securities to their market value. With respect to any repurchase agreements
with a maturity of greater than one day, such agreements shall be
collateralized in an amount at least equal to 102% of the repurchase price.
The Fund does not bear the risk of a decline in value of the underlying
security unless the seller defaults under its repurchase obligation. In the
event of a bankruptcy or other default of a seller of a repurchase agreement,
the Fund could experience both delays in liquidating the underlying
securities and losses, including (a) possible decline in the value of the
underlying securities during the period while the Fund seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing rights. The Fund
will limit its investments in repurchase agreements to 5% of its net assets.
When-Issued Securities and Delayed Delivery Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place more
than seven days in the future or after a period longer than the customary
settlement period for the particular security. Customary settlement for newly
issued mortgage-backed securities occurs only when the composition of the
underlying mortgage pools are set, typically once a month. At the time the
Fund makes the commitment to purchase a security on a when-issued or delayed
delivery basis, it will record the transaction and reflect the value of the
security and the liability to pay the purchase price in determining the
Fund's net asset value. The value of the security on the settlement date may
be more or less than the price paid as a result of, among other things,
changes in the level of interest rates or other market factors. No interest
accrues on the security between the time the Fund enters into the commitment
and the time the security is delivered. The Fund will establish a segregated
account with the Custodian in which it will maintain cash and liquid
high-grade debt securities equal in value to commitments for when-issued or
delayed delivery securities. Such segregated securities either will mature
or, if necessary, be sold on or before the settlement date. While when-issued
or delayed delivery securities may be sold prior to the settlement date, it
is intended that the Fund will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment
reasons, in which case the Fund may sell its interest in the securities
rather than take delivery, and may reinvest the proceeds in similar or other
securities. The Fund may not invest more than 25% of its net assets at the
time of investment in securities purchased on a when-issued or delayed
delivery basis.
Risk Factors and Special Considerations
High Yield-High Risk Securities
Under normal conditions, up to 35% of the Fund's assets may be invested in
high yield-high risk fixed income securities commonly referred to as "junk
bonds." These securities ("High Yield-High Risk Securities") will ordinarily
be in the lower rating categories of NRSROs or will be non-rated securities
deemed by the Adviser to be substantially equivalent to securities in such
lower rating categories. High Yield-High Risk Securities generally involve a
greater volatility of price and risk of nonpayment of principal and interest
than securities in higher rating categories and yields on these securities
fluctuate over time.
The risk of loss due to default by the issuer is significantly greater for
the holders of High Yield-High Risk Securities because such securities are
generally unsecured and are often subordinated to other creditors of the
issuer. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of High Yield-High Risk Securities may
experience financial stress and may not have sufficient revenues to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing.
Factors adversely impacting the market value of High Yield- High Risk
Securities will adversely impact the Fund's net asset value to the extent the
Fund's assets are invested in such securities. In addition, the Fund may
incur additional expenses to the extent it is required to seek recovery upon
a default in the payment of principal or interest on its portfolio holdings.
Because the High Yield-High Risk Securities market is relatively new and its
growth paralleled along economic expansion, it is not clear how this market
may withstand a prolonged recession or economic downturn.
The Fund may have difficulty disposing of certain High Yield-High Risk
Securities because there may be a thin trading market for such securities.
Because not all dealers maintain markets in all High Yield-High Risk
Securities, there is no established retail secondary market for many of these
securities, and the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for High Yield-High Risk Securities does exist, it
is generally not as
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liquid as the secondary market for higher rated securities. The lack of a
liquid secondary market may have an adverse impact on the market price of the
security, and accordingly, the Fund's asset value, and on the Fund's ability
to dispose of particular issues when necessary to meet the Fund's liquidity
needs or on the Fund's ability to respond to a specific economic event, or an
event such as a deterioration in the creditworthiness of the issuer. The lack
of a liquid secondary market for certain securities may also make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio. Market quotations are generally available on
many high yield issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers of prices for actual sales.
While all these considerations are generally relevant to many high yield
securities, they may be particularly relevant to securities which represent,
for example, the right to receive only the interest payments ("IOs") to be
made on a particular security. The yield and value of IOs can be very
sensitive to the rate of principal payments on the debt security as well as
to various market factors. IOs issued by private issuers are generally
considered illiquid. Government-issued IOs backed by fixed-rate mortgages may
be deemed liquid if they can be disposed of promptly in the ordinary course
of business at a value reasonably close to that used in the calculation of
net asset value per share. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of High Yield-High Risk Securities, especially in a thinly- traded
market.
From time to time, proposals have been discussed and new legislation
adopted designed to limit the use of certain High Yield-High Risk Securities
by issuers in connection with leveraged buy-outs, mergers and acquisitions,
or to limit the deductibility of interest payments on such securities. Such
laws, or proposals, if enacted into law, could reduce the market for such
securities generally, and could negatively affect the financial condition of
issuers of High Yield-High Risk Securities and the high yield market in
general. For example, under a provision of the Code enacted in 1989, a
corporate issuer may be limited from deducting all of the original issue
discount on high-yield discount obligations (i.e., certain types of debt
securities issued at a significant discount to their face amount).
The market values of High Yield-High Risk Securities tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also tend to be more sensitive to
economic conditions than are higher rated securities. Accordingly, these
lower rated securities are considered predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance
with the terms of the obligation and will generally involve more credit risk
than securities in the higher rating categories. Even securities rated BBB or
Baa, ratings which are considered investment grade, possess some speculative
characteristics.
The Fund has no requirements regarding whether the securities it purchases
must be rated. While credit ratings evaluate the safety of principal and
interest payments, they do not evaluate market value risk of High Yield-High
Risk Securities. In addition, credit rating agencies may not change credit
ratings on a timely basis to reflect subsequent events. Accordingly, use of
lower rated securities places more importance on the ability of the Adviser
than does investing in higher quality fixed income securities. The Adviser
will base its investment decisions for the Fund on its own determination of
reasonable investment risk and reward. The Adviser's judgment as to the
"reasonableness" of the risk involved in any particular investment will be a
function of its experience in managing fixed-income investments and its
evaluation of (i) general economic and financial conditions; (ii) a specific
issuer's (a) business and management, (b) cash flow, (c) earnings coverage of
interest and dividends, (d) ability to operate under adverse economic
conditions, and (e) fair market value of assets, and (iii) such other
considerations as the Adviser may deem appropriate.
Participation on Creditors' Committees
The Fund may from time to time participate on committees formed by
creditors to negotiate with the management of financially troubled issuers of
securities held by the Fund. Such participation may subject the Fund to
expenses such as legal fees and may make the Fund an "insider" of the issuer
for purposes of the federal securities laws, and therefore may restrict the
Fund's ability to purchase or sell a particular security when it might
otherwise desire to do so. Participation by the Fund on such committees also
may expose the Fund to potential liabilities under the federal bankruptcy
laws or other laws governing the rights of creditors and debtors. The Fund
will participate on such committees only when the Adviser believes that such
participation is necessary or desirable to enforce the Fund's rights as a
creditor or to protect the value of securities held by the Fund.
Foreign Securities
Less public information may be available to the Adviser concerning issuers
of foreign securities as compared to equivalent domestic issuers. In certain
instances, there may be less government regulation of stock exchanges,
brokers and banks in foreign countries than in the United States. In
addition, differences exist among U.S. and foreign issuers with respect to
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payment positions. In investing in
bonds denominated in foreign currencies, the Fund will be subject to the risk
of currency fluctuations. Foreign currencies may be affected by revaluation,
future adverse political and economic developments, and governmental
restrictions. The values of foreign investments and the investment income
derived from them also may be adversely affected by changes in currency
exchange control regulations. Although the Fund will invest only in
securities denominated in foreign currencies that are fully exchangeable into
U.S. dollars without legal restriction
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at the time of investment, no assurance can be given that currency exchange
controls will not be imposed at a later date.
Certain foreign countries are less stable politically than the United
States. The possibility exists that certain foreign governments may adopt
policies providing for expropriation or nationalization of assets,
confiscatory taxation, currency blockage or limitations on the use or removal
of monies or other assets of an investment company. Finally, the Fund may
encounter difficulty in obtaining and enforcing judgments against issuers of
foreign securities.
Securities Denominated in Foreign Currencies
In investing in securities denominated in foreign currencies, the Fund will
be subject to the additional risk of currency fluctuations. An adverse change
in the value of a particular foreign currency as against the U.S. dollar, to
the extent that such change is not offset by a gain in other foreign
currencies, will result in a decrease in the Fund's assets. Any such change
may also have the effect of decreasing or limiting the income available for
distribution. Foreign currencies may be affected by revaluation, adverse
political and economic developments, and governmental restrictions. Although
the Fund will invest only in securities denominated in foreign currencies
that are fully convertible into U.S. dollars without legal restriction at the
time of investment, no assurance can be given that currency exchange controls
will not be imposed on any particular currency at a later date.
Securities of U.S. issuers denominated in foreign currencies may be less
liquid and their prices more volatile than securities issued by domestic
issuers and denominated in U.S. dollars. In addition, investing in securities
denominated in foreign currencies often entails costs not associated with
investment in U.S. dollar-denominated securities of U.S. issuers, such as the
cost of converting foreign currency to U.S. dollars, higher brokerage
commissions, custodial expenses and other fees. Non-U.S. dollar denominated
securities may be subject to certain withholding and other taxes of the
relevant jurisdiction, which may reduce the yield on the securities to the
Fund and which may not be recoverable by the Fund or its investors.
Zero Coupon, Step Coupon and PIK Bonds
The Fund may invest up to 15% of its assets in any combination of zero
coupon bonds, step coupon bonds and PIK bonds, in the aggregate. See "Other
Investment Techniques-- Zero Coupon, Step Coupon and PIK Bonds." Zero coupon
and step coupon bonds are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the
time remaining until maturity of the bonds, prevailing interest rates, the
liquidity of the security and the perceived credit quality of the issuer. The
market prices of zero coupon, step coupon and PIK bonds generally are more
volatile than the market prices of securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater degree
than do bonds on which regular cash payments of interest are being made that
have similar maturities and credit quality. In order to satisfy a requirement
for qualification as a "regulated investment company" under the Code, the
Fund must distribute its investment company taxable income, including the
original issue discount accrued on zero coupon or step coupon bonds or
interest paid in additional debt obligations on PIK bonds. Because the Fund
will not receive on a current basis cash payments in respect of accrued
original issue discount on zero coupon bonds, step coupon bonds during the
period before interest payments commence or interest paid in additional debt
obligations on PIK bonds, the Fund may have to distribute cash obtained from
other sources in order to satisfy the distribution requirement under the
Code. See also "Dividends, Distributions and Taxes."
INVESTMENT RESTRICTIONS
Not more than 25% of the total assets of the Fund will be concentrated in
the securities of any one industry. As a diversified investment company, at
least 75% of the Fund's total assets must be represented by cash or cash
items, government securities, securities of other investment companies and
other securities limited in respect of any one issuer to an amount not
greater than 5% of the value of the total assets of the Fund. The Fund will
invest no more than 35% of its assets, determined at the time of purchase, in
High Yield-High Risk Securities. See the Statement of Additional Information
for a detailed description of all of the Fund's investment restrictions.
PORTFOLIO TURNOVER
A change in securities held by the Fund is known as "portfolio turnover"
and may involve the payment by the Fund of dealer mark-up or underwriting
commissions and other transaction costs on the sale of securities, as well as
on the reinvestment of the proceeds in other securities. Portfolio turnover
rate for a fiscal year is the percentage determined by dividing the lesser of
the cost of purchases or proceeds from sales of portfolio securities by the
average of the value of portfolio securities during such year, all excluding
securities whose maturities at acquisition were one year or less. Except as
described below, the Fund's portfolio turnover rate will not be a limiting
factor when the Adviser deems it desirable to sell or purchase securities.
The Fund cannot accurately predict its portfolio turnover rate but the
Adviser anticipates that the Fund's portfolio turnover rate will not exceed
250%. A 250% annual turnover rate would occur, for example, if all the
securities in the portfolio were replaced two and one-half times in a period
of one year. The Fund's portfolio turnover rate may be higher than that
described above if the Fund finds it necessary to significantly change its
portfolio to adopt a temporary defensive position. A high turnover rate may
involve greater expenses to the Fund and could involve realization of capital
gains that would be taxable to the shareholders. Portfolio turnover rates for
the fiscal years of the Fund are shown in the section "Financial Highlights."
The ability of the Fund to make purchases and sales of securities and to
engage in options and futures transactions will be limited by the
requirements of the Code that less than
14
<PAGE>
30% of the Fund's gross income be derived from gains on the sale of
securities held for less than three months, and by other Code requirements.
See "Dividends, Distributions and Taxes."
MANAGEMENT OF THE FUND
The Fund is a mutual fund technically known as an open- end management
investment company. The Directors of the Fund ("Directors") are responsible
for the overall supervision of the operations of the Fund and perform the
various duties imposed on Directors by the 1940 Act and the Maryland General
Corporation Law.
The Adviser
The Fund's investment adviser is National Securities & Research Corporation
(the "Adviser"), which is located at 56 Prospect Street, Hartford,
Connecticut 06115. The Adviser is a subsidiary of Phoenix Duff & Phelps
Corporation of Chicago, Illinois. Prior to November 1, 1995, the Adviser was
an indirect, wholly owned subsidiary of Phoenix Home Life Mutual Insurance
Company ("Phoenix Home Life") of Hartford, Connecticut. Phoenix Home Life is
a majority shareholder of Phoenix Duff & Phelps Corporation. 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 06102. Phoenix Duff & Phelps Corporation is a New
York Stock Exchange traded company that provides various financial advisory
services to institutional investors, corporations and individuals through
operating subsidiaries. The Adviser also acts as the investment adviser or
manager for Phoenix Income and Growth Fund, Phoenix Multi- Sector Short Term
Bond Fund, Phoenix California Tax-Exempt Bonds, Inc., Phoenix Equity
Opportunities Fund, and the Phoenix Worldwide Opportunities Fund. The Adviser
currently has approximately $1.7 billion in assets under management. The
Adviser has acted as an investment adviser for over sixty years.
The Adviser continuously furnishes an investment program for the Fund and
manages the investment and reinvestment of the Fund's assets subject at all
times to the supervision of the Directors. The Adviser, at its expense,
furnishes to the Fund adequate office space and facilities and certain
administrative services, including the services of any member of its staff
who serves as an officer of the Fund.
As compensation for its services, the Adviser receives a fee, which is
accrued daily against the value of the Fund's net assets and is payable
monthly by the Fund. The monthly fee is computed at an annual rate of .55% on
the first $1 billion of the Fund's average daily net assets, .50% on average
daily net assets between $1 billion and $2 billion, and .45% on average daily
net assets in excess of $2 billion. The Adviser's fee is accrued daily
against the value of the Fund's net assets and is payable by the Fund
monthly. The ratio of management fees to average net assets for the fiscal
year ended October 31, 1995 for Class A and Class B Shares was .55%. For its
services to the Fund during the fiscal year ended October 31, 1995, the
Adviser received a fee of $1,692,191.
The Portfolio Manager
Mr. David L. Albrycht is Portfolio Manager of the Fund, and as such, is
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Albrycht has co-managed the Fund since March 1, 1994, and assumed full
management of the Fund on April 10, 1995.
Mr. Albrycht has been the Portfolio Manager of the Phoenix Endowment Fixed
Income Portfolio of the Phoenix Multi- Portfolio Fund, since April 1993. Mr.
Albrycht has also been the Portfolio Manager of Phoenix Asset Reserve since
August, 1993. Mr. Albrycht is a Vice President of Phoenix Investment Counsel,
Inc. and has held various investment management positions with Phoenix Home
Life during the past five years. Since May 14, 1993, he has served as
Investment Officer of National.
The Financial Agent
Equity Planning also acts as financial agent of the Fund and, as such,
performs administrative, bookkeeping and pricing functions for the Fund. As
compensation, Equity Planning receives a quarterly fee based on the average
of the aggregate daily net asset values of the Fund at the annual rate of
$300 per $1 million. For its services during the Fund's fiscal year ended
October 31, 1995, Equity Planning received $92,301 or 0.03% of average net
assets.
The Custodian and Transfer Agent
The custodian of the assets of the Fund is State Street Bank and Trust
Company, P.O. Box 351, Boston, Massachusetts 02101 (the "Custodian"). The
Fund has authorized the custodian to appoint one or more subcustodians for
the assets of the Fund held outside the United States.
Pursuant to a Transfer Agent and Service Agreement with the Phoenix Funds,
Equity Planning acts as transfer agent for the Fund (the "Transfer Agent")
for which it is paid $14.95 plus out-of-pocket expenses for each designated
shareholder account. The Transfer Agent has and shall engage sub-agents from
time to time to perform certain shareholder servicing functions for which
such agents shall be paid a fee by Equity Planning.
Brokerage Commissions
Although the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. prohibit its members from seeking orders for the
execution of investment company portfolio transactions on the basis of their
sales of investment company shares, under such Rules, sales of investment
company shares may be considered in selecting brokers to effect portfolio
transactions. Accordingly, some portfolio transactions are, subject to such
Rules and to obtaining best prices and executions, effected through dealers
(excluding Equity Planning) who sell shares of the Fund. The Adviser may also
select an affiliated broker-dealer to execute transactions for the Fund,
provided that the commissions, fees or other remuneration paid to such
affiliated broker is reasonable and fair as compared to that paid to
non-affiliated brokers for comparable transactions.
15
<PAGE>
DISTRIBUTION PLANS
The offices of Equity Planning, the National Distributor of the shares,
are located at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083-2200. Philip R. McLoughlin is a Director and President of
the Fund and a director and officer of Equity Planning. G. Jeffrey Bohne,
James M. Dolan, William R. Moyer, Leonard J. Saltiel, and Nancy G. Curtiss
are officers of the Fund and officers of Equity Planning.
Equity Planning and the Fund have entered into distribution agreements
under which Equity Planning has agreed to use its best efforts to find
purchasers for Fund shares sold subject to an initial sales charge and those
sold subject to a contingent deferred sales charge. The Fund has granted
Equity Planning the exclusive right to purchase from the Fund and resell, as
principal, shares needed to fill unconditional orders for Fund shares. Equity
Planning may sell Fund shares through its registered representatives or
through securities dealers with whom it has sales agreements. Equity Planning
may also sell Fund shares pursuant to sales agreements entered into with
banks or bank affiliated securities brokers who, acting as agent for their
customers, place orders for Fund shares with Equity Planning. Although the
Glass-Steagall Act prohibits banks and bank affiliates from engaging in the
business of underwriting, distributing or selling securities (including
mutual fund shares), banking regulators have not indicated that such
institutions are prohibited from purchasing mutual fund shares upon the order
and for the account of their customers. If, because of changes in law or
regulations, or because of new interpretations of existing law, it is
determined that agency transactions of banks or bank affiliated securities
brokers are not permitted under the Glass-Steagall Act, the Directors will
consider what action, if any, is appropriate. It is not anticipated that
termination of sales agreements with banks or bank affiliated securities
brokers would result in a loss to their customers or a change in the net
asset value per share of the Fund.
The sale of Fund shares through a bank or a securities broker affiliated
with a bank is not expected to preclude the Fund from borrowing from such
bank or from availing itself of custodial or transfer agency services offered
by such bank.
The Directors have adopted separate distribution plans under Rule 12b-1 of
the 1940 Act for each class of shares of the Fund (the "Class A Plan," the
"Class B Plan," and collectively the "Plans"). The Plans permit the Fund to
reimburse the Underwriter for expenses incurred in connection with the sale
and promotion of Fund shares and the furnishing of shareholder services.
Pursuant to the Class A Plan, the Fund may reimburse the Underwriter for
actual expenses of the Underwriter up to 0.30% annually of the average daily
net assets of the Fund's Class A Shares. However, the Underwriter has
voluntarily agreed to limit the maximum amount of reimbursement under the
Class A Plan for fiscal year 1996 to 0.25% annually of the average daily net
assets of the Fund's Class A Shares. Under the Class B Plan, the Fund may
reimburse the Underwriter monthly for actual expenses of the Underwriter up
to 1.00% annually of the average daily net assets of the Fund's Class B
Shares.
Expenditures incurred under the Plans may consist of: (i) commissions to
sales personnel for selling shares of the Fund (including underwriting
commissions and finance charges related to the payment of commissions for
sales of Class B Shares); (ii) compensation, sales incentives and payments to
sales, marketing and service personnel; (iii) payments to broker-dealers and
other financial institutions which have entered into agreements with the
Underwriter for services rendered in connection with the sale and
distribution of shares of the Fund and the provision of shareholder services;
(iv) payment of expenses incurred in sales and promotional activities
including advertising expenditures related to the Fund; (v) the costs of
preparing and distributing promotional materials; (vi) the costs of printing
the Fund's Prospectus and Statement of Additional Information for
distribution to potential investors; and (vii) such other similar services
that the Directors of the Fund determine are reasonably calculated to result
in the sale of shares of the Fund; provided, however, that a portion of such
amount paid to the Underwriter, which portion shall be equal to or less than
0.25% annually of the average daily net assets of the Fund shares, may be
paid for reimbursing the costs of providing services to shareholders,
including assistance in connection with inquiries related to shareholder
accounts (the "Service Fee"). From the Service Fee, the Underwriter 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 Underwriter. The Underwriter
may realize a profit from these arrangements.
In order to receive payments under the Plans, participants must meet such
qualifications as are to be established in the sole discretion of the
Underwriter, such as services to the Fund's shareholders; or services
providing the Fund with more efficient methods of offering shares to groups
of clients, members or prospects of a participant; or services permitting
bulking of purchases or sales, or transmissions of such purchases or sales by
computerized tape or other electronic equipment; or other batch processing.
Under the Class A Plan, reimbursement or payment of expenses may not be
made unless such payments or reimbursement occurs prior to the earliest of
(a) the last day of the one year period commencing on the last day of the
calendar quarter during which the specific service or activity was performed,
or (b) the last day of the one year period commencing on the last day of the
calendar quarter during which payment was made by a third party on behalf of
the Fund. The Class B Plan,
16
<PAGE>
however, does not limit the reimbursement of distribution related expenses to
expenses incurred in specified time periods.
For the fiscal year ended October 31, 1995, the Fund paid $407,197 under
the Class A Plan and $1,447,921 under the Class B Plan. The fees were used to
compensate unaffiliated broker- dealers for servicing shareholder's accounts,
compensating sales personnel and reimbursing the Underwriter for commission
expenses and expenses related to preparation of the marketing material. On a
quarterly basis, the Fund's Directors review a report on expenditures under
each Plan and the purposes for which expenditures were made. The Directors
conduct an additional more extensive review annually in determining whether
each Plan will be continued. By its terms, continuation of each Plan from
year to year is contingent on annual approval by a majority of the Fund's
Directors and by a majority of the Directors who are not "interested persons"
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of either Plan or any related agreements (the "Plan
Directors"). Each Plan provides that it may not be amended to increase
materially the costs which the Fund may bear without approval of the
applicable class of shareholders of the Fund and that other material
amendments must be approved by a majority of the Plan Directors by vote cast
in person at a meeting called for the purpose of considering such amendments.
Each Plan further provides that while it is in effect, the selection and
nomination of Directors who are not "interested persons" shall be committed
to the discretion of the Directors who are not "interested persons". Each
Plan may be terminated at any time by vote of a majority of the Plan
Directors or a majority of the applicable class of outstanding shares of the
Fund. If the Plans are terminated in accordance with their terms, the
obligations of the Fund to make payments to the Underwriter pursuant to the
Plan, including payments for expenses carried over from previous years will
cease.
The Directors have concluded that there is a reasonable likelihood that
the Plans will benefit the Fund and all classes of shareholders. The Class A
Plan and the Class B Plan were approved by shareholders of the Fund at a
special meeting of shareholders held on May 7, 1993.
The National Association of Securities Dealers ("NASD") regards certain
distribution fees as asset-based sales charges subject to NASD sales load
limits. The NASD's maximum sales charge rule may require the Trustees to
suspend distribution fees or amend either or both Plans.
HOW TO BUY SHARES
The minimum initial investment is $500 and the minimum subsequent
investment is $25. Both the minimum initial and subsequent investment amounts
are $25 for investments pursuant to the "Investo-Matic" plan, a bank draft
investing program administered by Equity Planning, or pursuant to the
Systematic Exchange privilege. (See the Statement of Additional Information.)
Completed application for the purchase of shares should be mailed to the
Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box 8301,
Boston, MA 02266-8301.
Each class of shares represents an interest in the same portfolio of
investments of the Fund, has the same rights, and is identical to the other
in all respects, except that Class B Shares bear the expenses of the deferred
sales arrangement and any expenses (including the higher distribution
services fee and any incremental transfer agency costs) resulting from such
sales arrangement. Each class has exclusive voting rights with respect to
provisions of the Rule 12b-1 distribution plan pursuant to which its
distribution services fee is paid, and each class has different exchange
privileges. Only the Class B Shares are subject to a conversion feature. The
net income attributable to Class B Shares and the dividends payable on Class
B Shares will be reduced by the amount of the higher distribution services
fee and incremental expenses associated with such distribution services fee;
likewise, the net asset value of the Class B Shares will be reduced by such
amount to the extent the Fund has undistributed net income.
Subsequent investments for the purchase of full and fractional shares in
amounts of $25 or more may be made through an investment dealer or by sending
a check to Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box
8301, Boston, MA 02266-8301. Share certificates representing any number of
full shares will be issued only on request, and subject to certain
conditions. A fee may be incurred by the shareholder for a lost or stolen
share certificate. Sales personnel of broker- dealers distributing the Fund's
shares may receive differing compensation for selling Class A or Class B
Shares.
The Fund offers combination purchase privileges, letters of intent,
accumulation plans, withdrawal plans and reinvestment and exchange
privileges. Certain privileges may not be available in connection with Class
B Shares. Shares of the Fund or shares of any other Phoenix Fund (except
Phoenix Multi-Sector Short Term Bond Fund Class A Shares held less than 6
months and Phoenix Money Market Fund Series Class A shares), may be exchanged
for shares of the same class on the basis of the relative net asset values
per share at the time of the exchange. Exchanges are subject to the minimum
initial investment requirement of the designated Phoenix Fund, except if made
in connection with the Systematic Exchange privilege. Shareholders may
exchange shares held in book- entry form for an equivalent number (value) of
the same class of shares of any other Phoenix Fund. On Class B share
exchanges, the contingent deferred sales charge schedule of the original
shares purchased is not taken and continues to apply.
Alternative Sales Arrangements
The alternative purchase arrangement permits an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, whether
the investor wishes to receive distributions in cash or to reinvest them in
additional shares of the Fund, and other circumstances. Investors should
consider whether, during the anticipated life of their investment in the
Fund, the accumulated continuing distribution services fee and contingent
deferred sales charges on Class B Shares prior to conversion would be less
than the initial sales charge and accumulated distribution services fee
17
<PAGE>
on Class A Shares purchased at the same time, and to what extent such
differential would be offset by the higher yield of Class A Shares. In this
regard, Class A Shares will be more beneficial to the investor who qualifies
for certain reduced initial sales charges. For this reason, the Underwriter
intends to limit sales of Class B Shares sold to any shareholder to a maximum
total value of $250,000. Class B Shares sold to unallocated qualified
employer sponsored plans may be limited to a total value of $1,000,000.
Class B Shares sold to allocated qualified employer sponsored plans,
including 401(k) plans, will be limited to a maximum total value of $250,000
for each participant. The Underwriter reserves the right to decline the sale
of Class B Shares to allocated qualified employer sponsored plans not
utilizing an approved participant tracking system. In addition, Class B
Shares will not be sold to any qualified employee benefit plan, endowment
fund or foundation if, on the date of the initial investment, the plan, fund
or foundation has assets of $10,000,000 or more or at least 100 eligible
employees. Class B Shares will also not be sold to investors who have reached
the age of 85 because of such persons' expected distribution requirements.
Class A Shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share. However, because
initial sales charges are deducted at the time of purchase, such investors
would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced initial
sales charges who expect to maintain their investment for an extended period
of time might consider purchasing Class A Shares because the accumulated
continuing distribution charges on Class B Shares may exceed the initial
sales charge on Class A Shares during the life of the investment. Again,
however, such investors must weigh this consideration against the fact that,
because of such initial sales charge, not all their funds will be invested
initially. However, other investors might determine that it would be more
advantageous to purchase Class B Shares to have all their funds invested
initially, although remaining subject to higher continuing distribution
charges and, for a five-year period, being subject to a contingent deferred
sales charge.
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A Shares is the net asset value plus a
sales charge, as set forth below. Offering prices become effective at the
close of the general trading session of the New York Stock Exchange. Orders
received by dealers prior to such time are confirmed at the offering price
effective at that time, provided the order is received by the Underwriter
prior to its close of business.
The sales charge varies with the size of the purchase and reduced charges
apply to the aggregate of purchases of the Fund made at one time by "any
person," which term includes an individual, an individual and his/her spouse
and their children under the age of 21, or a trustee or other fiduciary
purchasing shares for a single trust, estate or fiduciary account although
more than one beneficiary is involved.
Class A Shares of the Fund are offered to the public at the net asset
value next computed after the purchase order is received by State Street Bank
and Trust Company plus a maximum sales charge of 4.75% of the offering price
(4.99% of the amount invested) on single purchases of less than $50,000. The
sales charge is reduced on a graduated scale on single purchases of $50,000
or more as shown below.
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Discount
Amount of as Percentage as Percentage or Agency Fee
Transaction of Offering of Amount as Percentage of
at Offering Price Price Invested Offering Price*
--------------------- -------------- -------------- ------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
$50,000 but under
$100,000 4.50% 4.71% 4.00%
$100,000 but under
$250,000 3.50% 3.63% 3.00%
$250,000 but under
$500,000 3.00% 3.09% 2.75%
$500,000 but under
$1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None None**
</TABLE>
* Equity Planning will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or
expense reimbursement. Brokers or dealers other than Equity Planning may also
make customary additional charges for their services in effecting purchases,
if they notify the Fund of their intention to do so. Equity Planning shall
also pay service and retention fees, from its own profits and resources, to
qualified wholesalers in connection with the sale of shares of Phoenix Funds
(exclusive of Class A Shares of Phoenix Money Market Series) by registered
financial institutions and related third party marketers.
** In connection with Class A Share purchases (or subsequent purchases in any
amount) by an account held in the name of a qualified employee benefit plan
with at least 100 eligible employees. Equity Planning may pay broker/dealers,
from its own resources, an amount equal to 1% on the first $3 million of
purchases, 0.50% on the next $3 million, plus 0.25% on the amount in excess
of $6 million.
In connection with Class A Share purchases of $1,000,000 or more (or
subsequent purchases in any amount), excluding purchases by qualified
employee benefit plans as described above Equity Planning may pay
broker-dealers, from its own profits and resources, a percentage of the net
asset value of any shares sold as set forth below:
Purchase Amount Payment to Broker-Dealer
-------------------------- ---------------------------
$1,000,000 to $3,000,000 1%
$3,000,001 to $6,000,000 0.50 of 1%
$6,000,001 or more 0.25 of 1%
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 Underwriter any such
amounts paid with respect to the investment.
18
<PAGE>
How To Obtain Reduced Sales Charges--Class A Shares
Investors choosing the initial sales charge alternative under certain
circumstances may be entitled to pay reduced sales charges. The circumstances
under which such investors may pay reduced sales charges are described below.
Qualified Purchasers No sales charge will be imposed on sales of shares to
(1) any Phoenix Fund trustee, director or officer; (2) any director or
officer, or to any full-time employee or sales representative (who has acted
as such for at least 90 days) of the Adviser or of Equity Planning; (3)
registered representatives and employees of securities dealers with whom
Equity Planning has sales agreements; (4) any qualified retirement plan
exclusively for persons described above; (5) any officer, director or
employee of a corporate affiliate of the Adviser or Equity Planning; (6) any
spouse, child, parent, grandparent, brother or sister of any person named in
(1), (2), (3) or (5) above; (7) employee benefit plans for employees of the
Adviser, Equity Planning and/or their corporate affiliates; (8) any employee
or agent who retires from the Adviser, Equity Planning and/or a 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 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,
instrumentality, department, authority or agency prohibited by law from
paying a sales charge; (13) any fully matriculated student in a U.S. service
academy; (14) any unallocated accounts held by a third party administrator,
registered investment adviser, trust company, or bank trust department which
exercises discretionary authority and holds the account in a fiduciary,
agency, custodial or similar capacity if in the aggregate such accounts 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
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; or (16) any accounts established
by financial institutions, broker/dealers or registered investment advisers
that charge an account management fee or transaction fee, provided such
entity has entered into an agreement with the Underwriter for this program;
provided that sales to persons listed in (1) through (15) 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.
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to any sales charges. The Fund
receives the entire net asset value of its Class A Shares sold to investors.
The Underwriter's commission is the sales charge shown above less any
applicable discount or commission "re-allowed" to selected dealers and
agents. The Underwriter will re-allow discounts to selected dealers and
agents in the amounts indicated in the table above. In this regard, the
Underwriter may elect to reallow the entire sales charge to selected dealers
and agents for all sales with respect to which orders are placed with the
Underwriter. A selected dealer who receives reallowance in excess of 90% of
such a sales charge may be deemed to be an "underwriter" under the Securities
Act of 1933.
Combination Purchase Privilege. Purchases, either singly or in any
combination, of shares of the Fund or shares of any other Phoenix Fund,
(including Class B Shares and excluding Money Market Fund Series Class A
Shares) if made at a single time by a single purchaser, will be combined for
the purpose of determining whether the total dollar amount of such purchases
entitles the purchaser to a reduced sales charge on any such purchases of
Class A Shares. Each purchase of Class A Shares will then be made at the
public offering price, as described in the then current Prospectus relating
to such shares, which at the time of such purchase is applicable to a single
transaction of the total dollar amount of all such purchases. The term
"single purchaser" includes an individual, or an individual, his spouse and
their children under the age of majority purchasing for his or their own
account (including an IRA account) including his or their own trust, commonly
known as a living trust; a trustee or other fiduciary purchasing for a single
trust, estate or single fiduciary account, although more than one beneficiary
is involved; multiple trusts or 403(b) plans for the same employer; multiple
accounts (up to 200) under a qualified employee benefit plan or administered
by a third party administrator; or trust companies, bank trust departments,
registered investment advisers, and similar entities placing orders or
providing administrative services with respect to funds over which they
exercise discretionary investment authority and which are held in a
fiduciary, agency, custodial or similar capacity, provided all shares are
held of record in the name, or nominee name, of the entity placing the order.
Letter of Intent. Class A Shares or shares of any other Phoenix Fund
(including Class B Shares and excluding Money Market Fund Series Class A
Shares) may be purchased by a "single purchaser" (as defined above) within a
period of thirteen months pursuant to a Letter of Intent, in the form
provided by Equity Planning, stating the investor's intention to invest in
such shares during such period an amount which, together with the value (at
their maximum offering prices on the date of the Letter) of the Class A
Shares of the Fund or Class A or Class B Shares of any other Phoenix Fund
then owned by such investor, equals a specified dollar amount. Each purchase
of shares made pursuant to a Letter of Intent will be made at the public
offering price, as described in the then current Prospectus relating to such
shares, which at the time of purchase is applicable to a single transaction
of the total dollar amount specified in the Letter of Intent.
An investor's Letter of Intent is not a binding commitment of the investor
to purchase or a binding obligation of the Fund or Equity Planning to sell a
specified dollar amount of shares
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qualifying for a reduced sales charge. Accordingly, out of his initial
purchase (and subsequent purchases if necessary), 5% of the dollar amount of
purchases required to complete his investment is held in escrow in the form
of shares (valued at the purchase price thereof) registered in the investor's
name until he completes his investment, at which time escrowed shares are
deposited to his account. If the investor does not complete his investment
and does not within 20 days after written request by Equity Planning or his
dealer pay the difference between the sales charge on the dollar amount
specified in his Letter of Intent and the sales charge on the dollar amount
of actual purchases, the difference will be realized through the redemption
of an appropriate number of the escrowed shares and any remaining escrowed
shares will be deposited to his account.
Right of Accumulation. "Single purchasers" (as defined above) may also
qualify for reduced sales charges based on the combined value of purchases of
either class of shares of the Fund, or any other Phoenix Fund, made over
time. Reduced sales charges are offered to investors whose shares, in the
aggregate, are valued (i.e., the dollar amount of such purchases plus the
then current value (at the public offering price as described in the then
current prospectus relating to such shares) of shares of all Phoenix Funds
owned) in excess of the threshold amounts described in the section entitled
"Initial Sales Charge Alternative--Class A Shares." To use this option, the
investor must supply sufficient information as to account registrations and
account numbers to permit verification that one or more of his purchases
qualifies for a reduced sales charge.
Associations. A group or association may be treated as a "single
purchaser" and qualify for reduced initial sales charges under the
Combination Privilege and Right of Accumulation if the group or association
(1) has been in existence for at least six months; (2) has a legitimate
purpose other than to purchase mutual fund shares at a reduced sales charge;
(3) gives its endorsements or authorization to the investment program to
facilitate solicitation of the membership by the investment dealer, thus
effecting economies of sales effort; and (4) is not a group whose sole
organizational nexus is that the members are credit card holders of a
company, policyholders of an insurance company, customers of a bank or a
broker-dealer or clients of an investment adviser.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B
Shares at net asset value per share without the imposition of a sales charge
at the time of purchase. The Class B Shares are sold without an initial sales
charge but are subject to a sales charge if redeemed within five years of
purchase.
Proceeds from the contingent deferred sales charge are paid to the
Underwriter and are used in whole or in part by the Underwriter to defray its
expenses related to providing distribution-related services to the Fund in
connection with the sale of the Class B Shares, such as the payment of
compensation to selected dealers and agents for selling Class B Shares. The
combination of the contingent deferred sales charge and the distribution fee
facilitates the ability of the Fund to sell the Class B shares without a
sales charge being deducted at the time of purchase.
Contingent Deferred Sales Charge. Class B Shares which are redeemed within
five years of purchase will be subject to a contingent deferred sales charge
at the rates set forth below charged as a percentage of the dollar amount
subject thereto. The charge will be assessed on an amount equal to the lesser
of the current market value or the cost of the shares being redeemed.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains distributions.
The Underwriter intends to pay investment dealers a sales commission of 4%
of the sale price of Class B Shares sold by such dealers, subject to future
amendment or termination. The Underwriter will retain all or a portion of the
continuing distribution fee assessed to Class B shareholders and will receive
the entire amount of the contingent deferred sales charge paid by
shareholders on the redemption of shares to finance the 4% commission plus
interest and related marketing expenses.
The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B Shares until the time of redemption of such shares. Solely for
purposes of determining the number of years from the time of any payment for
the purchases of shares, all payments during a month will be aggregated and
deemed to have been made on the last day of the previous month.
Contingent Deferred
Sales Charge as
a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
---------------------- ---------------------
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 2%
Sixth 0%
In determining whether a contingent deferred sales charge is applicable to
a redemption, it will be assumed that any Class A Shares are being redeemed
first. Class B Shares held for over 5 years and shares acquired pursuant to
reinvestment of dividends or distributions are redeemed next. Any Class B
Shares held longest during the five-year period, are redeemed next unless the
shareholder directs otherwise. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase.
To provide an example, assume in 1990, an investor purchased 100 Class B
Shares. In 1993, the investor purchased another 100 Class B Shares at $12 per
share. In 1995, the investor purchased 100 Class A Shares. Assume that in
1996, the investor owns 225 Class B Shares (15 Class B Shares resulting from
dividend reinvestment and distributions upon the Class B Shares purchased in
1990 and 10 Class B Shares resulting from dividend reinvestment and
distributions
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upon the Class B Shares purchased in 1993) as well as 100 Class A Shares. If
the investor wished to then redeem 300 shares and had not specified a
preference in redeeming shares: first, 100 Class A Shares would be redeemed
without charge. Second, 115 Class B Shares purchased in 1990 (including 15
shares issued as a result of dividend reinvestment and distributions) would
be redeemed next without charge. Finally, 85 Class B Shares purchased in 1993
would be redeemed resulting in a deferred sales charge of $27 [75 shares (85
shares minus 10 shares resulting from dividend reinvestment) x $12 (original
price or current NAV if less than original) x 3% (applicable rate in the
third year after purchase)].
The contingent deferred sales charge is waived on redemptions of shares
(a) if redemption is made within one year of death (i) of the sole
shareholder on an individual account, (ii) of a joint tenant where the
surviving joint tenant is the deceased's spouse, or (iii) of the beneficiary
of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act
(UTMA) or other custodial account; (b) if redemption is made within one year
of disability, as defined in Section 72(m)(7) of the Code; (c) in connection
with mandatory distributions upon reaching age 70-1/2 under any retirement
plan qualified under Sections 401, 408 or 403(b) of the Code or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; (d) in connection with redemptions by 401(k) plans using an approved
participant tracking system for: participant hardships, death, disability or
normal retirement, and loans which are subsequently repaid; (e) in connection
with the exercise of certain exchange privileges among Class B Shares of the
Fund and Class B Shares of other Phoenix Funds; (f) in connection with any
direct rollover transfer of shares from an established Phoenix Fund qualified
plan into a Phoenix Fund IRA by participants terminating from the qualifying
plan; and (g) in accordance with the terms specified under the Systematic
Withdrawal Program. If, upon the occurrence of a death as outlined above, the
account is transferred to an account registered in the name of the deceased's
estate, the contingent deferred sales charge will be waived on any redemption
from the estate account occurring within one year of the death. If the Class
B Shares are not redeemed within on year of the death, they will remain Class
B Shares and be subject to the applicable contingent deferred sales charge
when redeemed.
Class B Shares of the Fund will automatically convert to Class A Shares
without a sales charge at the relative net asset values of each class after
eight years from the acquisition of the Class B Shares, and as a result, will
thereafter be subject to the lower distribution fee under the Class A Plan.
Such conversion will be on the basis of the relative net asset value of the
two classes without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to relieve the holders of Class B
Shares that have been outstanding for a period of time sufficient for Equity
Planning to have been compensated for distribution expenses from most of the
burden of such distribution-related expenses.
For purposes of conversion to Class A Shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B Shares
in a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's Fund account
(other than those in the sub-account) are converted to Class A Shares, an
equal pro rata portion of the Class B Shares in the sub-account will also be
converted to Class A Shares.
The conversion of Class B Shares to Class A Shares is subject to the
availability of an opinion of counsel or a ruling of the Internal Revenue
Service ("IRS") to the effect that (i) the assessment of the higher
distribution fees and transfer agency costs with respect to Class B Shares
does not result in any dividends or distributions constituting "preferential
dividends" under the Code, and (ii) that the conversion of shares does not
constitute a taxable event under federal income tax law. The Fund has not
sought opinions of counsel as to these matters but has or shall apply to the
IRS for such a ruling. While a ruling similar to the one sought by the Fund
as to preferential dividends has been issued previously by the IRS with
respect to the Fund, complete assurance cannot be given when or whether the
Fund will receive a favorable ruling. While an adverse determination by the
IRS is not expected, the Fund may be required to reassess the alternative
purchase arrangement structure if the IRS does not rule favorably. In
addition, were the IRS not to rule favorably, the Fund might make additional
distributions if doing so would assist in complying with the Fund's general
practice of distributing sufficient income to reduce or eliminate U.S.
federal taxes. The conversion of Class B Shares to Class A Shares may be
suspended if such an opinion or ruling is not available. In that event, no
further conversions of Class B Shares would occur, and shares might continue
to be subject to the higher distribution fee for an indefinite period which
may extend beyond the period ending six years after the end of the month in
which affected Class B Shares were purchased.
INVESTOR ACCOUNTS AND SERVICES AVAILABLE
An account will be opened for the investor after the investor makes an
initial investment. Shares purchased will be held in the shareholder's
account by the Transfer Agent which will forward a statement each time there
is a change in the number of shares in the account. At any time, a
shareholder may request that a certificate be issued, subject to certain
conditions, representing any number of full shares held in his or her
account.
The Fund mails periodic reports to its shareholders. In order to reduce
the volume of mail, to the extent possible, only one copy of most Fund
reports will be mailed to households for multiple accounts with the same
surname at the same household address. Please contact Equity Planning to
request additional copies of shareholder reports.
Shareholder inquiries should be directed to the Fund at (800) 243-1574.
Bank Draft Investing Program (Investo-Matic Plan)
By completing the Investo-Matic Section of the New Account Application, a
shareholder may authorize the bank named in the form to draw $25 or more from
his personal
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<PAGE>
checking account on or about the 15th day of the month, to be used to
purchase additional shares for his account. The amount the shareholder
designates will be made available, in form payable to the order of the
Transfer Agent by the bank on the date the bank draws on his account and will
be used to purchase shares at the applicable offering price. The shareholder
or his or her registered representative may, by telephone or written notice,
cancel or change the dollar amount being invested pursuant to the
Investo-Matic Plan unless the shareholder has notified the Fund or Transfer
Agent that his or her registered representative shall not have this
authority.
Distribution Option
The Fund currently declares all income dividends and all capital gain
distributions, if any, payable in shares of the Fund at net asset value or,
at the option of the shareholder, in cash. By exercising the distribution
option, a shareholder may elect to: (1) receive both dividends and capital
gain distributions in additional shares or (2) receive dividends in cash and
capital gain distributions in additional shares or (3) receive both dividends
and capital gain distributions in cash. If a shareholder elects to receive
dividends and/or distributions in cash and the check cannot be delivered or
remains uncashed by the shareholder due to an invalid address, then the
dividend and/or distribution will be reinvested after the Transfer Agent has
been informed that the proceeds are undeliverable. Additional shares will be
purchased for the shareholder's account at the then current net asset value.
Shareholders who maintain an account balance of at least $5,000, or $2,000
for tax qualified retirement benefit plans (calculated on the basis of the
net asset value of the shares held in a single account), may direct that any
dividends and distributions paid with respect to shares in that account be
automatically reinvested in a single account of one of the other Phoenix
Funds at net asset value. Shareholders should obtain a current prospectus and
consider the objectives and policies of each Fund carefully before 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. Dividends and capital gain
distributions received in shares are taxable to the shareholder and credited
to the shareholder's account in full and fractional shares computed at the
closing net asset value on the next business day after the record date. A
distribution option may be changed at any time by notifying Customer Service
by telephone at (800) 243-1574 or by sending a letter signed by the
registered owner(s) of the account. Requests for directing distributions to
an alternate payee must be made in writing with a signature guarantee of the
registered owner(s). To be effective with respect to a particular dividend or
distribution, notification of the new distribution option must be received by
the Transfer Agent at least three days prior to the record date of such
dividend or distribution. If all shares in the shareholder's account are
repurchased or redeemed or transferred between the record date and the
payment date of a dividend or distribution, he/she will receive cash for the
dividend or distribution regardless of the distribution option selected.
Systematic Withdrawal Program
The Systematic Withdrawal Program allows shareholders to periodically
redeem a portion of their account on a predetermined monthly or quarterly,
semiannual or annual basis. A sufficient number of full and fractional shares
shall therefore be redeemed so that the designated payment is made on or
about the 20th day of the month. Shares are tendered for redemption by the
Transfer Agent, as agent for the shareowner, on or about the 15th of the
month at the closing net asset value on the date of redemption. The
Systematic Withdrawal Program also provides for redemptions to be tendered on
or about the 10th, 15th or 25th of the month with proceeds to be directed
through Automated Clearing House (ACH) to the shareholder's bank account. In
addition to the limitations stated below, withdrawals may not be less than
$25 and minimum account balance requirements shall continue to apply. See
"Redemption of Small Accounts".
Class A shareholders participating in the Systematic Withdrawal Program
must own shares of the Fund worth $5,000 or more, as determined by the
then-current net asset value per share. 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.
To participate in the Systematic Withdrawal Program, Class B shareholders
must initially own shares of the Fund worth $5,000 or more and elect to have
all dividends reinvested in additional Class B Shares of the Fund. Through
the Program, Class B shareholders may withdraw up to 1% of their aggregate
net investments (purchases, at initial value, to date net of non- Program
redemptions) each month or up to 3% of their aggregate net investments each
quarter without incurring otherwise applicable contingent deferred sales
charges.
Class B shareholders redeeming more shares than the percentage permitted
by the withdrawal program shall be subject to any applicable contingent
deferred sales charge. Accordingly, the purchase of Class B Shares will
generally not be suitable for an investor who anticipates withdrawing sums in
excess of the above limits shortly after purchase.
Tax Sheltered Retirement Plans
Shares of the Fund are offered in connection with the following qualified
prototype retirement plans: IRA, Rollover IRA, SEP-IRA, Profit-Sharing and
Money Purchase Pension Plans which can be adopted by self-employed persons
("Keogh") and by corporations and 403(b) Retirement Plans. Write or call
Equity Planning (800) 243-4361 for further information about the plans.
Exchange Privileges
Shareholders may exchange Class A or Class B Shares held in book entry form
for shares of the same class of other Phoenix Funds (except Phoenix
Multi-Sector Short Term Bond Fund Class A Shares held less than 6 months and
Class A Shares of Phoenix Money Market Series), provided that the following
conditions are met: (1) the shares that will be acquired in the
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<PAGE>
exchange (the "Acquired Shares") are available for sale in the shareholder's
state of residence; (2) the Acquired Shares are of the same class as the
shares to be surrendered (the "Exchanged Shares"); (3) the Acquired Shares
will be registered to the same shareholder account as the Exchanged Shares;
(4) the account value of the Fund whose shares are to be acquired must equal
or exceed the minimum initial investment amount required by that Fund after
the exchange is implemented; and (5) if a shareholder has elected not to
utilize the Telephone Exchange Privilege (see below), a properly executed
exchange request must be received by State Street Bank and Trust Company.
Exchange privileges are not available for certain shareholders holding Class
A Shares of Phoenix Money Market Fund Series and Class A Shares of Phoenix
Asset Reserve held for less than 6 months.
Subject to the above requirements for an exchange, a shareholder or
his/her registered representative may, by telephone or written notice, elect
to have Class A or Class B shares of the Fund exchanged for the same class of
shares of another Phoenix Fund automatically on a monthly, quarterly,
semi-annual, or annual basis or may cancel the privilege ("Systematic
Exchange").
Shareholders who maintain an account balance in the Fund of at least
$5,000, or $2,000 for tax qualified retirement benefit plans (calculated on
the basis of the net asset value of the shares held in a single account), may
direct that shares of the Fund be automatically exchanged at predetermined
intervals for shares of the same class of another Phoenix Fund. If the
shareholder is participating in the Self Security program offered by Phoenix
Home Life, it is not necessary to maintain the above account balances in
order to use the Systematic Exchange privilege.
Such exchanges will be executed upon the close of business on the 10th of
a month and if the 10th falls on a holiday or weekend, then at the close of
business on the next succeeding business day. The minimum initial and
subsequent amount that may be exchanged under the Systematic Exchange is $25.
Systematic Exchange forms are available from Equity Planning.
Exchanges will be based upon each Fund's net asset value per share next
computed following receipt of a properly executed exchange request, without a
sales charge. On Class B Share exchanges, the contingent deferred sales
charge schedule of the original shares purchased continues to apply.
The exchange of shares from one fund to another is treated as a sale of
the Exchanged Shares and a purchase of the Acquired Shares for Federal income
tax purposes. The shareholder may, therefore, realize a taxable gain or loss.
See "Dividends, Distributions and Taxes" for information concerning the
Federal income tax treatment of the disposition of shares.
It is the policy of the Adviser to discourage and prevent frequent trading
by shareholders among the Fund and other Phoenix Funds in response to market
fluctuations. The Fund reserves the right to refuse exchange purchases by any
person or broker/dealer if, in the Fund's or Adviser's opinion, the exchange
would adversely affect the Fund's ability to invest according to its
investment objective and policies, or otherwise adversely affect the Fund and
its shareholders. The Fund reserves the right to terminate or modify its
exchange privileges at any time upon giving prominent notice to shareholders
at least 60 days in advance.
Each Phoenix Fund has different investment objectives and policies.
Shareholders should, therefore, obtain and review the current prospectus of
the fund into which the exchange is to be made before any exchange requests
are made.
Telephone Exchanges
Telephone Exchange privileges are only available in states where the shares
to be acquired may be legally sold (see the Statement of Additional
Information). Unless a shareholder elects in writing not to participate in
the Telephone Exchange Privilege, shares for which certificates have not been
issued may be exchanged by calling (800) 367-5877 provided that the exchange
is made between accounts with identical registrations. Under the Telephone
Exchange Privilege, telephone exchange orders may also be entered on behalf
of the shareholder by his or her registered representative.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephone instructions are genuine. In addition to requiring
identical registrations on both accounts, the Transfer Agent will require
address verification and will record telephone instructions on tape. All
exchanges will be confirmed in writing with the shareholder. To the extent
that procedures reasonably designed to prevent unauthorized telephone
exchanges are not followed, the Fund and/or the Transfer Agent may be liable
for following telephone instructions for exchange transactions that prove to
be fraudulent. Broker/dealers other than Equity Planning have agreed to bear
the risk of any loss resulting from any unauthorized telephone exchange
instruction from the firm or its registered representatives. However, the
shareholder would bear the risk of loss resulting from instructions entered
by an unauthorized third party that the Fund and/or the Transfer Agent
reasonably believe to be genuine. The Telephone Exchange Privilege may be
modified or terminated at any time on 60 days' notice to shareholders. In
addition, during times of drastic economic or market changes, the Telephone
Exchange Privilege may be difficult to exercise or may be suspended
temporarily. In such event an exchange may be effected by following the
procedure outlined for tendering shares represented by certificate(s).
If a shareholder elects not to use the Telephone Exchange Privilege or if
the shares being exchanged are represented by a certificate or certificates,
in order to exchange shares the shareholder must submit a written request to
Phoenix Funds c/o State Street Bank and Trust Company, P.O. Box 8301, Boston,
MA 02266-8301. If the shares are being exchanged between accounts that are
not registered identically, the signature on such request must be guaranteed
by an eligible guarantor institution as defined by the Fund's transfer agent
in accordance with its signature guarantee procedures. Currently such
procedures generally permit guarantees by banks, broker/dealers, credit
unions, national securities exchanges, registered securities associations,
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<PAGE>
clearing agencies and savings associations. Any outstanding certificate or
certificates for the tendered shares must be duly endorsed and submitted.
Purchase and withdrawal plans and reinvestment and exchange privileges are
described more fully in the Statement of Additional Information. For further
information, call Equity Planning at (800) 243-1574.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is
determined as of the close of regular trading of the New York Stock Exchange
(the "Exchange") on days when the Exchange is open.
The net asset value of the Fund is computed by dividing the value of the
Fund's securities, plus any cash and other assets less all liabilities
(including accrued expenses) by the number of shares of the Fund outstanding.
The total liability allocated to a class, plus that class's distribution fee
and any other expenses specially allocated to that class, are deducted from
the proportionate interest of such class in the Fund's assets, and the
resulting amount for each class is divided by the number of shares of that
class outstanding to produce the net asset value per share. Fixed income
securities are valued by using independent pricing services, market
quotations, prices provided by market makers, and/or estimates of market
values obtained from yield data relating to investments or securities with
similar characteristics in accordance with procedures established in good
faith by the Directors of the Fund. Short- term securities with remaining
maturities of less than 60 days are valued at amortized cost unless it is
determined by the Board of Directors that amortized cost does not reflect the
fair value of such obligations. Other assets are valued at fair value as
determined in good faith by the Directors.
Generally, trading in foreign securities, as well as trading in corporate
bonds, U.S. government securities, money market instruments and repurchase
agreements, is substantially completed each day at various times prior to the
close of the regular trading session of the Exchange. The values of such
securities used in computing the net asset value of the Fund are determined
as of such times. Occasionally, events affecting the value of such securities
may occur between such times and such closing which will not be reflected in
the computation of the Fund's net asset value. If events occur which
materially affect the value of such securities, the securities will be valued
at fair market value as determined in good faith by the Directors.
HOW TO REDEEM SHARES
Shareholders have the right to have the Fund buy back shares at the net
asset value next determined after receipt of a redemption request and any
other required documentation in proper form by Phoenix Funds c/o State Street
Bank and Trust Company, P.O. Box 8301, Boston, MA 02266-8301 (see "Net Asset
Value"). In the case of Class B Share redemptions, investors will be subject
to the applicable deferred sales charge, if any, for such shares (see
"Deferred Sales Charge Alternative--Class B Shares", above). To redeem, any
outstanding share certificates in proper form for transfer must be received
by Phoenix Funds c/o State Street Bank and Trust Company, P.O. Box 8301,
Boston, MA 02266-8801. To be in proper form to redeem shares, the signature
of the shareholder(s) on the certificate or stock power must be signed
exactly as registered, including any fiduciary title, on a written
instruction letter, certificate, or accompanying stock power, such signatures
being guaranteed by an eligible guarantor institution as determined in
accordance with standards and procedures established by the Transfer Agent
(please contact the Fund at (800) 243-1574 with any questions regarding
eligible guarantors).
If no certificate has been issued, the Transfer Agent requires a written
request with signature guarantee. The Transfer Agent may waive the signature
guarantee requirement in the case of shares registered in the names of
individuals singly, jointly, or as custodian under the Uniform Gifts to
Minors Act, the proceeds do not exceed $50,000, and the proceeds are payable
to the registered owner(s) at the address of record. Such requests must be
signed by each person in whose name the account is registered. In addition, a
shareholder may sell shares back to the Fund through securities dealers who
may charge customary commissions for their services. The redemption price in
such case will be the price as of the close of the regular trading session of
the Exchange on that day, provided the order is received by the dealer prior
thereto, and is transmitted to the Underwriter prior to the close of its
business. No charge is made by the Fund on redemptions, but shares tendered
through investment dealers may be subject to a service charge by such
dealers. Payment for shares redeemed is made within seven days; provided,
however, that redemption proceeds will not be disbursed until each check used
for purchases of shares has been cleared for payment by the investor's bank,
which may take up to 15 days after receipt of the check.
Additional documentation may be required for redemptions by corporations,
partnerships or other organizations, executors, administrators, trustees,
custodians, guardians, or from IRA's or other retirement plans, or if
redemption is requested by anyone but the shareholder(s) of record. To avoid
delay in redemption or transfer, shareholders having questions about specific
requirements should contact the Fund at (800) 243-1574. Redemption requests
will not be honored until all required documents in proper form have been
received.
Telephone Redemptions
Unless a shareholder elects in writing not to participate in the Telephone
Redemption privilege, shares for which certificates have not been issued may
be redeemed by telephoning (800) 367-5877 and telephone redemptions will also
be accepted on behalf of the shareholder from his or her registered
representative.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephone instructions are genuine. Address and bank account
information will be verified,
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<PAGE>
telephone redemption instructions will be recorded on tape, and all
redemptions will be confirmed in writing to the shareholder. If there has
been an address change within the past 60 days, a telephone redemption will
not be authorized. To the extent that procedures reasonably designed to
prevent unauthorized telephone redemptions are not followed, the Fund and/or
the Transfer Agent may be liable for following telephone instructions for
redemption transactions that prove to be fraudulent. Broker/dealers other
than Equity Planning have agreed to bear the risk of any loss resulting from
any unauthorized telephone redemption instruction from the firm or its
registered representatives. However, the shareholder would bear the risk of
loss resulting from instructions entered by an unauthorized third party that
the Fund and/or the Transfer Agent reasonably believe to be genuine. The
Telephone Redemption Privilege may be modified or terminated at any time upon
60 days notice to shareholders. In addition, during times of drastic economic
or market changes, the Telephone Redemption Privilege may be difficult to
exercise and a shareholder should submit a written redemption request, as
described above.
If the amount of the redemption is over $500, the proceeds will be wired
to the shareholder's designated U.S. commercial bank account. If the amount
of the redemption is less than $500, the proceeds will be sent by check to
the address of record on the shareholder's account.
Telephone redemption requests must be received by the Transfer Agent by
the close of trading on the New York Stock Exchange on any day when the
Transfer Agent is open for business. Requests made after that time or on a
day when the Transfer Agent is not open for business cannot be accepted by
the Transfer Agent. The proceeds of a telephone redemption will normally be
sent on the first business day following receipt of the redemption request.
However, with respect to the telephone redemption of shares purchased by
check, such requests will only be effected after the Fund has assured itself
that good payment has been collected for the purchase of shares, which may
take up to 15 days. This expedited redemption privilege is not available to
HR-10, IRA and 403(b)(7) Plans.
Reinvestment Privilege
Shareholders have a one time privilege of using redemption proceeds to
purchase Class A Shares of any Phoenix Fund with no sales charge (at the net
asset value next determined after the request for reinvestment is made). For
Federal income tax purposes, a redemption and reinvestment will be treated as
a sale and purchase of shares. Special rules may apply in computing the
amount of gain or loss in these situations. (See "Dividends, Distributions
and Taxes" for information on the Federal income tax treatment of a
disposition of shares.) A written request for reinvestment must be received
by the Underwriter within 180 days of the redemption, accompanied by payment
for the shares (not in excess of the redemption value). Class B shareholders
who have had the contingent deferred sales charge waived through
participation in the Systematic Withdrawal Program are not eligible to use
this reinvestment privilege.
Redemption of Small Accounts
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem, at net asset value, the shares of any
shareholder whose account has a value, due to redemptions, of less than $200.
Before the Fund redeems these shares, the shareholder will be given notice
that the value of the shares in the account is less than the minimum amount
and will be allowed 30 days to make an additional investment in an amount
which will increase the value of the account to at least $200.
A shareholder should contact his/her broker/dealer if he/she wishes to
transfer shares from an existing broker/dealer street name account to a
street name account with another broker/ dealer. The Fund has no specific
procedures governing such account transfers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to qualify annually as a regulated investment
company under Subchapter M of the Code and to distribute annually to
shareholders all or substantially all of its net investment income and net
realized capital gains, after utilization of any capital loss carryovers. If
the Fund so qualifies, it generally will not be subject to Federal income tax
on the income it distributes.
Income dividends will be declared daily and paid monthly. Capital gain
distributions, if any, will be paid at least annually. An additional capital
gain distribution may be paid after the end of the Fund's fiscal year.
The Fund will be subject to a nondeductible 4% excise tax if it fails to
meet certain annual distribution requirements. In order to prevent imposition
of the excise tax, it may be necessary for the Fund to make distributions
more frequently than described in the previous paragraph.
Unless a shareholder elects to receive distributions in cash, dividends
will be paid in additional shares of the Fund credited at the next asset
value per share on the ex-dividend date. Dividends and distributions, whether
received in cash or in additional shares of the Fund, generally are subject
to Federal income tax and may be subject to state, local and other taxes.
Shareholders will be notified annually about the amount and character of
distributions made to them by the Fund.
Capital gains, if any, distributed to shareholders which are designated by
the Fund as long-term capital gain dividends are taxable to shareholders as
long-term capital gain distributions regardless of the length of time shares
of the Fund have been held by the shareholder. Distributions of short-term
capital gains and net investment income, if any, are taxable to shareholders
as ordinary income.
Dividends and distributions generally will be taxable to shareholders in
the taxable year of the shareholder in which they are received. However,
dividends and distributions declared by the Fund in October, November or
December of any calendar year, with a record date in such a month, and paid
25
<PAGE>
during the following January will be treated as if they were paid by the Fund
and received by shareholders on December 31 of the calendar year in which
they were declared.
A redemption or other disposition (including an exchange) of shares of the
Fund generally will result in the recognition of a taxable gain or loss,
which will be a long- or short-term capital gain or loss (assuming the shares
were a capital asset in the hands of the shareholder), depending upon the
shareholder's holding period for his or her shares. A capital loss realized
on a disposition of Fund shares held six months or less will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to such shares. In addition, if shares of the Fund are disposed of at
a loss and are replaced (either through purchases or through reinvestment of
dividends) within a period commencing thirty days before and ending thirty
days after the disposition of such shares, the realized loss will be
disallowed and appropriate adjustments to the tax basis of the new shares
will be made. In addition, special rules may apply to determine the amount of
gain or loss realized on an exchange.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
The Fund may recognize interest attributable to it from holding zero
coupon securities. Current federal law requires that for most zero coupon
securities, a holder (such as the Fund) must accrue a portion of the discount
at which the security was purchased as income each year even though the Fund
receives no interest payment in cash on the security during the year. As a
regulated investment company, the Fund must pay out substantially all of its
net investment income each year. Accordingly, the Fund may be required to pay
out as an income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received. Such distributions
will be made from the cash assets of the Fund or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates the
liquidation of portfolio securities, the Adviser will select which securities
to sell. The Fund may realize a gain or loss from such sales.
Investors are urged to consult their attorney or tax adviser regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
shareholders may be subject to U.S. Federal income tax rules that differ from
those described above. For more information regarding distributions and
taxes, see "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
Important Notice Regarding Taxpayer IRS Certification
Pursuant to IRS regulations, the Fund may be required to withhold 31% of
all reportable payments including any taxable dividends, capital gain
distributions or share redemption proceeds, for any account which does not
have a taxpayer identification number or social security number and certain
required certifications.
The Fund reserves the right to refuse to open an account for any person
failing to provide a taxpayer identification number along with the required
certifications.
The Fund sends to all shareholder, within 31 days after the end of the
calendar year, information which is required by the Internal Revenue Service
for preparing Federal income tax returns. Investors are urged to consult
their attorney or tax advisor regarding specific questions as to Federal,
foreign, state or local taxes.
ADDITIONAL INFORMATION
Organization of the Fund
The Articles of Incorporation, as amended, provide for the issuance of up
to 500,000,000 Shares. The Fund's Shares are divided equally between two
classes, each consisting of 250,000,000 Shares. The Fund issues Class A and
Class B Common Stock. The shares of the Fund, when issued, will be fully paid
and non-assessable, have no preference, preemptive, exchange or similar
rights, and will be freely transferable. There is no requirement or intention
to hold annual meetings of shareholders. Accordingly, there will normally be
no meetings of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders, at which time the Directors then in office will
call a meeting for the election of Directors. Shareholders may, in accordance
with the Articles of Incorporation, cause a meeting of shareholders to be
held for the purpose of voting on the removal of a Director or Directors.
Meetings of the shareholders will be called upon written request of
shareholders holding in the aggregate at least 10% of the Fund's outstanding
shares. The Directors will provide appropriate assistance to shareholders, in
compliance with the provisions of the 1940 Act, if such a request for a
meeting is received. Except as set forth above, the Directors will continue
to hold office and appoint successor Directors. Shares do not have cumulative
voting rights and the holders of more than 50% of the shares of the Fund
voting for the election of Directors can elect all of the Directors of the
Fund if they choose to do so and in such event the holders of the remaining
shares would not be able to elect any Directors. Shareholders are entitled to
redeem their shares as set forth under "How to Redeem Shares."
Registration Statement
This Prospectus omits certain information included in the Statement of
Additional Information and Part C of the Registration Statement filed with
the Securities and Exchange Commission under the Securities Act of 1933 and
the 1940 Act. A copy of the Registration Statement may be obtained from the
Securities and Exchange Commission in Washington, D.C. upon payment of the
prescribed fee.
APPENDIX
Description of High Yield Securities
Obligations
Description of Bond Ratings
Moody's Investor's Service, Inc.
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
26
<PAGE>
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 a 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.
Standard & Poor's Corporation
BB, B, CCC--Bonds rated BB, B and CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties of major risk exposures to adverse
conditions. Ability to pay interest and repay principal may be affected over
time by adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in satisfying
its debt service requirement.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
Duff & Phelps Credit Rating Co.
BB--Non-Investment Grade
B--Non-Investment Grade
CCC--Speculative
Fitch Investor Services, Inc.
BB--Bonds are considered highly speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirement.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continuing
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
27
<PAGE>
BACKUP WITHHOLDING INFORMATION
Step 1. Please make sure that the social security number or taxpayer
identification number (TIN) which appears on the Application complies
with the following guidelines:
<TABLE>
<CAPTION>
<S> <C>
Account Type Give Social Security Number or Tax Identification Number of:
- ----------------------------------------------------------------------------------------------------
Individual Individual
- ----------------------------------------------------------------------------------------------------
Joint (or Joint Tenant) Owner who will be paying tax
- ----------------------------------------------------------------------------------------------------
Uniform Gifts to Minors Minor
- ----------------------------------------------------------------------------------------------------
Legal Guardian Ward, Minor or Incompetent
- ----------------------------------------------------------------------------------------------------
Sole Proprietor Owner of Business (also provide owner's name)
- ----------------------------------------------------------------------------------------------------
Trust, Estate, Pension Plan Trust Trust, Estate, Pension Plan Trust (not personal TIN of fiduciary)
- ----------------------------------------------------------------------------------------------------
Corporation, Partnership,
Other Organization Corporation, Partnership, Other Organization
- ----------------------------------------------------------------------------------------------------
Broker/Nominee Broker/Nominee
- ----------------------------------------------------------------------------------------------------
</TABLE>
Step 2. If you do not have a TIN, you must obtain Form SS-5 (Application for
Social Security Number) or Form SS-4 (Application for Employer Identification
Number) from your local Social Security or IRS office and apply for one.
Write "Applied For" in the space on the application.
Step 3. If you are one of the entities listed below, you are exempt from
backup withholding.
(bullet) A corporation
(bullet) Financial institution
(bullet) Section 501(a) exempt organization (IRA, Corporate
Retirement Plan, 403(b), Keogh)
(bullet) United States or any agency or instrumentality thereof
(bullet) A State, the District of Columbia, a possession of the
United States, or any subdivision or instrumentality thereof
(bullet) International organization or any agency or instrumentality
thereof
(bullet) Registered dealer in securities or commodities registered in
the U.S. or a possession of the U.S.
(bullet) Real estate investment trust
(bullet) Common trust fund operated by a bank under section 584(a)
(bullet) An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1)
(bullet) Regulated Investment Company
If you are in doubt as to whether you are exempt, please contact the Internal
Revenue Service.
Step 4. IRS Penalties--If you do not supply us with your TIN, you will be
subject to an IRS $50 penalty unless your failure is due to
reasonable cause and not willful neglect. If you fail to report
interest, dividend or patronage dividend income on your federal
income tax return, you will be treated as negligent and subject to an
IRS 5% penalty tax on any resulting underpayment of tax unless there
is clear and convincing evidence to the contrary. If you falsify
information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to a
backup withholding, you may be subject to an IRS $500 penalty and
certain criminal penalties including fines and imprisonment.
This Prospectus sets forth concisely the information about the Phoenix
Multi-Sector Fixed Income Fund, Inc. (the "Fund") which you should know
before investing. Please read it carefully and retain it for future
reference.
The Fund has filed with the Securities and Exchange Commission a Statement of
Additional Information about the Fund, dated February 28, 1996. The Statement
contains more detailed information about the Fund and is incorporated into
this Prospectus by reference. You may obtain a free copy of the Statement by
writing the Fund c/o Phoenix Equity Planning Corporation, 100 Bright Meadow,
P.O. Box 2200, Enfield, Connecticut 06083-2200.
Financial information relating to the Fund is contained in the Annual Report
to Shareholders for the year ended October 31, 1995 and is incorporated into
the Statement of Additional Information by reference.
[Recycle logo] Printed on recycled paper using soybean ink
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Phoenix Multi-Sector Fixed Income Fund, Inc.
P.O. Box 2200
Enfield, CT 06083-2200
Bulk Rate Mail
U.S. Postage
PAID
Springfield, MA
Permit No. 444
[Phoenix Duff & Phelps logo] Phoenix Duff & Phelps
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
101 Munson Street
Greenfield, Massachusetts 01301
Statement of Additional Information
February 28, 1996
This Statement of Additional Information is not the Prospectus but expands
upon and supplements the information contained in the current Prospectus of
Phoenix Multi-Sector Fixed Income Fund, Inc. (the "Fund"), dated February 28,
1996 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 Phoenix Funds, c/o State Street Bank and
Trust Company, P.O. Box 8301, Boston, MA 02266-8301.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE FUND (3) 1
INVESTMENT OBJECTIVE AND POLICIES (7) 1
INVESTMENT RESTRICTIONS (14) 6
PORTFOLIO TRANSACTIONS AND BROKERAGE (14) 7
SERVICES OF THE ADVISER (15) 7
NET ASSET VALUE (24) 8
HOW TO BUY SHARES (17) 8
EXCHANGE PRIVILEGES 10
INVEST-BY-PHONE 10
TAX SHELTERED RETIREMENT PLANS (26) 10
REDEMPTION OF SHARES (24) 10
DIVIDENDS, DISTRIBUTIONS AND TAXES (25) 11
THE NATIONAL DISTRIBUTOR (15) 13
PLANS OF DISTRIBUTION 14
DIRECTORS AND OFFICERS 15
OTHER INFORMATION 20
PERFORMANCE INFORMATION 20
</TABLE>
Numbers appearing in parentheses correspond to related disclosure in the
Fund's Prospectus.
Customer Service: (800) 243-1574
Marketing: (800) 243-4361
Telephone Orders/Exchanges: (800) 367-5877
TTY: (800) 243-1926
PDP (2/96)
<PAGE>
THE FUND
Phoenix Multi-Sector Fixed Income Fund, Inc. is a diversified open-end,
management investment company which was organized as a corporation under
Maryland law on September 20, 1989. On December 23, 1993, shareholders of the
Fund approved a change in the name of the Fund, effective January 1, 1994, to
reflect the Fund's affiliation with Phoenix Home Life Mutual Insurance
Company ("Phoenix Home Life"), which resulted from the transfer of ownership
of National to Phoenix Home Life on May 14, 1993. Prior to January 1, 1994,
the Fund's name was "National Multi-Sector Fixed Income Fund, Inc."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize current income consistent with
the preservation of capital. The Fund will seek to achieve its objective by
investing in U.S. Government Securities, Foreign Securities, Investment Grade
Securities and High Yield-High Risk Securities (as such terms are defined in
the Prospectus). There is no assurance that the Fund will achieve its
investment objective.
Options and Other Hedging Activities
The Fund may write and purchase options, including over-the-counter
options, for hedging purposes. The Fund may also engage in foreign currency
exchange transactions and in transactions involving interest rate futures
contracts and options thereon as a hedge against changes in exchange and
interest rates. Hedging is a means of transferring risk that an investor does
not desire to assume in an uncertain interest or exchange rate environment.
The Adviser believes it is possible to reduce the effects of interest and
exchange rate fluctuations on the value of the Fund's portfolio, or sectors
thereof, through the use of such strategies.
The costs of, and possible losses incurred from, the foregoing activities
may reduce the Fund's current income and involve a loss of principal. Any
incremental return earned by the Fund resulting from options transactions and
from its hedging activities would be expected to offset anticipated losses or
a portion thereof, and will be treated as long term or short term capital
gains. See "Dividends, Distributions and Taxes."
The Fund will not engage in the foregoing activities for speculative
purposes but only as a hedge against changes resulting from market conditions
in the values of securities in its portfolio, or sectors thereof, or that it
intends to acquire.
Futures Contracts, Options on Futures Contracts and Forward Contracts
The Fund may enter into futures contracts to purchase and sell the security
or foreign currency underlying the contracts and is permitted to purchase put
and call options on the contracts. The Fund will engage in these transactions
solely for the purpose of hedging against the effects of changes in the value
of its portfolio securities or those it intends to purchase due to
anticipated changes in interest rates and currency values, and not for
purposes of speculation. In order for the Fund to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), it must, among other things, derive less than 30% of its gross
income each taxable year as gains (without deduction for losses) from the
sale or other disposition of securities held for less than three months.
Accordingly, the Fund may have to limit its ability to trade in futures
contracts and related options in order to comply with this test.
The Fund may enter into both interest rate futures contracts and foreign
currency futures contracts on domestic and foreign exchanges. Entering into a
futures contract to sell a debt security or foreign currency, which may be
referred to as entering into a "short" futures position, creates an
obligation by the seller to deliver a specified amount of the underlying
security or foreign currency at a specified future time and at an agreed upon
price. Entering into a futures contract to purchase a debt security or
foreign currency, which may be referred to as entering into a "long" futures
position, creates an obligation by the purchaser to take delivery of a
specified amount of the underlying security or foreign currency at a
specified future time and at a stated price. The specified instruments
delivered or taken at the delivery date are determined in accordance with the
rules of the exchange on which the futures contract is effected. Although the
terms of futures contracts specify actual delivery or receipt of the
underlying commodity, futures contracts generally are closed out before the
delivery date without making delivery or receiving the underlying
instruments. Instead, the futures position is terminated by entering into an
opposite position in the same commodity on the same (or a linked) exchange.
Upon entering into a futures contract, the Fund will be required to
deposit with a broker an amount of cash or cash equivalent equal to
approximately 1% to 5% of the contract price, which amount is subject to
change by the exchange on which the contract is traded or by the brokers.
This amount, which is known as "initial margin," does not involve the
borrowing of funds to finance the transactions; rather, it is in the nature
of a performance bond or good faith deposit on the contract that will be
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker, will be made daily as the price
of the instrument underlying the futures contract fluctuates, making the long
and short positions in the futures contract more or less valuable, a process
known as "marking- to-market." Upon the liquidation of a futures position,
final determinations of variation margin are then made, any additional cash
is paid by the Fund or released to it and a loss or gain is realized.
An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specified
debt security at a stated date, time, place and price. Among the debt
securities on which interest rate futures contracts
1
<PAGE>
currently are based are futures contracts for the purchase or sale of U.S.
Government Securities, including long-term Treasury Bonds, Treasury Notes,
three-month Treasury Bills and Government National Mortgage Association
modified pass-through mortgage-backed securities ("GNMA pass-through
securities") and 90-day commercial paper. Interest rate futures contracts
currently are traded in the United States primarily on the floors of the
Chicago Board of Trade ("CBT") and the International Monetary Market of the
Chicago Mercantile Exchange ("CME"). Interest rate futures also are traded on
foreign exchanges such as the London International Financial Futures Exchange
("LIFFE") and the Singapore International Monetary Exchange ("SIMEX").
The Fund may enter into interest rate futures contracts to protect against
fluctuations in interest rates affecting the value of debt securities that
the Fund either holds or intends to acquire. If interest rates are expected
to increase, the Fund may enter into short interest rate futures contracts on
debt securities that correlate historically with the value of the portfolio
securities of the Fund to hedge against a decline in the value of these
securities. In the event that interest rates increase as anticipated, the
value of the interest rate futures contracts would increase at a similar rate
thus mitigating any decline in the value of the Fund's portfolio securities
and resulting in a higher net asset value than would have occurred without
the sale of the futures contracts. Although the Fund could accomplish a
similar result by selling certain of its debt securities, the liquidity of
the futures market permits it to maintain a defensive position without
selling its portfolio securities.
When the Fund anticipates that interest rates may decline, it may purchase
interest rate futures contracts to hedge against a rise in the price of debt
securities it intends to purchase. The value of certain futures contracts may
fluctuate at approximately the same rate as the value of the debt securities
the Fund intends to purchase, thus permitting the Fund to benefit from the
appreciating cost of the debt securities without actually buying them until
the market has stabilized. The Fund may liquidate the futures contract by
offset and buy the securities in the cash market. When the Fund enters into
futures contracts to hedge against the increasing cost of debt securities it
might purchase in the future, it will maintain cash or cash equivalents in a
segregated asset account with its custodian sufficient to cover the
obligations of the Fund with respect to the futures contracts.
A foreign currency futures contract provides for the future sale and
purchase by the respective parties of a certain amount of a specified foreign
currency at a stated date, time, place and price. At present, foreign
currency futures contracts are based on British pounds, German deutsche
marks, Canadian dollars, Japanese yen, French francs, Swiss francs, and ECUs.
Foreign currency futures contracts currently are traded on CME, MidAmerica
Commodity Exchange, the Philadelphia Board of Trade, LIFFE and SIMEX.
The Fund may enter into foreign currency futures contracts to attempt to
establish the rate at which it would be entitled to make a future exchange of
U.S. dollars for another currency. If the Fund anticipates that the value of
a foreign currency may decline against the U.S. dollar, it may enter into
futures contracts to sell that foreign currency in order to attempt to hedge
against a decline in the U.S. dollar value of those of its securities payable
in those currencies.
The Fund may also attempt to establish the price in U.S. dollars of
securities it intends to acquire at a future date by entering into futures
contracts to purchase foreign currencies in which those securities are
denominated to hedge against an increase in price, in U.S. dollars, of those
securities.
The Fund may purchase and write put and call options on interest rate
futures contracts as a hedge against changes in interest rates and on foreign
currency futures contracts as a hedge against fluctuating currency values, in
lieu of purchasing and writing options directly on the underlying security or
currency or purchasing and selling the underlying futures contracts. The Fund
may enter into closing transactions with respect to these options to
terminate existing positions.
When an option is exercised, the writer of the option will deliver to the
holder of the option the futures position together with the accumulated
balance in the option writer's futures margin account. The futures margin
account balance represents the amount by which the market price of the
futures contract exceeds (in the case of a call option) or is less than (in
the case of a put option) the exercise price of the option on the futures
contract. The potential loss related to the purchase of an option on a
futures contract is limited to the premium paid for the option plus related
transaction costs.
The purchase of an option on an interest rate futures contract will give
the Fund the right to enter into a futures contract to purchase (in the case
of a call option) or sell (in the case of a put option) a particular debt
security at a specified exercise price at any time prior to the expiration
date of the option. Options on interest rate futures contracts currently are
available with respect to Treasury Bonds, Treasury Notes, and Eurodollars.
The Fund may purchase a put option on an interest rate futures contract to
hedge against a decline in the value of its portfolio securities as a result
of rising interest rates. Purchasing put options on futures contracts is
similar to purchasing put options on the portfolio securities themselves. As
interest rates rise, the value of debt securities generally declines, thus
making put options on interest rate futures more valuable. The Fund may
purchase a call option on an interest rate futures contract to hedge against
the risk of an increase in the price of securities it intends to purchase
resulting from declining interest rates. The purchase of call options in
those situations generally would have the same effect as purchasing call
options on the debt securities. The Fund may write put and call options on
interest rates futures contracts as part of closing sale transactions to
terminate its option positions.
2
<PAGE>
The purchase of options on foreign currency futures contracts gives the
Fund the right to enter into a futures contract to purchase (in the case of a
call option) or sell (in the case of a put option) a particular currency at a
specified price at any time during the period before the option expires.
Options on foreign currency futures contracts are available with respect to
British pounds, German deutsche marks and Swiss francs. The Fund may purchase
options on foreign currency futures as a hedge against fluctuating currency
values.
The Fund is permitted to engage in foreign currency exchange transactions
in order to protect against uncertainty in the level of future exchange
rates. The Fund may conduct its currency exchange transactions on a "spot"
(i.e., cash) basis at the rate then prevailing in the currency exchange
market, or on a forward basis, by entering into futures (as previously
discussed) or forward contracts to purchase or sell currency. The Fund's
dealings in foreign currency exchange contracts is limited to hedging
involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of foreign currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities and accruals
of interest receivable and the Fund's expenses. The Fund may engage in
transaction hedging to protect against a change in the foreign currency
exchange rate between the date on which the Fund contracts to purchase or
sell the security and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. In such
circumstances, the Fund will purchase or sell a foreign currency on a spot
basis at the prevailing spot rate.
Position hedging is the purchase or sale of currency with respect to
portfolio security positions denominated or quoted in that currency. The Fund
may engage in position hedging to protect against a decline in the value of
the currencies in which its portfolio securities are denominated or quoted.
To engage in position hedging, the Fund will enter into foreign currency
futures and related options (as described above), forward foreign currency
contracts, and options on foreign currencies. The Fund also will purchase or
sell foreign currency on a spot basis.
The Fund will not position hedge with respect to a particular currency for
an amount greater than the aggregate market value, determined at the time of
sale of foreign currency, of the securities held (or to be held) in its
portfolio denominated or quoted in or currently convertible into that
currency. If the Fund enters into a position hedging transaction, it will
place in a segregated account with its custodian an amount of cash, U.S.
Government Securities or other high-grade debt securities equal to the value
of the total assets the Fund committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account so that
the value of the account would equal the amount of assets the Fund committed
to the currency contract.
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract as agreed upon by the parties, at a price
set at the date of the contract. The holder of a forward contract containing
a cancellation provision has the unilateral right to cancel the contract at
maturity by paying a specified fee. Forward contracts are entered into in the
interbank market conducted directly between currency dealers, which usually
are large commercial banks and brokerage houses, and their customers. Forward
currency contracts are conducted on a principal basis and therefore generally
involve no margin, commissions or other fees. Instead, bid and ask prices are
quoted by dealers who profit from the difference in the spread between those
prices.
Although the use of forward currency contracts does not eliminate
fluctuations in the underlying price of securities, it will establish a rate
of exchange that can be achieved in the future. Forward contracts limit the
risk of loss due to a decline in the value of the hedged currency but also
limit any potential gain that might result in the event the value of the
currency increases.
Unlike a foreign currency futures contract, which has a predetermined
maturity date in any month, a forward currency contract matures any fixed
number of days from the date of the contract agreed upon by the parties. At
the maturity of a forward contract, the Fund may either take or make delivery
of the currency specified in the contract, or, at or prior to maturity, it
may enter into a closing transaction involving the purchase or sale of an
offsetting contract. Because these contracts will be entered into on a
principal basis rather than on an exchange, closing transactions for forward
contracts will be effected with the currency dealer who was a party to the
original forward contract.
The Fund may also purchase or write put and call options on exchanges for
the purpose of hedging against changes in future currency exchange rates. An
option on a foreign currency gives the purchaser, in return for a premium
paid plus related transaction costs, the right to sell (in the case of a put
option) and buy (in the case of a call option), the underlying currency at a
specified price until the option expires. Currency options traded on United
States or other exchanges may be subject to position limits, which may affect
the ability of the Fund to hedge its positions. Foreign currency options
currently are traded on the Philadelphia Stock Exchange, the International
Options Clearing Corp. and LIFFE. The Fund will purchase and sell options on
foreign exchanges to the extent permitted by the Commodity Futures Trading
Commission ("CFTC").
The Fund may purchase or write options on currency only when the Adviser
believes that a liquid secondary market exists for these options; however, no
assurance can be given that a liquid secondary market will exist for a
particular option at any specific time.
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The value of an option on foreign currency depends upon the value of the
foreign currency when compared to the value of the U.S. dollar. Transactions
in foreign currency options generally involve smaller amounts than those on
the interbank market and therefore option investors may have to deal at
prices for the underlying foreign currencies that are less favorable than
those for larger transactions. In addition, the foreign currency market has
neither a systematic reporting of last sale information nor a regulatory
requirement that available quotations be firm or revised on a timely basis.
Available quotation information usually represents large transactions in the
interbank market and may not reflect transactions valued at less than $1
million. Because the interbank market in foreign currencies is a global,
around-the-clock market, significant price and rate movements may take place
during periods the U.S. options markets are closed and therefore may not be
reflected in the options markets.
The Fund will not use leverage when it enters into long futures contracts
or related options. For each long position the Fund enters into, it will
deposit cash or cash equivalents having a value equal to the market value of
the contract as collateral in a segregated account with the custodian of the
Fund. The Fund will not enter into futures contracts and related options if
as a result the aggregate of the initial margin deposits on the Fund's
existing futures and premiums paid for unexpired options exceeds 5% of the
fair market value of the Fund's assets.
Using futures contracts and related options involves certain risks,
including (1) the risk of imperfect correlation between fluctuations in the
value of a futures contract and the portfolio security that is being hedged;
(2) the risk that in its use of futures and related options the Fund may not
outperform a fund that does not make use of those instruments; (3) the fact
that no assurance can be given that active markets will be available to
offset positions; (4) the fact that futures contracts and options on futures
may be closed out, by entering into an offsetting position, only on the
exchange on which the contracts were entered into or through a linked
exchange; (5) the risk that the value of the assets underlying the futures
contract on the date of delivery will vary significantly from the amount
which the Fund has agreed to pay or the price at which the Fund has agreed to
sell under such contract, thereby subjecting the Fund to losses; and (6) the
fact that successful use of futures contracts and related options for hedging
purposes will depend upon the ability of the Adviser to predict correctly
movements in the direction of the overall interest rate and foreign currency
markets.
Certain exchanges on which futures are traded may establish daily limits
in the amount that the price of a futures or related option contract may
fluctuate from the previous day's settlement price. When a daily limit has
been reached in a particular contract, no trades may be made that day at a
price beyond that limit. If a daily limit were reached, the Fund could be
prevented from liquidating unfavorable positions and thus could be subject to
losses. In certain situations, the Fund would be unable to close a position
and also would have to make daily cash payments of variation margin. Although
an increase in the price of securities could partially or completely offset
those losses, no assurance can be given that the price of the underlying
securities will correlate with the price of the futures contracts and thus
offset any losses on the contracts.
Foreign currency futures contracts and related options, forward foreign
currency contracts and options on foreign currency may be traded on foreign
exchanges. The regulation of transactions on those exchanges may be less
extensive than the regulation of U.S. exchanges. The Fund only would trade
those options approved by the CFTC. Transactions on foreign exchanges also
may not involve a clearing mechanism and related guarantees and may be
subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
affected adversely by (1) other foreign political, legal and economic
factors; (2) less information being available on which to make trading
decisions than is available in the U.S.; (3) a delay in the ability to act on
significant events occurring in the foreign markets during non-business hours
in the United States; (4) different exercise and settlement terms and margin
requirements from those imposed domestically; and (5) less trading volume
than on U.S. exchanges.
An additional risk of foreign exchange transactions is that foreign
exchanges offer less protection against defaults in the forward trading of
currencies than is available on a United States exchange. Because a forward
foreign currency contract is not guaranteed by an exchange or clearinghouse,
a default on the contract would deprive the Fund of unrealized profits or
would force the Fund to cover its commitments for purchase or resale, if any,
at the current market price.
The Fund may engage in the writing of covered call option contracts on
securities owned at such times and from time to time as the Adviser shall
determine to be appropriate and consistent with the investment objectives of
the Fund. Such options must be listed on an organized national securities
exchange. The aggregate value of the securities underlying the calls will be
limited to not more than 25% of the net assets of the Fund.
A call option 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. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract. The
writer forgoes the opportunity to profit from an increase in the market price
of the underlying security above the exercise price except insofar as the
premium represents such a profit. The Fund will write only call option
contracts and will receive a premium from the writing of such contracts, and
it is believed that total return to the Fund can be increased through such
premiums consistent with the Fund's investment objective.
The Fund may also write covered call options on securities indexes.
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 indexes
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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 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 such index call options would be subject to the
present limitation of covered call option writing.
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 a particular security. When a security is sold from
the Fund's portfolio, the Fund will 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 an
anticipated decrease 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. No more than 5% of the assets of the Fund may be
invested in the purchase of put and call options, including index options.
Lending Portfolio Securities
The Fund may lend portfolio securities to broker-dealers or other
institutional borrowers, but only when the borrower pledges cash, U.S.
government securities, or other liquid high-grade debt securities as
collateral to the Fund and agrees to maintain such collateral so that it
amounts at all times to at least 100% of the value of the securities loaned.
While securities are on loan, the borrower will pay the Fund any income
earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed-upon
amount of income from a borrower who has delivered equivalent collateral.
Furthermore, the Fund may terminate such loans at any time, and must receive
reasonable interest on the collateral as well as dividends, interest, or
other distributions paid on the security during the loan period. Upon
expiration of the loan the borrower of the securities will be obligated to
return to the Fund the same number and kind of securities as those loaned
together with duly executed stock powers. The Fund must be permitted to vote
the proxies if a material event affecting the value of the security is to
occur. The Fund may pay reasonable fees in connection with the loan,
including reasonable fees to the Fund's Custodian for its services. In the
event that the borrower defaults on its obligation to return borrowed
securities because of insolvency or otherwise, the Fund could experience
delays and costs in gaining access to the collateral and could suffer a loss
to the extent that the value of the collateral falls below the market value
of the borrowed securities.
Loan Participations
The Fund may invest up to 5% of its net assets, determined at the time of
investment, in loan participations. A loan participation agreement involves
the purchase of a share of a loan made by a bank to a company in return for a
corresponding share of the borrower's principal and interest payments. Loan
participations of the type in which the Fund may invest include interests in
both secured and unsecured corporate loans.
In the event that a corporate borrower failed to pay its scheduled
interest or principal payments on participations held by the Fund, the market
value of the affected participation would decline, resulting in a loss of
value of such investment to the Fund. Accordingly, such participations are
speculative and may result in the income level and net assets of the Fund
being reduced. Moreover, loan participation agreements generally limit the
right of a participant to resell its interest in the loan to a third party
and, as a result, loan participations will be deemed by the Fund to be
illiquid investments. The Fund will invest only in participations with
respect to borrowers whose creditworthiness is, or is determined by the
Adviser to be, substantially equivalent to that of issuers whose senior
unsubordinated debt securities are rated B or higher by Moody's Investor's
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P").
Illiquid Securities
The Fund will not invest more than 15% of its net assets in illiquid
securities, which securities include private placements, illiquid loan
participations, securities with legal or contractual restrictions on resale,
repurchase agreements maturing in more than seven days, and, in certain
circumstances, securities issued under Rule 144A and OTC options. The staff
of the Securities and Exchange Commission (the "Commission") has taken the
position that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities unless certain procedures are
followed. The Fund intends to follow those procedures. Thus, the Fund will
sell OTC options only to qualified dealers who agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by
a predetermined formula. In such cases, the OTC option would be considered
illiquid only to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option. The Fund may also follow
certain procedures from time to time which have been adopted by the Fund's
Board of Directors for the purpose of making determinations regarding the
liquidity of securities issued pursuant to Rule 144A under the Securities Act
of 1933.
In determining whether a Rule 144A security is liquid, the Board of
Directors may take into account the frequency of trades and quotes for the
security, the number of dealers willing to purchase or sell the security and
the number of other potential purchasers, dealer undertakings to make a
market in the security, and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer).
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INVESTMENT RESTRICTIONS
Fundamental Policies
The following investment restrictions are fundamental policies that cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities (i.e., the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented, or (b) more than 50% of the outstanding shares.)
The Fund may not:
1. Underwrite the sale of securities of other issuers.
2. Deal in real estate, but it may purchase marketable securities of
companies which deal in real estate investment trusts.
3. Deal in commodities or commodity contracts, except that the Fund may,
subject to the limitations and conditions set forth herein, enter into
interest rate futures contracts and foreign currency futures contracts on
domestic and foreign exchanges, purchase and write put and call options on
interest rate futures contracts and foreign currency and write covered call
options.
4. Make loans to other persons but may, however, lend portfolio securities
(up to 33% of net assets at the time the loan is made) to brokers or dealers
or other financial institutions not affiliated with the Fund or the Adviser
subject to conditions established by the Adviser (See "Lending Portfolio
Securities").
5. Enter into repurchase agreements and purchase or hold participations in
loans in excess of 5% of net assets, respectively.
6. Borrow money, issue senior securities as defined in the Investment
Company Act of 1940, or pledge, mortgage or hypothecate its assets, except
that it may (i) borrow from banks, enter into reverse repurchase agreements
or employ similar investment techniques, and pledge its assets in connection
therewith, but only if immediately after such borrowing there is asset
coverage of 300%; and (ii) enter into transactions in options, futures, and
options on futures as described in the Fund's Prospectus and Statement of
Additional Information (the deposit of assets in escrow in connection with
the writing of covered put and call options and the purchase of securities on
a when-issued or delayed delivery basis and collateral arrangements with
respect to initial or variation margin deposits for futures contracts will
not be deemed to be pledges of the Fund's assets).
7. Purchase on margin, except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be a purchase of securities on margin.
8. Sell short, except that the Fund may enter into short sales against the
box.
9. The Fund will not invest more than 25% of its assets in any one
industry or group of industries.
10. As a diversified investment company, at least 75% of the Fund's total
assets must be represented by cash or cash items, government securities,
securities of other investment companies and other securities limited in
respect of any one issuer to an amount not greater than 5% of the value of
the total assets of the Fund.
11. The Fund cannot make an investment for the purpose of exercising
control or management, nor may it invest in real estate limited partnerships,
or invest in oil, gas or other mineral leases.
12. The Fund will invest no more than 35% of its assets, determined at the
time of purchase, in High Yield-High Risk Securities.
Non-Fundamental Policies
The following restrictions of the Fund are not fundamental policies and may
be changed by the Board of Directors of the Fund without shareholder
approval:
1. The Fund will not invest more than 15% of its net assets in illiquid
securities. See "Other Policies--Illiquid Securities."
2. The Fund may invest no more than 15% of its assets in any combination
of zero coupon bonds, step coupon bonds and payment-in-kind ("PIK") bonds.
3. The Fund does not intend to borrow any amount in excess of 10% of its
assets, and would do so only for temporary emergency or administrative
purposes. In addition, to avoid the potential leveraging of its assets, the
Fund will not make additional investments when its borrowings are in excess
of 5% of its total assets.
In order to permit the sale of shares of the Fund in certain states, the
Fund has made or may make undertakings more restrictive than the restrictions
described above. Such restrictions are not fundamental policies and, should
the Fund determine that any such undertaking is not in the best interest of
the Fund and its shareholders, it will either seek the respective states'
approval to revoke the undertaking or it will revoke the commitment by
terminating sales of its shares in the state(s) involved. One such
undertaking is that the Fund will not invest more than 5% of its total assets
in any issuer (including its predecessors) which has been in business for
less than three years.
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<PAGE>
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.
The Directors of the Fund, including a majority of disinterested Directors,
have adopted procedures which allow the Adviser to allocate a portion of the
Fund's portfolio brokerage transactions to brokers affiliated with the Fund
or Adviser, including, without limitation, Duff & Phelps Securities Co. In
order for affiliated brokers to effect any portfolio transactions for the
Fund, the commissions, fees, or other remuneration received by such brokers
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other non-affiliated brokers in connection with
comparable transactions involving similar securities being purchased or sold
on a securities exchange during a comparable period of time.
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. The foregoing discussion does not relate to transactions effected
on foreign securities exchanges which do not permit the negotiation of
brokerage commissions and where the Adviser would, under the circumstances,
seek to obtain best price and execution on orders for the Fund.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller
firms in general tend to provide information and interpretations on a smaller
scale, frequently with a regional emphasis. In addition, several firms
monitor federal, state, local and foreign political developments; many of the
brokers also provide access to outside consultants. The outside research
assistance is particularly useful to the Adviser's staff since the brokers as
a group tend to monitor a broader universe of securities and other matters
than the Adviser's staff can follow. In addition, it provides the Adviser
with a diverse perspective on financial markets. Research and investment
information is provided by these and other brokers at no cost to the Manager
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.
During the fiscal years ended October 31, 1993, 1994, and 1995 brokerage
commissions paid by the Fund totalled $8,875, $0, and $0, respectively; none
of which was paid to an affiliated broker-dealer.
SERVICES OF THE ADVISER
The Adviser provides certain services and facilities required to carry on
the day-to-day operations of the Fund (for which it receives a management
fee) other than the costs of printing and mailing proxy materials, reports
and notices to shareholders; legal and auditing services; regulatory filing
fees and expenses of printing the Fund's registration statements (but the
Underwriter purchases such copies of the Fund's prospectuses and reports and
communications to shareholders as it may require for sales purposes at
printer's over-run cost); insurance expense; association membership dues;
brokerage fees; and taxes.
The Adviser's fee will be accrued daily against the value of the Fund's
net assets and will be paid by the Fund monthly. The fee will be computed as
a percentage of the Fund's net assets. The percentage rate of the fee will
vary depending on the aggregate
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net assets of the Fund. The fee will be computed at the annual rate of .55%
on the first $1 billion of the Fund's net assets; .50% on net assets greater
than $1 billion up to $2 billion; and .45% on net assets in excess of $2
billion. Total management fees for the fiscal years ended October 31, 1993,
1994, and 1995 amounted to $2,245,469, $2,162,069, and $1,692,191
respectively.
The Adviser has voluntarily agreed, under the terms of the Management
Agreement, to reimburse the Fund to the extent that, in any fiscal year, the
aggregate annual expenses of the Fund, exclusive of distribution fees, taxes,
brokerage, interest and (with the prior consent of any necessary state
securities commissions) extraordinary expenses, but including the management
fee, exceed the most restrictive expense limitation applicable to the Fund
under state securities laws or published regulations thereunder. Currently,
the most restrictive of such limitations would require the Adviser to
reimburse the Fund to the extent that in any fiscal year such aggregate
expenses exceed 2.5% of the first $30,000,000, 2% of the next $70,000,000,
and 1.5% of the remaining average net assets of the Fund.
The Adviser is a subsidiary of Phoenix Duff & Phelps Corporation having a
place of business is located at 56 Prospect Street, Hartford, Connecticut.
The Adviser also serves as investment adviser to other registered investment
companies. For the purposes hereof, the Fund, as well as such other
investment companies advised by the Adviser and all other funds within the
Phoenix family of funds shall hereinafter be referred to collectively as the
"Phoenix Funds." The Adviser presently has approximately $1.7 billion in
managed assets. The Adviser has acted as investment adviser for over sixty
years.
The current Management Agreement was approved by the Directors of the Fund
on March 16, 1993 and by the shareholders of the Fund on May 7, 1993. The
Management Agreement became effective on May 14, 1993, and continues in
effect from year to year if specifically approved annually by a majority of
the Directors who are not interested persons of the parties thereto, as
defined in the Investment Company Act of 1940, as amended ("1940 Act"), and
by either (a) the Directors of the Fund or (b) the vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act). The
Agreement may be terminated without penalty at any time by the Directors or
by a vote of a majority of the outstanding voting securities of the Fund or
by the Adviser upon 60 days' written notice and will automatically terminate
in the event of its "assignment" as defined in Section 2(a)(4) of the 1940
Act.
The Management Agreement provides that the Adviser is not liable for any
act or omission in the course of or in connection with rendering services
under the Agreement in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties under the
Agreement. The Agreement permits the Adviser to render services to others and
to engage in other activities.
The Adviser makes its personnel available to serve as officers and
"interested" Directors of the Fund. The Fund has not directly compensated any
of its officers or Directors for services in such capacities except to pay
fees to the Directors who are not otherwise affiliated with the Fund. The
Fund reimburses all Directors for their out-of-pocket expenses. The Directors
of the Fund are not prohibited from authorizing the payment of salaries to
the officers pursuant to the Management Agreement, including out-of-pocket
expenses, at some future time.
In addition to the management fee, expenses paid by the Fund include fees
of Directors who are not "interested persons"; interest charges; taxes; fees
and commissions of every kind, including brokerage fees; expenses of
issuance, repurchase or redemption of shares; expenses of registering or
qualifying shares for sale (including the printing and filing of the Fund's
registration statements, reports, and prospectuses excluding those copies
used for sales purposes which the Underwriter purchases at printer's over-run
cost); accounting services fees, insurance expenses; association membership
dues; all charges of custodians, transfer agents, registrars, auditors and
legal counsel; expenses of preparing, printing and distributing all proxy
material, reports and notices to shareholders; and all costs incident to the
Fund's existence as a Maryland corporation.
NET ASSET VALUE
The net asset value per share of each Class of shares of the Fund is
determined as of the close of business of the regular trading session of the
New York Stock Exchange, (the "Exchange") on days that the Exchange is open.
The net asset value per share of each class of shares is computed by
deducting the total liabilities of the Fund allocated to each class
(including distribution fees and any other expenses specially allocated to
that class) from the proportionate interest of such class in the Fund's
assets, and dividing the remainder by the number of shares of that class
outstanding. See the Prospectus for additional information.
HOW TO BUY SHARES
Alternative Purchase Arrangements
Shares of the Fund may be purchased from investment dealers having a sales
agreement with the Underwriter 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").
The minimum initial purchase is $500 ($25 if using the bank draft program
designated "Investo-Matic"), and the minimum subsequent investment is $25.
Investors may qualify for reduced sales charges. See the Fund's current
Prospectus.
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Class A Shares
An investor who elects the initial sales charge alternative acquires 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 an ongoing distribution services fee
at an annual rate of up to 0.30% of the Fund's aggregate average daily net
assets attributable to the Class A shares. Certain purchases of Class A
shares qualify for reduced initial sales charges. See the Fund's current
Prospectus.
Class B Shares
An investor who elects the deferred sales charge alternative acquires Class
B shares. Class B shares do not incur a sales charge when they are purchased,
but 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. See the Fund's current Prospectus.
Class B shares are subject to an ongoing distribution services fee at an
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 services fee 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, in the circumstances and subject to the qualifications
described in the Fund's Prospectus. 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 Underwriter to have been compensated for
distribution expenses related to the Class B shares from most of the burden
of such distribution related expenses. See "Conversion Feature," below.
The alternative purchase arrangement permits 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 services fee
and contingent deferred sales charges on Class B shares prior to conversion
would be less than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to what extent
such differential would be offset by the lower expenses attributable to Class
A shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends, to the extent any
dividends are paid, per share. However, because initial sales charges are
deducted at the time of purchase, such investors would not have all their
funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such investors must
weigh this consideration against the fact that, because of such initial sales
charges, not all their funds will be invested initially. However, other
investors might determine that it would be more advantageous to purchase
Class B shares to have all their funds invested initially, although remaining
subject to higher continuing distribution charges and, for a five-year
period, being subject to a contingent deferred sales charge.
The distribution expenses incurred by the Underwriter in connection with
the sale of the shares will be paid, in the case of Class A shares, from the
proceeds of the initial sales charge and the ongoing distribution services
fee and, in the case of Class B shares, from the proceeds of the ongoing
distribution services fee and the contingent deferred sales charge incurred
upon redemption within five years of purchase. Sales personnel of
broker-dealers distributing the Fund's shares may receive differing
compensation for selling Class A or Class B shares. Investors should
understand that the purpose and function of the contingent deferred sales
charge and ongoing distribution services fee with respect to the Class B
shares are the same as those of the initial sales charge and ongoing
distribution services fees with respect to the Class A shares. Dividends paid
by the Fund, if any, with respect to Class A and Class B shares will be
calculated in the same manner at the same time on the same day. However, the
higher distribution services fee and any incremental transfer agency costs
relating to Class B shares will be borne exclusively by that class. See
"Dividends, Distributions and Taxes."
The Directors of the Fund have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties under the 1940
Act and state laws, will seek to ensure that no such conflict arises.
Conversion Feature
Class B shares include all shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
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
services fee. 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
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<PAGE>
other charge. The purpose of the conversion feature is to relieve the holders
of Class B shares that have been outstanding for a period of time sufficient
for the Underwriter to have been compensated for distribution expenses
related to the Class B shares from most of the burden of such
distribution-related expenses.
For purposes of conversion to Class A, shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares
in a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class
A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel or a ruling of the Internal
Revenue Service to the effect that (i) the assessment of the higher
distribution services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) that the conversion of shares does not constitute a
taxable event under federal income tax law.
EXCHANGE PRIVILEGES
Shares of the Fund may be exchanged for shares of the same class of any other
Phoenix Fund (except Class A shares of Phoenix Multi-Sector Short Term Bond
Fund held for less than six months or Class A Shares of the Phoenix Money
Market Fund Series) on the basis of the relative net asset values per share
at the time of exchange. On Class B share exchanges, the contingent deferred
sales charge schedule of the original shares purchased continues to apply.
See the current Prospectus under "Exchange Privileges" for additional
information and conditions for exchanges.
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. This
service may also be used to sell shares of the Fund and direct proceeds of
sale through ACH to a shareholder's bank account.
To establish this service, please complete the Invest-by-Phone section of the
New Account 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. (Eastern
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.
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund and other Phoenix Funds may be offered in connection with
employer-sponsored 401(k) plans. Phoenix Home Life and its affiliates may
provide administrative services to these plans and to their participants, in
addition to the services that National and its affiliates provide to the
Phoenix Funds, and may receive compensation therefor. For information on the
terms and conditions applicable to employee participation in such plans,
including information on applicable plan administrative charges and expenses,
prospective investors should consult the planned documentation and employee
enrollment information which is available from participating employers.
REDEMPTION OF SHARES
Shares may be redeemed at the net asset value next determined after receipt
of a redemption order and any other required documentation in proper form. In
the case of Class B share redemptions, investors will be subject to the
applicable deferred sales charge, if any, for such shares. (See the Fund's
current Prospectus under "How to Buy Shares"). The right to redeem shares may
be suspended during any period when: (1) the New York Stock Exchange is
closed other than customary weekend and holiday closings; (2) trading on the
New York Stock Exchange is restricted, or an emergency exists as determined
by the Commission, so that disposal of the Fund's portfolio securities or
fair determination of its net asset value is not reasonably practicable; or
(3) the Commission has by order permitted such suspension. Furthermore, the
Transfer Agent will not mail redemption proceeds until checks received for
shares purchased have cleared, which may take up to 15 days or more. Class A
shareholders who have redeemed
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their shares may be entitled to reinstate their investment, subject to
certain conditions, at net asset value (without a sales charge). In addition,
certain smaller accounts may be subject to involuntary redemption. See the
current Prospectus for more information.
By Mail
The shareholder 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.
By Telephone
Unless a shareholder elects in writing not to participate in the Telephone
Redemption Privilege, shares for which certificates have not been issued may
be redeemed by calling (800) 367-5877 and telephone redemptions will also be
accepted on behalf of the shareholder from his or her registered
representative as described in the Prospectus. Address and bank account
information will be verified, telephone redemption instructions will be
recorded on tape, and all redemptions will be confirmed in writing to the
shareholder. If there has been an address change within the past 60 days, a
telephone redemption will not be authorized. The Fund and the Transfer Agent
will employ reasonable procedures to confirm that telephone instructions are
genuine. To the extent that procedures reasonably designed to prevent
unauthorized telephone redemptions are not followed, the Fund and/or the
Transfer Agent may be liable for following telephone instructions for
redemption transactions that prove to be fraudulent. Broker-dealers other
than Equity Planning may have agreed to bear the risk of any loss resulting
from any unauthorized telephone redemption instruction from the firm or its
registered representatives. However, the shareholder would bear the risk of
loss resulting from instructions entered by an unauthorized third party that
the Fund and/or the Transfer Agent reasonably believe to be genuine.
If the amount of the redemption is $500 or more, the proceeds will be
wired to the designated commercial bank account in the United States. If the
amount of the redemption is less than $500, the proceeds will be sent by mail
to the address of record on the shareholder's account. Telephone redemption
requests must be received by Equity Planning by the close of trading on the
New York Stock Exchange on any day when Equity Planning is open for business.
Requests made after that time or on a day when Equity Planning is not open
for business cannot be accepted by Equity Planning. The proceeds of a
telephone redemption will normally be sent on the first business day
following receipt of the redemption request.
However, with respect to the telephone redemption of shares purchased by
check, such redemption requests will be effected only after the Fund has
assured itself that good payment has been collected for the purchase of
shares, which may take up to 15 days. This expedited redemption privilege is
not available to HR-10, IRA and 403(b)(7) Plans. In addition to the Telephone
Redemption Privilege, a shareholder may also redeem by telephone through the
"Invest-by-Phone" service.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to qualify as a regulated investment company
under certain provisions of the Code. If the Fund so qualifies, it will not
be subject to federal income tax on its investment company taxable income
(which includes dividends, interest and the excess of net short-term capital
gains over net long-term capital losses) that it distributes to shareholders.
To qualify for treatment as a regulated investment company, the Fund
generally must, among other things, (a) derive in each taxable year at least
90% of its gross income from dividends, interest, payments with respect to
security loans and gains from the sale or disposition of stock or securities
or foreign currencies and other income (including but not limited to gains
from options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (b) derive in
each taxable year less than 30% of its gross income from gains (without
deduction for losses) from the sale or other disposition of (i) stock or
securities held for less than three months; (ii) foreign currencies or
options, futures or forward contracts on foreign currencies) held for less
than three months but only if such investments are not directly related to
the Fund's principal business of investing in stock or securities (or options
and futures with respect to stock or securities); and (iii) options, futures
or forward contracts (other than options, futures and forward contracts on
foreign currencies) held for less than three months; and (c) diversify its
holdings so that, at the end of each quarter of the taxable year (i) at least
50% of the market value of the Fund's assets are represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited for
the 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.
Dividends paid by the Fund will be taxable to shareholders as ordinary
income, except for (a) such portion as may exceed a shareholder's ratable
share of the Fund's earnings and profits, which excess will be applied
against and reduce the shareholder's cost or other tax basis for his shares
and (b) amounts representing a distribution of net capital gains, if any,
which are designated by the Fund as capital gain dividends. If the amount
described in (a) above exceeds the shareholder's tax basis for his shares,
the excess over basis will be treated as gain from the sale or exchange of
such shares. The excess of any net long-term capital
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gains over net short-term capital losses recognized and distributed by the
Fund and designated by the Fund as a capital gain dividend, is taxable to
shareholders as long-term capital gain regardless of the length of time a
particular shareholder may have held his shares in the Fund. Dividends and
distributions are taxable as described, whether received in cash or
reinvested in additional shares of the Fund.
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 (or
is deemed not to have distributed) during the calendar year an amount equal
to 98% of the Fund's ordinary income, with certain adjustments, for such
calendar year, plus 98% of the Fund's capital gains net income (adjusted for
certain losses, as prescribed in the Code) for the 12-month 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 calendar year must also be distributed to avoid the excise
tax. The excise tax is imposed on the amount by which the regulated
investment company does not meet the foregoing distribution requirements.
The Code provides that any dividend declared by the Fund in October,
November or December of any calendar year to shareholders of record on a date
in such month will be deemed to have been received by the shareholder on
December 31 of that calendar year, provided that the dividend is actually
paid by the Fund during January of the following year.
Based on the aforementioned, the Fund's policy will be to distribute to
its shareholders at least 90% of net investment company taxable income as
defined above and in the Code and any net realized capital gains for each
year and consistent therewith to meet the distribution requirement of Part I
of subchapter M, including the requirements with respect to diversification
of assets and sources of income, so that the Fund will pay no taxes on net
investment income and net realized capital gains paid to shareholders. One of
those requirements, as described above, is that less than 30% of the Fund's
gross income must be derived from gains from the sale or other disposition of
stock, securities or other investments held for less than three months.
Accordingly, the Fund may be restricted in the following activities, all of
which produce such gains: writing of options on securities which have been
held less than three months, writing of options which expire in less than
three months, and effecting closing purchase transactions with respect to
options which have been written less than three months prior to such
transactions.
The Fund intends to declare dividends daily. Dividends may be paid from
net investment income. Distribution of net realized short-term and long-term
capital gains will be distributed at least annually. Income dividends will be
paid on the last business day of the month and reinvested in additional
shares at net asset value, unless the shareholder elects to receive dividends
in cash. Whether received in shares or cash, dividends paid by the Fund from
net investment income and distributions from any net short- term capital
gains are taxable to shareholders as ordinary income. Distributions of net
long-term capital gains, if any, realized on sales of investments for the
fiscal year normally will be distributed following the end of the Fund's
fiscal year. Distributions of net long-term capital gains are taxable to
shareholders as such, whether paid in cash or additional shares of the Fund
and regardless of the length of time Fund shares have been owned by the
shareholder. Net short-term capital gains are net realized short-term capital
gains, including net premiums from expired options, net gains from closing
purchase transactions, and net short- term gains from securities sold upon
the exercise of options or otherwise, less any net realized long-term capital
losses. Distributions paid by the Fund are subject to taxation as of the date
of payment, whether received by shareholders in cash or in shares of the
Fund, and whether representing an ordinary distribution or a long-term
capital gains distribution. No dividends or distributions will be made to a
shareholder on shares for which no payment has been received. It is not
anticipated that any of the dividends paid by the Fund will qualify for the
70% dividends received deduction available to corporate shareholders of the
Fund.
The Fund's investments in any regulated futures contracts, non-equity
options, or foreign currency contracts, as those terms are defined in the
Code, are considered section 1256 contracts. The principles of
marking-to-market apply to such contracts such that the contracts are treated
as having been sold for their fair market value on the last business day of
the Fund's taxable year. Generally, 60% of any net gain or loss recognized on
the deemed sale, as well as 60% of the gain or loss with respect to any
actual termination (including expiration), will be treated as long-term
capital gain or loss and the remaining 40% will be treated as short- term
capital gain or loss. However, the gain or loss on certain foreign currency
contracts may be treated as ordinary income under section 988 of the Code.
Premiums from expired call options written by the Fund and net gain or
loss from closing purchase transactions, which are not section 1256
contracts, are generally treated as short-term capital gain or loss for
federal income tax purposes and are taxable to shareholders as ordinary
income. If a written call option is exercised, the premium is added to the
proceeds of sale of the underlying security, and the gain or loss from such
sale will be short or long-term, depending upon the period such security was
held.
Payments which are classified as long-term capital gains distributions
will be taxed to shareholders as long-term capital gains regardless of how
long shareholders have held shares of the Fund. However, if a shareholder
holds shares of the Fund for six months or less, any loss on the sale of the
shares will be treated as a long-term capital loss to the extent of the
long-term capital gains distributions received by such shareholder.
Offsetting positions held by the Fund involving financial futures and
options transactions may be considered, for tax purposes, to constitute
"straddles." Depending on whether certain elections are available and made by
the Fund, losses realized by the Fund
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<PAGE>
on one or more positions in such a straddle will be deferred to the extent of
unrealized gain in the offsetting position. Moreover, short-term capital
losses on straddle positions may be re-characterized as long-term capital
losses, and long-term capital gains may be treated as short-term capital
gains.
The Fund may have to limit its use of futures contracts and related
options in order to comply with the 30% test previously described above.
Under the Code, a shareholder who does not fall within one of certain
exempt categories may be subject to backup withholding at the rate of 31%
with respect to dividends and capital gains distributions paid to
shareholders or reinvested by the Fund and other amounts distributed by it
including proceeds of redemptions, unless such shareholder provides a social
security or taxpayer identification number, certifies as to exemption from
backup withholding, and otherwise complies with applicable requirements of
the Code.
Sales and redemptions of shares of the Fund may result in gains or losses
for tax purposes to the extent of the difference between the proceeds from
the shares relinquished and the shareholder's adjusted tax basis for such
shares. If any shares have been held as a capital asset for more than one
year, the gain or loss realized will be long-term capital gain or loss.
The Fund may be subject to a tax on dividend or interest income received
from securities of non-U.S. issuers withheld by a foreign country at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of tax or exemption from
tax on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
within various countries is not known. The Fund intends to operate so as to
qualify for treaty tax benefits where applicable. To the extent that the Fund
is liable for foreign income taxes withheld at the source, the Fund may
operate so as to meet the requirements of the Code to "pass through" to the
Fund's shareholders tax benefits attributable to foreign income taxes paid by
the Fund. If more than 50% of the value of the Fund's total assets at the
close of its taxable year is comprised of securities issued by foreign
corporations, the Fund may file an election with the Internal Revenue Service
to "pass through" to the Fund's shareholders the amount of foreign income
taxes paid by the Fund. Pursuant to this election, shareholders will be
required to (i) include in gross income, even though not actually received,
their respective pro rata share of foreign taxes paid by the Fund; (ii) treat
their pro rata share of foreign taxes as paid by them; and (iii) either
deduct their pro rata share of foreign taxes in computing their taxable
income, or use such share as a foreign tax credit against U.S. income taxes
(but not both). No deduction for foreign taxes may be claimed by a
non-corporate shareholder who does not itemize deductions. The Fund may meet
the requirements to "pass through" to its shareholders foreign income taxes
paid, but there can be no assurance that the Fund will be able to do so. Each
shareholder will be notified within 60 days after the close of each taxable
year of the Fund if the foreign taxes paid by the Fund will "pass through"
for that year, and, if so, the amount of each shareholder's pro rata share
(by country) of (i) the foreign taxes paid and (ii) the Fund's gross income
from foreign sources. Shareholders who are not liable for federal income
taxes will not be affected by any such "pass through" of foreign tax credits.
Distributions and the transactions referred to in the preceding paragraphs
may be subject to state and local income taxes, and the treatment thereof may
differ from the federal income tax consequences discussed herein.
Shareholders are advised to consult with their tax advisers or attorneys.
The Fund is organized as a Maryland corporation. Under current law, as
long as it qualifies for the federal income tax treatment described above,
the Fund itself is not liable for any income or franchise tax in the State of
Maryland.
THE NATIONAL DISTRIBUTOR
Pursuant to an Underwriting Agreement, Phoenix Equity Planning Corporation
("Equity Planning") acts as the Underwriter for the Fund. Equity Planning is
a subsidiary of Phoenix Duff & Phelps and an affiliate of National. As
underwriter, Equity Planning conducts a continuous offering pursuant to a
"best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. Shares of the Fund may be purchased
through investment dealers who have sales agreements with the Underwriter.
During the fiscal years ended October 31, 1993, 1994, and 1995 purchasers of
the Fund shares paid aggregate sales charges of $4,098,266, $1,180,368, and
$1,114,261, respectively, of which the principal underwriter received net
commissions of $1,244,316, $551,710, and $811,088, respectively, for its
services, the balance being paid to dealers.
Equity Planning also acts as administrative agent of the Fund and, as such,
performs administrative, bookkeeping and pricing functions for the Fund. As
compensation, Equity Planning receives a quarterly fee based on the average
of the aggregate daily net asset values of the Fund at the annual rate of
$300 per $1 million. For its services during the Fund's fiscal year ended
October 31, 1995, Equity Planning received $92,301, or 0.03% of average net
assets.
Equity Planning also acts as the transfer agent of the Fund, and as such
performs certain shareholder servicing functions for the Fund for which it is
paid a fee of $14.95 plus out of pocket expenses for each shareholder
account, payable monthly and equal to 1/12 the annual fee. Equity Planning
has and shall engage sub-agents from time to time to perform certain of such
functions for which such agents shall be paid a fee by Equity Planning.
Please contact the Underwriter at the following phone numbers with service
inquiries: Wire Order Room--(800) 367-5877, Customer Service
Department--(800) 243-1574.
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PLANS OF DISTRIBUTION
The Fund has adopted separate distribution plans under Rule 12b-1 of the
1940 Act for each class of shares of the Fund (the "Class A Plan", the "Class
B Plan", and collectively the "Plans"). The Plans permit the Fund to
reimburse the Underwriter for expenses incurred in connection with activities
intended to promote the sale of shares of each class of shares of the Fund.
Pursuant to the Class A Plan, the Fund may reimburse the Underwriter for
actual expenses of the Underwriter up to 0.30% annually of the average daily
net assets of the Fund's Class A shares. However, the Underwriter has
voluntarily agreed to limit the maximum amount of reimbursement under the
Class A Plan for calendar year 1995 to 0.30% annually of the average daily
net assets of the Fund's Class A Shares. Under the Class B Plan, the Fund may
reimburse the Underwriter monthly for actual expense of the Underwriter up to
1.00% annually of the average daily net assets of the Fund's Class B shares.
Expenditures under the Plans shall consist of: (i) commissions to sales
personnel for selling shares of the Fund (including Underwriting fees and
related financing expenses for sales of Class B shares); (ii) compensation,
sales incentives and payments to sales, marketing and service personnel;
(iii) payments to broker-dealers and other financial institutions which have
entered into agreements with the Underwriter for services rendered in
connection with the sale and distribution of shares of the Fund; (iv) payment
of expenses incurred in sales and promotional activities, including
advertising expenditures related to the Fund; (v) the costs of preparing and
distributing promotional materials; (vi) the cost of printing the Fund's
Prospectus and Statement of Additional Information for distribution to
potential investors; and (vii) such other similar services that the Board of
Directors of the Fund determines are reasonably calculated to result in the
sale of shares of the Fund; provided, however, that a portion of such amount
equal to or less than 0.25% annually of the average daily net assets of Fund
shares may be paid for reimbursing the costs of providing services to
shareholders, including assistance in connection with inquiries related to
shareholders accounts (the "Service Fee").
No amounts paid or payable by the Fund under the Class A Plan may be used
to pay for, or reimburse payment for, sales or promotional services or
activities unless such payment or reimbursement takes place prior to the
earliest of (a) the last day of the one year period commencing on the last
day of the calendar quarter during which the specific service or activity was
performed, or (b) the last day of the one year period commencing on the last
day of the calendar quarter during which payment for the services or activity
was made by a third party on behalf of the Fund. If the Plans are terminated
in accordance with their terms, the obligations of the Fund to make payments
to the Underwriter pursuant to the Plans will cease and the Fund will not be
required to make any payments past the date on which either Plan terminates.
In addition to the amount paid to dealers pursuant to the sales charge
table in the Prospectus, the Underwriter may from time to time pay, from its
own resources or pursuant to the Plan, a bonus or other incentive to dealers
(other than the Underwriter) which employ a registered representative who
sells a minimum dollar amount of the shares of the Fund during a specific
period of time. Such bonus or other incentive may take the form of payment
for travel expenses, including lodging, incurred in connection with trips
taken by qualifying registered representatives and members of their families
to places within or without the United States or other bonuses such as gift
certificates or the cash equivalent of such bonuses. The Underwriter may,
from time to time, reallow the entire portion of the sales charge which it
normally retains to individual selling dealers. However, such additional
reallowance generally will be made only when the selling dealer commits to
substantial marketing support such as internal wholesaling through dedicated
personnel, internal communications and mass mailings.
The Directors have concluded that there is a reasonable likelihood that
the Plans will benefit the Fund and its shareholders. The Plans were approved
by Class A and Class B shareholders of the Fund at a special meeting of
shareholders held on May 7, 1993. For the fiscal year ended October 31, 1995,
the Fund paid 12b-1 fees in the amount of $1,855,118 ($407,197 under the
Distribution Plan for Class A shares; $1,447,921 under the Distribution Plan
for Class B shares), of which the principal underwriter of the Fund received
$1,216,002. The 12b-1 payments were used for compensating dealers $1,407,746,
(2) compensating sales personnel $383,833, and (3) compensating the underwriter
for marketing material $63,539.
On a quarterly basis, the Fund's Directors review a report on expenditures
under the Plans and the purposes for which expenditures were made. The
Directors conduct an additional, more extensive review annually in
determining whether the Plans will be continued. By their terms, continuation
of the Plans from year to year is contingent on annual approval by a majority
of the Fund's Directors and by a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plans or any related
agreements (the "Plan Directors"). The Plans provide that they may not be
amended to increase materially the costs which the Fund may bear pursuant to
the Plans without approval of the shareholders of that class of the Fund and
that other material amendments to the Plans must be approved by a majority of
the Plan Directors by vote cast in person at a meeting called for the purpose
of considering such amendments. The Plans further provide that while they are
in effect, the selection and nomination of Directors who are not "interested
persons" shall be committed to the discretion of the Directors who are not
"interested persons". The Plans may be terminated at any time by vote of a
majority of the Plan Directors or a majority of the outstanding shares of the
relevant class of the Fund.
The Underwriting Agreement may be terminated at any time on not more than
60 days' written notice, without payment of a penalty, by the Underwriter, by
vote of a majority of the outstanding voting securities of the Fund, or by
vote of a majority of the Fund's Directors who are not "interested persons"
of the Fund and who have no direct or indirect financial interest in the
operation of the Plans or in any agreements. The Underwriting Agreement will
terminate automatically in the event of its assignment.
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<PAGE>
The National Association of Securities Dealers ("NASD"), recently approved
certain amendments to the NASD's mutual fund maximum sales charge rule. The
amendments would, under certain circumstances, regard distribution fees as
asset-based sales charges subject to NASD sales load limits. The NASD's
maximum sales charge rule may require the Directors to suspend distribution
fees or amend the Plan.
DIRECTORS AND OFFICERS
The following table sets forth information concerning the Directors and
executive officers of the Fund, including their principal occupations during
the past five years. Unless otherwise noted, the address of each executive
officer and Director is 56 Prospect Street, Hartford, Connecticut 06115-0480.
On November 15, 1995, the Directors voted to increase the number of Directors
to fourteen and to appoint Francis E. Jeffries, Everett L. Morris and Calvin
J. Pedersen to fill the vacancies caused by the increase. The elected and
appointed Directors and executive officers are listed below.
<TABLE>
<CAPTION>
Positions Held
Name and Address With the Fund Principal Occupations During Past 5 Years
------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
C. Duane Blinn (68) Director Partner in the law firm of Day, Berry & Howard.
Day, Berry & Howard Director/Trustee, Phoenix Funds (1980-present).
City Place Director/Trustee, the National Affiliated
Hartford, CT 06103 Investment Companies (until 1993).
Robert Chesek (61) Director Trustee/Director, Phoenix Funds (1981-present)
49 Old Post Road and Chairman (1989-1994). Director/Trustee, the
Wethersfield, CT 06109 National Affiliated Investment Companies (until
1993). Vice President, Common Stock, Phoenix
Home Life Mutual Insurance Company (1980-1994).
E. Virgil Conway (66) Director Trustee/Director, Consolidated Edison Company
9 Rittenhouse Road of New York, Inc. (1970-present), Pace
Bronxville, NY 10708 University (1978-present), Atlantic Mutual
Insurance Company (1974-present), HRE
Properties (1989-present), Greater New York
Councils, Boy Scouts of America (1985-present),
Union Pacific Corp. (1978-present), Blackrock
Fund for Fannie Mae Mortgage Securities
(Advisory Director) (1989-present), Centennial
Insurance Company; Josiah Macy, Jr.,
Foundation, and The Harlem Youth Development
Foundation. Chairman, Metropolitan
Transportation Authority (1992-present).
Chairman, Audit Committee of the City of New
York (1981-present). Director/Trustee, the
National Affiliated Investment Companies (until
1993). Director/Trustee, Phoenix Funds
(1993-present). Director, Accuhealth
(1994-present), Trism, Inc. (1994-present).
Director, Realty Foundation of New York
(1972-present) and Chairman, New York Housing
Partnership Development Corp. (1981- present).
Advisory Director, Fund Directions (1993-
present). Former Director, New York Chamber of
Commerce and Industry (1974-1990).
Harry Dalzell-Payne (66) Director Director/Trustee, Phoenix Funds (1983-present).
330 East 39th Street Director, Farragut Mortgage Co., Inc.
Apartment 29G (1991-1994). Director/Trustee, the National
New York, NY 10022 Affiliated Investment Companies (1983-1993).
Consultant, The Levett Group Holding, Inc.
(1989-1990). Independent real estate market
consultant (1982-1990). Formerly a Major
General of the British Army.
*Francis E. Jeffries (65) Director Chairman of the Board, Phoenix Duff & Phelps
Phoenix Duff & Phelps Corporation. Trustee, Phoenix Duff & Phelps
Corporation Mutual Funds. Director, Duff & Phelps Utilities
55 East Monroe Street Income Fund, Duff & Phelps Utilities Tax-Free
Suite 3600 Income, Inc., Duff & Phelps Utility and
Chicago, IL 60603 Corporate Bond Trust, Inc. and The Empire
District Electric Company. (Director 1989-
1995), Chief Executive Officer (1992-1995) and
President (1989-1993), Duff & Phelps
Corporation.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Positions Held
Name and Address With the Fund Principal Occupations During Past 5 Years
------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Leroy Keith, Jr. (57) Director Director/Trustee, Phoenix Funds (1980-present).
Chairman and Chief Director, Equifax Corporation (1991-present),
Executive Officer and Keystone International Fund, Inc.
Carson Products Company (1989-present). Trustee, Keystone Liquid Trust,
64 Ross Road Keystone Tax Exempt Trust, Keystone Tax Free
Savannah, GA 31405 Fund, Master Reserves Tax Free Trust, and
Master Reserves Trust. Director/Trustee, the
National Affiliated Investment Companies (until
1993). Director, Blue Cross/Blue Shield
(1989-1993) and First Union Bank of Georgia
(1989-1993). President, Morehouse College
(1987-1994). Chairman and Chief Executive
Officer, Keith Ventures (1994- 1995). Chairman
and Chief Executive Officer, Carson Products
Company (1995-present).
*Philip R. McLoughlin Director and Director, Vice Chairman and Chief Executive
(49) President Officer, Phoenix Duff & Phelps Corporation
(1995-present). Director (1994-present) and
Executive Vice President, Investments,
(1987-present), Phoenix Home Life Mutual
Insurance Company. Director/Trustee and
President, Phoenix Funds (1989-present).
Director (1983-present) and Chairman
(1995-present), Phoenix Investment Counsel,
Inc. Director (1984-present) and President
(1990-present), Phoenix Equity Planning
Corporation. Director, Phoenix Realty Group,
Inc. (1994-present), Phoenix Realty Advisors,
Inc. (1987-present), Phoenix Realty Investors,
Inc. (1994-present), Phoenix Realty Securities,
Inc. (1994-present), Phoenix Founders, Inc.
(1981-present), PXRE Corporation (Delaware)
(1985- present), World Trust Fund
(1991-present). Director/ Trustee, the National
Affiliated Investment Companies (until 1993).
Director, (1994-present), Chairman (1993-
1995), President and Chief Executive Officer
(1995- present). National Securities & Research
Corporation (1995-present) and Director and
President, Phoenix Securities Group, Inc.
(1993-1995). Director (1992- present) and
President (1992-1994), W.S. Griffith & Co.,
Inc., and Director (1992-1995) and President
(1992- 1994) Townsend Financial Advisers, Inc.
Director and Vice President, PM Holdings, Inc.
(1985-present).
Everett L. Morris (67) Director Vice President, W.H. Reaves and Company (1993-
164 Laird Road present). Director, Duff & Phelps Utilities
Colts Neck, N.J. 07722 Tax-Free Income, Inc., Duff & Phelps Utility
and Corporate Bond Trust, Inc., Public Service
Enterprise Group Incorporated and President and
Chief Operating Officer of Enterprise
Diversified Holdings Incorporated (1992- 1993).
Senior Executive Vice President and Chief
Financial Officer, Public Service Electric and
Gas Company (1991-1992). Director, First
Fidelity Bank, N.A., N.J. (until 1991).
</TABLE>
16
<PAGE>
<TABLE>
Positions Held
Name and Address With the Fund Principal Occupations During Past 5 Years
------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
James M. Oates (49) Director Director, Phoenix & Duff Corporation
Managing Director (1995-present). Director/Trustee, Phoenix Funds
The Wydown Group (1987-present). Director, Govett Worldwide
50 Congress St. Opportunity Funds, Inc. (1991-present), Blue
Suite 1000 Cross and Blue Shield of New Hampshire
Boston, MA 02109 (1994-present), Investors Financial Services
Corporation (1995-present), and Investors Bank
& Trust Corporation (1995-present).
Director/Trustee, the National Affiliated
Investment Companies (until 1993). Director and
President (1984-1994) and Chief Executive
Officer (1986-1994), Neworld Bank. Director,
Savings Bank Life Insurance Company
(1988-1994). Stifel Financial Corporation
(1986-1995).
*Calvin J. Pedersen (54) Director Director (since 1992) and President (since July
Phoenix Duff & Phelps 1993), Phoenix Duff & Phelps Corporation.
Corporation Executive Vice President, Duff & Phelps
55 East Monroe Street (January 1992 to July 1993). President and
Suite 3600 Chief Executive Officer, Duff & Phelps.
Chicago, IL 60603 Director, Duff & Phelps Utilities Tax-Free
Income, Inc. and Duff & Phelps Utility and
Corporate Bond Trust, Inc. Trustee, Phoenix
Duff & Phelps Mutual Funds.
Philip R. Reynolds (68) Director Director/Trustee, Phoenix Funds (1984-present).
43 Montclair Drive Director, Vestaur Securities, Inc.
West Hartford, CT 06107 (1972-present). Trustee and Treasurer, J.
Walton Bissell Foundation, Inc. (1988-
present). Director/Trustee, the National
Affiliated Investment Companies (until 1993).
Herbert Roth, Jr. (67) Director Director/Trustee, Phoenix Funds (1980-present).
134 Lake Street Director, Boston Edison Company (1978-present),
P.O. Box 909 Phoenix Home Life Mutual Insurance Company
Sherborn, MA 01770 (1972- present), Landauer, Inc. (medical
services) (1970- present), Tech Ops./Sevcon
Inc. (electronic controllers) (1987-present),
Key Energy Group (oil rig service) (1988-1993),
and Mark IV Industries (diversified
manufacturer) (1985-present). Director/Trustee,
the National Affiliated Investment Companies
(until 1993).
Richard E. Segerson (50) Director Director/Trustee, Phoenix Funds (1993-present).
102 Valley Road Consultant, Tootal Group (1989-1991). Vice
New Canaan, CT 06840 President and General Manager, Coats & Clark,
Inc. (previously Tootal American, Inc.)
(1991-1993). Director/Trustee, the National
Affiliated Investment Companies (1984-1993).
Lowell P. Weicker, Jr. Director Trustee/Director, the Phoenix Funds
(64) (1995-present). Chairman, Dresing, Lierman,
Dresing Lierman Weicker Weicker (1995-present). Director, UST Inc.
6931 Arlington Road (1995-present). Governor of the State of
Suite 501 Connecticut (1991-1995).
Bethesda, MD 20814
* Messrs. Jeffries, McLoughlin and Pedersen are "interested persons" of the Fund within the meaning of the
definition set forth in Section 2(a)(19) of the 1940 Act.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held
Name and Address With the Fund Principal Occupations During Past 5 Years
------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Martin J. Gavin (45) Executive Executive Vice President--Finance and
Vice President Operations, Phoenix Duff & Phelps Corporation
(1995-present). Senior Vice President,
Investment Products, Phoenix Home Life Mutual
Insurance Company (1989-1995). Director and
Executive Vice President, Phoenix Equity
Planning Corporation (1990-present). Director
(1994-present) and Executive Vice President,
(1991-present), Phoenix Investment Counsel,
Inc. Director and Executive Vice President,
Phoenix Securities Group, Inc. (1993-1995),
National Securities & Research Corporation
(1993- present), and Townsend Financial
Advisers, Inc. (1993- 1995). Executive Vice
President, Phoenix Funds (1995- present).
Executive Vice President, National Affiliated
Investment Companies (until 1993). Director and
Vice President, PM Holdings (1994-1995).
Director (1993- present) and Executive Vice
President (1993-1994) W.S. Griffith & Co., Inc.
Michael E. Haylon (38) Executive Executive Vice President--Investments, Phoenix
Vice President Duff & Phelps Corporation (1995-present).
Senior Vice President, Securities Investments,
Phoenix Home Life Mutual Insurance Company
(1993-1995). Director and Executive Vice
President (1994-present), National Securities &
Research Corporation. Executive Vice President,
Phoenix Funds (1995-present) and Director
(1994-present) and President (1995-present),
Phoenix Investment Counsel, Inc. Director,
Phoenix Equity Planning Corporation
(1995-present). Various other positions with
Phoenix Home Life Mutual Insurance Company
(1990-1993).
David L. Albrycht (34) Vice President Portfolio Manager, Phoenix Home Life Mutual
Insurance Company (1990-1995). Vice President,
Phoenix Asset Reserve (1993-present), Phoenix
Multi-Portfolio Fund (1993-present), and
Phoenix Investment Counsel, Inc.
(1995-present). Investment Officer, National
Securities & Research Corporation
(1994-present).
James M. Dolan (46) Vice President Vice President and Compliance Officer
100 Bright Meadow Blvd. (1994-present), and Assistant Secretary
P.O. Box 2200 (1981-present), Phoenix Equity Planning
Enfield, CT 06083-2200 Corporation. Vice President, Phoenix Funds
(1989-present). Vice President (1991-present),
Assistant Clerk and Assistant Secretary
(1982-present), Phoenix Investment Counsel,
Inc., Vice President and Chief Compliance
Officer (1994-present), Phoenix Realty
Advisors, Inc. and Chief Compliance Officer
(1995- present), Phoenix Realty Securities,
Inc. Assistant Vice President (1993-1994), Vice
President and Compliance Officer, Assistant
Secretary, National Securities & Research
Corporation (1994-present). Vice President, the
National Affiliated Investment Companies (until
1993). Various other positions with Phoenix
Equity Planning Corporation (1978-1994).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held
Name and Address With the Fund Principal Occupations During Past 5 Years
------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
William R. Moyer (51) Vice President Senior Vice President and Chief Financial
100 Bright Meadow Blvd. Officer, Phoenix Duff & Phelps Corporation
P.O. Box 2200 (1995-present). Vice President, Investment
Enfield, CT 06083-2200 Products Finance, Phoenix Home Life Mutual
Insurance Company (1990-1995). Senior Vice
President, Finance (1990-present), and
Treasurer (1994-present) Phoenix Equity
Planning Corporation, and Phoenix Investment
Counsel, Inc. Vice President, Phoenix Funds
(1990-present). Senior Vice President, Finance,
Phoenix Securities Group, Inc. (1993-1995),
Senior Vice President, Finance (1993-present),
and Treasurer (1994-present), National
Securities & Research Corporation. Senior Vice
President, Chief Financial Officer and
Treasurer, W.S. Griffith & Co. Inc. (1992-1995)
and Townsend Financial Advisers, Inc.
(1993-1995). Vice President, the National
Affiliated Investment Companies (until 1993).
Leonard J. Saltiel (42) Vice President Vice President, Investment Operations, Phoenix
Home Life Mutual Insurance Company (1994-1995).
Senior Vice President, Phoenix Equity Planning
Corporation (1994-present). Vice President,
Phoenix Funds (1994-present) and National
Securities & Research Corporation. Various
positions with Home Life Insurance Company and
Phoenix Home Life Mutual Insurance Company
(1987-1994).
Nancy G. Curtiss (43) Treasurer Second Vice President and Treasurer, Fund
Accounting, Phoenix Home Life Mutual Insurance
Company (1994- 1995). Treasurer, Phoenix Funds
(1994-present). Vice President, Fund
Accounting, Phoenix Equity Planning Corporation
(1994-present). Various positions with Phoenix
Home Life Insurance Company (1987-1994).
G. Jeffrey Bohne (48) Secretary Vice President and General Manager, Phoenix
101 Munson Street Home Life Mutual Insurance Co. (1993-1995),
Greenfield, MA 01301 Vice President, Transfer Agent Operations,
Phoenix Equity Planning Corporation
(1993-present). Secretary, the Phoenix Funds
(1993-present), Vice President, Home Life of
New York Insurance Company (1984-1992).
</TABLE>
For services rendered to the Fund for the fiscal year ended October 31,
1995, the Directors received aggregate remuneration of $24,383. For his
services on the Boards of Directors/Trustees of the Phoenix Funds, each
Director who is not a full-time employee of the Adviser or any of its
affiliates currently receives a retainer at the annual rate of $36,000 and a
fee of $2,000 per joint meeting of the Boards. Each Director who serves on
the Audit Committee receives a retainer at the annual rate of $2,000 and a
fee of $2,000 per joint Audit Committee meeting attended. Each Director who
serves on the Nominating Committee receives a retainer at the annual rate of
$1,000 and a fee of $1,000 per joint Nominating Committee meeting attended.
Each Director who serves on the Executive Committee and who is not an
interested person of the Fund receives a retainer at the annual rate of
$1,000 and $1,000 per joint Executive Committee meeting attended. Director
fee costs are allocated equally to each of the Series and Funds within the
Phoenix Funds complex. The foregoing fees do not include the reimbursement of
expenses incurred in connection with meeting attendance. Officers and
interested Directors of the Fund are compensated for their services by the
Adviser and receive no compensation from the Fund.
19
<PAGE>
For the Fund's last fiscal year ending October 31, 1995, the Directors
received the following compensation:
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated From Fund and
Compensation Accrued as Part Annual Benefits Fund Complex
Name From Fund of Fund Expenses Upon Retirement Paid to Directors
------------------------ ----------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
C. Duane Blinn $2,000* $50,000
Robert Chesek 1,600 40,000
E. Virgil Conway 2,040 51,000
Harry Dalzell-Payne 1,680 42,000
Leroy Keith, Jr. 1,600 None None 40,000
Philip R. McLoughlin 0 for any for any 0
James M. Oates 2,000 Director Director 50,000
Philip R. Reynolds 1,680 42,000
Herbert Roth, Jr. 2,120* 53,000
Richard E. Segerson 2,000 50,000
Lowell P. Weicker, Jr. 840 21,000
*This compensation (and the earnings thereon) was deferred pursuant to the Directors' Deferred
Compensation Plan.
</TABLE>
On October 31, 1995, the Directors and officers of the Fund beneficially
owned less than 1% of the outstanding shares of the Fund.
OTHER INFORMATION
Independent Accountants
Price Waterhouse LLP has been selected independent accountants for the
Fund.
Custodian and Transfer Agent
State Street Bank and Trust Company, P. O. Box 8301, Boston, MA 02266-8301,
serves as the Fund's Custodian, Phoenix Equity Planning Corporation, 100
Bright Meadow Boulevard, P.O. Box 2200, Enfield, CT 06083-2200, serves as the
Fund's transfer agent.
Reports to Shareholders
The fiscal year of the Fund ends on October 31. The Fund will send to its
shareholders at least semi-annually reports showing the securities of the
Fund's portfolio and other information. An annual report, containing
financial statements audited by the Fund's independent accountants, will be
sent to shareholders each year.
Financial Statements
Financial information relating to the Fund is contained in the Annual
Report to Shareholders for the year ended October 31, 1995 and is available
by calling Equity Planning at (800) 243-4361, or by writing to Equity
Planning at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut
06083-2200. The Annual Report is incorporated by reference into this
Statement of Additional Information. A copy of the Annual Report must precede
or accompany this Statement of Additional Information.
PERFORMANCE INFORMATION
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature.
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
October 31, 1995, the Class A Shares yield, calculated pursuant to this
formula was 7.11%. The Class B Shares yield was 6.72% calculated pursuant to
this formula.
Average annual total return quotations will be computed by finding the
average annual compounded rates of return over the 1, 5 and 10 year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years;
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods at the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
20
<PAGE>
The Fund's Class A shares average annual total return for the period November
1, 1994 through October 31, 1995 was 8.38%. The Fund's average annual total
return for the period November 1, 1990 through October 31, 1995 was 12.08%.
The Fund's average annual total return figure from inception, December 15, 1989,
through October 31, 1995 was 10.55%; the cumulative total return for this
period was 171.73%.
The Class B shares average annual total return for the period November 1,
1994 through October 31, 1995 was 7.96%. The Fund's average annual total
return figure from inception, January 3, 1992, through October 31, 1995 was
7.97%; the cumulative total return for this period was 34.06%.
It was assumed, for the purpose of the above computation, that (i) the
maximum sales charge of 4.75% was deducted for the initial payment on Class A
shares; (ii) the maximum contingent deferred sales charge of 5% was applied
to Class B shares; and (iii) all dividends and distributions on each class of
shares will be reinvested at the net asset value as described in the Fund's
prospectus. The computation reflects all recurring fees that are charged to
all shareholder accounts. Moreover, the ending redeemable value assumes a
complete redemption at the end of each period.
21
<PAGE>
Annual Report to shareholders
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
MARKET AND PORTFOLIO REVIEW
Fund Description: Phoenix Multi-Sector Fixed Income Fund invests in a wide
variety of fixed-income securities. These securities may include U.S.
treasury, agency, corporate and yankee bonds, as well as mortgage-backed and
asset-backed securities. The Fund emphasizes the most undervalued sectors of
the market and de-emphasizes the most overvalued sectors.
Investment Environment: Over the twelve-month reporting period ended October
31, 1995, the fixed-income investment environment has improved dramatically.
A favorable combination of slowing economic growth and moderate inflation has
translated into a strong bond market rally. This rally could be extended if
Congress passes significant deficit reduction legislation. Also, the recent
strength of the U.S. dollar is a positive factor for continued moderate
inflation.
Portfolio Review: For the twelve-month period ended October 31, 1995, the
Fund's Class A shares provided a total return of 13.83% and Class B shares
returned 12.96%. This compares with the market's return of 15.65%, as
measured by the Lehman Brothers Aggregate Bond Index. All of these returns
assume reinvestment of any distributions but exclude the effect of sales
charges.
The Fund's relative underperformance was due to an overweighting in emerging
debt markets and municipal bonds. Limited exposure to investment-grade
corporates also held performance back. Positive contributors to the portfolio
were holdings in commercial mortgage-backed securities and high-yield
corporate bonds.
Outlook: Our outlook for the bond market remains positive. In the months
ahead, we expect to de-emphasize U.S. treasury securities in favor of more
attractive market sectors. Currently, we have increased exposure to
commercial mortgage-backed securities as positive market technicals have
resulted in attractive valuations. We also continue to overweight the yankee
bond sector. Our focus is on Argentinean, Brazilian and Polish Brady bonds,
given the improving political and economic momentum in these countries.
Lastly, we have decreased exposure to non-dollar securities since we believe
U.S. dollar-denominated securities represent better relative value.
[line chart]
Phoenix Lehman Brothers
Multi-Sector Fixed Income--Class A Aggregate Bond Index*
12/15/89 9525 10000
10/31/90 9704 10631
10/31/91 12378 12312
10/31/92 14125 13522
10/31/93 16605 15127
10/31/94 15846 14617
10/31/95 17173 16905
Average Annual Total Returns for Periods Ending 10/31/95
From
Inception From
12/18/89 Inception
1 5 to 1/3/92 to
Year Years 10/31/95 10/31/95
- ------------------------------------------------------------------------
Class A with 4.75% sales
charge 8.38% 12.08% 10.55% --
- ------------------------------------------------------------------------
Class A at net asset
value 13.83% 13.17% 11.46% --
- ------------------------------------------------------------------------
Class B with CDSC 7.96% -- -- 7.97%
- ------------------------------------------------------------------------
Class B at net asset
value 12.96% -- -- 8.37%
- ------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index* 15.65% 9.65% 9.35% 8.64%
- ------------------------------------------------------------------------
This chart assumes an initial investment of $10,000 made on December 18, 1989
for Class A shares. Total returns for Class A shares reflect the maximum
sales charge of 4.75% on the initial investment and assume reinvestment of
dividends and capital gains. Class B share performance will be greater or
less than that shown based on differences in inception dates, fees and sales
charges. Class B shares reflect the 5% contingent deferred sales charge
(CDSC), which is applicable on all shares redeemed during the 1st year after
purchase and 4% for all shares redeemed during the 2nd year after purchase
(scaled down to 3%-3rd year, 2%-4th and 5th year and 0% thereafter). The
investment return and principal value of the investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less at
redemption than at purchase price. Returns indicate past performance which is
not predictive of future performance.
* The Lehman Brothers Aggregate Bond Index is an unmanaged but commonly used
measure of bond performance. It is a combination of several Lehman Brothers
Fixed Income indexes. The index's performance does not include sales charges.
** Foreign investing involves special risks, such as currency fluctuation,
less public disclosure as well as economic and political risks.
1
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
INVESTMENTS AT OCTOBER 31, 1995
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------ -------------
U.S. GOVERNMENT SECURITIES--17.1%
U.S. Treasury Bonds--1.1%
U.S. Treasury Bonds
6.50%, '05 AAA $ 1,000 $ 1,035,936
U.S. Treasury Bonds
6.875%, '25 AAA 2,250 2,414,925
-----------
3,450,861
-----------
U.S. Treasury Notes--5.7%
U.S. Treasury Notes
5.63%, '97 AAA 5,000 5,003,125
U.S. Treasury Notes
5.875%, '98 AAA 11,500 11,550,025
U.S. Treasury Notes
5.75%, '00 AAA 1,250 1,247,656
-----------
17,800,806
-----------
Agency Mortgage-Backed Securities--10.3%
FHLMC 9%, '04 AAA 212 214,683
FHLMC 7.50%, '18 AAA 827 832,968
FHLMC 8.75%, '20 AAA 707 721,054
FNMA 8.70%, '16 AAA 1,168 1,204,581
FNMA 6.65%, '17 AAA 1,000 996,909
FNMA 6.50%, '18 AAA 1,000 990,599
FNMA 7%, '07-'23 AAA 6,861 6,815,781
GNMA TBA 6.50%, '05 AAA 2,000 1,943,750
GNMA 9%, '05-'25 AAA 15,249 16,015,246
GNMA TBA 9%, '05 AAA 2,500 2,628,125
-----------
32,363,696
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $53,512,909) 53,615,363
-----------
NON-CONVERTIBLE BONDS--39.6%
Aerospace & Defense--0.0%
McDonnell Douglas Corp.
9.45%, '96 NR 150 155,046
-----------
Airlines--1.1%
GPA Delaware, Inc.
8.75%, '98 CCC 4,000 3,580,000
-----------
Chemical--Specialty--1.6%
Borden Chemical & Plastics
9.50%, '05 BB+ 5,000 5,150,000
-----------
Hospital Management & Services--1.6%
Tenet Healthcare Corp.
9.625%, '02 B+ 4,500 4,860,000
-----------
Insurance--0.6%
Middletown Trust 11.75%, '10 A+ 1,600 1,962,430
-----------
Non-Agency Mortgage-Backed Securities--31.2%
Chase Mortgage Finance Corp.
92-2, B2 8.02%,
'22 (b) AA((d)) $ 4,675 $ 4,797,358
Citicorp Mortgage Securities
91-9, B 9%, '21 AAA 1,600 1,640,500
DLJ Mortgage Acceptance
94-M11, B1 8.10%, '04 Baa((d)) 5,000 5,023,437
FDIC REMIC 94-C1, 2D 8.70%,
'25 A((d)) 7,000 7,435,313
Green Tree Financial Corp.
93-2, B 8%, '18 Baa((d)) 5,000 5,125,000
Kidder Peabody Acceptance
Corp. 94-C1, B 6.85%, '06 AA 2,000 1,996,250
Kidder Peabody Acceptance
Corp. 93-6, B4 144A
7.7841%, '23 (c) BBB 4,242 4,089,084
Kidder Peabody Acceptance
Corp. 93-M3, D 6.50%, '25 Baa((d)) 2,147 2,013,483
Merrill Lynch Mortgage, Inc.
95-C2, C 7.79%, '21 AAA 1,000 1,018,594
Prudential Home Mortgage
93H, B2 144A 6.759%, '08
(c) NR 8,342 8,133,761
Prudential Home Mortgage
93-L, 3B2 144A 6.641%, '23
(c) NR 3,270 3,090,150
Prudential Home Mortgage
94-32, M 8.25%, '24 NR 2,943 3,027,170
Residential Funding Corp.
93-S29, M3 7% '08 BBB((d)) 610 585,355
Resolution Trust Corp.
93-N3, 144A 7.80%,
'03 (c) Ba((d)) 2,292 2,291,667
Resolution Trust Corp.
92-C7, A1C 7.90%, '23 Aa((d)) 1,966 1,973,790
Resolution Trust Corp.
92-C3, B 9.05%, '23 AA 3,938 4,046,558
Resolution Trust Corp.
93-C3, A4 6.55%, '24 Aaa((d)) 1,828 1,826,000
Resolution Trust Corp.
94-C2, C 8%, '25 A 3,400 3,496,686
Resolution Trust Corp.
94-C2, D 8%, '25 BBB 5,388 5,430,033
Resolution Trust Corp.
94-C1, A2C 7.45%, '26 AAA 5,000 5,082,812
Resolution Trust Corp.
94-C1, D 8%, '26 BBB 5,755 5,766,636
Resolution Trust Corp. 95-1,
C2 7.50%, '28 BBB 4,232 4,194,054
See Notes to Financial Statements
2
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------ -------------
Non-Agency Mortgage-Backed Securities (Continued)
Ryland Mortgage Security
Corp. III 92-A, 1A 8.33%,
'30 A- $ 416 $ 417,733
SASC 95-C1, B 7.375%, '24 AAA 5,344 5,362,370
SASC 93-C1, B 6.60%, '24 A+ 5,000 4,644,039
White Hall Partners 95-C1, B
7.43%, '25 A((d)) 5,000 5,059,375
-----------
97,567,208
-----------
Retail--Food--0.6%
Rini Rego Supermarkets, Inc.
9.75%, '01 NR 2,000 1,812,500
-----------
Retail--Food Service--0.0%
ARA Services, Inc. 10.625%,
'00 BB 54 61,425
-----------
Telecommunications Equipment--1.4%
Paging Network 10.125%, '07 B 2,000 2,130,000
Panamsat L.P. 9.75%, '00 BB- 2,000 2,115,000
-----------
4,245,000
-----------
Utility--Electric--1.5%
California Energy Co.
0%, '04 (f) BB- 5,000 4,512,500
Rural Electric Cooperative
9.73%, '17 AAA 140 156,355
-----------
4,668,855
-----------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $122,350,036) 124,062,464
-----------
FOREIGN NON-CONVERTIBLE BONDS--9.1%
Argentina--1.6%
Banco de Galicia Yankee 9%,
'03 BB- 4,000 3,040,000
Banco Rio de la Plata 144A
8.50%, '98 (c) B((d)) 2,000 1,885,000
-----------
4,925,000
-----------
Chile--1.5%
CSAV 144A 7.375%, '03 (c) BBB 5,000 4,875,000
-----------
Columbia--1.7%
Centragas Yankee 144A
10.65%, '10 (c) BBB- 5,000 5,287,500
-----------
Mexico--2.3%
Grupa IRSA Guaranteed Med
Term Euro 8.375%, '98 NR 5,000 4,400,000
MCTTR Toll Revenue 144A 11%,
'02 (c) NR 4,771 2,743,374
-----------
7,143,374
-----------
Singapore--2.0%
Asia Pulp & Paper Co. Yankee
11.75%, '05 BB $ 6,000 $ 6,135,000
-----------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $31,353,436) 28,365,874
-----------
FOREIGN GOVERNMENT SECURITIES--15.0%
Argentina--3.5%
Republic of Argentina
Discount L-GL Euro 6.8175%,
'23 (f) BB- 9,000 5,079,375
Republic of Argentina FRB
6.875%, '05 (f) BB- 6,500 3,871,563
Republic of Argentina Par
L-GP 5%, '23 (f) BB- 4,000 1,912,500
-----------
10,863,438
-----------
Brazil--5.9%
Republic of Brazil Discount
Series Z-L Euro 6.8125%,
'24 (f) NR 23,500 14,011,875
Republic of Brazil Par Z-L
Euro 4.25%, '24 (f) NR 9,000 4,370,625
-----------
18,382,500
-----------
Bulgaria--0.9%
Republic of Bulgaria IAB
6.75%, '11 (f) NR 4,000 1,770,000
Bulgaria FLIRB-A Br 2%, '12
(f) NR 4,000 1,120,000
-----------
2,890,000
-----------
Ecuador--0.6%
Republic of Ecuador PDI 20yr
Euro, Interest
Capitalization, 6.8125%,
'15 (f) NR 6,129 2,032,104
-----------
Mexico--1.1%
United Mexican Discount B
Euro 7.1875%, '19 (e)(f) BB 5,000 3,343,750
-----------
Poland--3.0%
Poland Global Reg Par Euro
2.75%, '24 (f) NR 7,750 3,429,375
Poland Discount Euro 6.875%,
'24 (f) NR 2,000 1,532,500
Poland PDI B 3.75%, '14 (f) NR 7,000 4,506,250
-----------
9,468,125
-----------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $46,511,052) 46,979,917
-----------
See Notes to Financial Statements
3
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STANDARD
& POOR'S PAR
RATING VALUE
(Unaudited) (000) VALUE
------------ ------ -------------
MUNICIPAL BONDS--13.1%
Alabama--0.2%
Alabama Agriculture/
Mechanical Univ. 5.50%, '20 AAA $ 810 $ 787,530
-----------
California--3.6%
Long Beach Pension 7.09%,
'09 AAA 3,500 3,502,905
Los Angeles County Series B
Rev. 5.25%, '23 AAA 3,000 2,797,170
Stanford University
Hospital, 5.25%, '20 AAA 3,385 3,140,840
University of California
Series C 5%, '23 AAA 2,000 1,792,880
-----------
11,233,795
-----------
Colorado--0.6%
Denver Airport Rev. Series A
5.60%, '20 AAA 2,000 1,947,540
-----------
Florida--1.3%
Palm Beach Waste Revenue
Project B 10.50%, '11 NR 3,750 3,991,162
-----------
Massachusetts--1.2%
Massachusetts Bay Transit
Gen. Series B 5.375%, '25 AAA 4,000 3,778,240
-----------
Michigan--0.1%
Brighton School District 0%,
'18 AAA 600 163,998
-----------
New York--1.5%
Beth Israel Medical Center,
Taxable 7.58%, '15 AAA 4,750 4,745,487
-----------
Pennsylvania--3.4%
Pennsylvania Economic
Development 10.375%, '12 NR 6,200 6,505,722
Pennsylvania Financial
Development 6.75%, '07 NR 4,050 4,086,815
-----------
10,592,537
-----------
South Carolina--0.5%
South Carolina Public
Service Rev. Series C 5%,
'18 AAA $1,700 $ 1,537,157
-----------
Virginia--0.7%
Pittsylvania County Series B
7.65%, '10 NR 1,900 2,095,263
-----------
TOTAL MUNICIPAL BONDS
(Identified cost $39,346,268) 40,872,709
-----------
TOTAL LONG-TERM INVESTMENTS--93.9%
(Identified cost $293,073,701) 293,896,327
-----------
SHORT-TERM OBLIGATIONS--6.4%
Commercial Paper--6.4%
Philip Morris Companies,
Inc. 5.69%, 11-8-95 A-1 4,600 4,594,911
Bellsouth Telecommunica-
tions, Inc. 5.65%, 11-9-95 A-1+ 6,897 6,888,340
Albertson's, Inc., 5.70%,
11-10-95 A-1 3,200 3,195,440
TDK USA, Inc. 5.73%,
11-20-95 A-1+ 3,960 3,948,024
E.I. Du Pont de Nemours
5.69%, 12-4-95 A-1+ 1,295 1,288,246
-----------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $19,914,961) 19,914,961
-----------
TOTAL INVESTMENTS--100.3%
(Identified cost $312,988,662) 313,811,288(a)
Cash & receivables, less liabilities--(0.3%) (916,477)
-----------
NET ASSETS--100.0% $312,894,811
===========
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $10,177,062 and gross
depreciation of $9,476,018 for income tax purposes. At October 31, 1995
the aggregate cost of securities for federal income tax purposes was
$313,110,244. At October 31, 1995, the Fund had capital loss
carryforwards aggregating $19,797,495 available to offset future gains
and expiring as follows: $2,412,682 in 2002 and $17,384,813 in 2003.
(b) Private Placement--see Note 4.
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1995, these securities amounted to a value of $32,395,536 or 10.4% of net
assets.
(d) As rated by Moody's, Fitch and/or Duff & Phelp's.
(e) Mexico Value Recovery Euro Rights attached.
(f) Variable or step coupon bond; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
4
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
Assets
Investment securities at value
(Identified cost $312,988,662) $313,811,288
Cash 6,944
Receivables
Investment securities sold 7,443,452
Fund shares sold 366,426
Interest 7,571,638
-----------
Total assets 329,199,748
-----------
Liabilities
Payables
Investment securities purchased 15,165,758
Fund shares repurchased 320,313
Income distribution payable 369,067
Investment advisory fee 146,287
Distribution fee 158,289
Financial agent fee 7,997
Transfer agent fee 59,421
Directors' fee 7,048
Accrued expenses 70,757
-----------
Total liabilities 16,304,937
-----------
Net Assets $312,894,811
===========
Net Assets Consist of:
Capital paid in on shares of capital stock $332,185,832
Distributions in excess of net investment
income (186,415)
Accumulated net realized losses (19,927,232)
Net unrealized appreciation 822,626
-----------
Net Assets $312,894,811
===========
Class A
Shares of capital stock outstanding,
$0.10 par value, 250,000,000 shares
authorized (Net Assets $168,875,147) 13,450,209
Net asset value per share $12.56
Offering price per share
$12.56/(1-4.75%) $13.19
Class B
Shares of capital stock outstanding,
$0.10 par value, 250,000,000 shares
authorized (Net Assets $144,019,664) 11,483,585
Net asset value and offering price per share $12.54
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
Investment Income
Interest $ 28,119,243
Dividends 97,934
-----------
Total investment income 28,217,177
-----------
Expenses
Investment advisory fee 1,692,191
Distribution fee--Class A 407,197
Distribution fee--Class B 1,447,921
Financial agent fee 92,301
Transfer agent 517,823
Registration 93,433
Custodian 84,207
Professional 48,294
Printing 30,356
Directors 24,383
Miscellaneous 19,397
-----------
Total expenses 4,457,503
-----------
Net investment income 23,759,674
-----------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized loss on securities (17,389,741)
Net realized loss on foreign currency
transactions (56,077)
Net unrealized appreciation on investments 31,680,763
-----------
Net gain on investments 14,234,945
-----------
Net increase in net assets resulting from
operations $ 37,994,619
===========
See Notes to Financial Statements
5
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
October 31, 1995 October 31, 1994
----------------- -------------------
<S> <C> <C>
From Operations
Net investment income $ 23,759,674 $ 25,370,776
Net realized loss (17,445,818) (5,532,420)
Net unrealized appreciation (depreciation) 31,680,763 (38,043,414)
--------------- -----------------
Increase (decrease) in net assets resulting from operations 37,994,619 (18,205,058)
--------------- -----------------
From Distributions to Shareholders
Net investment income--Class A (12,901,571) (13,195,319)
Net investment income--Class B (10,373,226) (10,189,264)
Distributions in excess of net investment income--Class A -- (485,962)
Distributions in excess of net investment income--Class B -- (375,245)
Net realized gains--Class A -- (7,782,144)
Net realized gains--Class B -- (8,561,575)
Tax return of capital--Class A -- (1,459,607)
Tax return of capital--Class B -- (1,127,064)
--------------- -----------------
Decrease in net assets resulting from distributions to
shareholders (23,274,797) (43,176,180)
--------------- -----------------
From Share Transactions
Class A
Proceeds from sales of shares (2,352,653 and 2,789,734 shares,
respectively) 28,484,405 35,833,253
Net asset value of shares issued from reinvestment of
distributions (654,268 and 1,081,009 shares, respectively) 7,837,803 14,009,219
Net asset value of shares issued in connection with the
acquisition of Phoenix High Quality Bond Fund (0 and
5,096,998 shares, respectively) -- 68,182,547
Cost of shares repurchased (4,039,172 and 7,002,815 shares,
respectively) (48,234,621) (90,267,185)
--------------- -----------------
Total (11,912,413) 27,757,834
--------------- -----------------
Class B
Proceeds from sales of shares (887,773 and 1,988,539 shares,
respectively) 10,692,887 25,554,081
Net asset value of shares issued from reinvestment of
distributions (308,741 and 616,141 shares, respectively) 3,693,059 8,008,250
Cost of shares repurchased (2,844,501 and 3,168,080 shares,
respectively) (33,893,205) (40,267,577)
--------------- -----------------
Total (19,507,259) (6,705,246)
--------------- -----------------
(Decrease) increase in net assets from share transactions (31,419,672) 21,052,588
--------------- -----------------
Net decrease in net assets (16,699,850) (40,328,650)
Net Assets
Beginning of period 329,594,661 369,923,311
--------------- -----------------
End of period (including distributions in excess of net
investment income of ($186,415) and ($432,390), respectively) $312,894,811 $329,594,661
=============== =================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Year Ended October 31,
1995 1994 1993 1992 1991
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.94 $14.13 $13.29 $12.81 $11.11
Income from investment operations
Net investment income 0.96 0.76 1.14 1.24 1.22((2))
Net realized and unrealized gain (loss) 0.61 (1.35) 1.08 0.50 1.71
------- ------- ------- ------- ---------
Total from investment operations 1.57 (0.59) 2.22 1.74 2.93
------- ------- ------- ------- ---------
Less distributions
Dividends from net investment income (0.95) (0.77) (1.19) (1.21) (1.23)
Dividends in excess of net investment
income -- (0.05) (0.02) -- --
Dividends from net realized gains -- (0.63) (0.17) (0.05) --
Tax return of capital -- (0.15) -- -- --
------- ------- ------- ------- ---------
Total distributions (0.95) (1.60) (1.38) (1.26) (1.23)
------- ------- ------- ------- ---------
Change in net asset value 0.62 (2.19) 0.84 0.48 1.70
------- ------- ------- ------- ---------
Net asset value, end of period $12.56 $11.94 $14.13 $13.29 $12.81
======= ======= ======= ======= =========
Total return((1)) 13.83% -4.57% 17.55% 14.11% 27.56%
Ratios/supplemental data:
Net assets, end of period (thousands) $168,875 $172,966 $176,859 $141,627 $68,139
Ratio to average net assets of:
Operating expenses 1.10% 1.13% 1.29% 1.48% 1.50%
Net investment income 8.10% 7.05% 8.27% 9.42% 10.13%
Portfolio turnover 201% 123% 207% 116% 180%
</TABLE>
<TABLE>
<CAPTION>
Class B
------------------------------------------------
From
Inception
Year Ended October 31, 1/3/92 to
1995 1994 1993 10/31/92
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.93 $14.10 $13.25 $13.02
Income from investment operations
Net investment income 0.86 0.68 1.04 0.94
Net realized and unrealized gain (loss) 0.61 (1.36) 1.08 0.21
------- ------- ------- -------
Total from investment operations 1.47 (0.68) 2.12 1.15
------- ------- ------- -------
Less distributions
Dividends from net investment income (0.86) (0.67) (1.08) (0.92)
Dividends in excess of net investment
income -- (0.05) (0.02) --
Dividends from net realized gains -- (0.63) (0.17) --
Tax return of capital -- (0.14) -- --
------- ------- ------- -------
Total distributions (0.86) (1.49) (1.27) (0.92)
------- ------- ------- -------
Change in net asset value 0.61 (2.17) 0.85 0.23
------- ------- ------- -------
Net asset value, end of period $12.54 $11.93 $14.10 $13.25
======= ======= ======= =======
Total return((1)) 12.96% -5.21% 16.78% 8.81%((4))
Ratios/supplemental data:
Net assets, end of period (thousands) $144,020 $156,629 $193,064 $82,522
Ratio to average net assets of:
Operating expenses 1.85% 1.78% 1.99% 2.18%((3))
Net investment income 7.30% 6.46% 7.36% 8.47%((3))
Portfolio turnover 201% 123% 207% 116%
</TABLE>
((1))Maximum sales charges are not reflected in the total return calculation.
((2))Includes reimbursement of operating expenses by investment adviser of
$0.04.
((3))Annualized
((4))Not annualized
See Notes to Financial Statements
7
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Phoenix Multi-Sector Fixed Income Fund, Inc. (the "Fund") is organized as a
Maryland corporation and is registered under the Investment Company Act of
1940, as amended, as a diversified open-end management investment company.
The Fund offers both Class A and Class B shares. Class A shares are sold with
a front-end sales charge of up to 4.75%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Both classes of shares have identical
voting, dividend, liquidation and other rights and the same terms and
conditions, except that each class bears different distribution expenses and
has exclusive voting rights with respect to its distribution plan. Income and
expenses of the Fund are borne pro rata by the holders of both classes of
shares, except that each class bears distribution expenses unique to that
class.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. Security valuation:
Securities listed or traded on a national securities exchange are valued at
the last sale price, or if there had been no sale of the security on that
day, at the mean between the last bid and asked prices. Securities traded in
the over-the-counter market are valued at the mean between the last bid and
asked prices; and if no active market exists, at the bid price. Short-term
investments having a remaining maturity of less than sixty days are valued at
amortized cost which approximates market. All other securities and assets are
valued at their fair value as determined in good faith by or under the
direction of the Directors.
B. Security transactions and related income:
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Discounts and premiums are amortized to income
using the effective interest method. Dividend income is recorded on the
ex-dividend date or, in the case of certain foreign securities, as soon as
the Fund is notified. Realized gains and losses are determined on the
identified cost basis.
C. Income taxes:
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders. In
addition, the Fund intends to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Code. Therefore, no
provision for federal income taxes or excise taxes has been made.
D. Distributions to shareholders:
Distributions to shareholders are declared and recorded daily. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include the treatment of expiring capital loss
carryforwards, foreign currency gain/loss, partnerships, and losses deferred
due to wash sales and excise tax regulations. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid in capital.
E. Foreign currency translation:
Foreign securities, other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the date of settlement. The gain or loss resulting from a change in currency
exchange rates between the trade and settlement dates of a portfolio
transaction, is treated as a gain or loss on foreign currency. Likewise, the
gain or loss resulting from a change in currency exchange rates, between the
date income is accrued and paid, is treated as a gain or loss on foreign
currency. The Fund does not separate that portion of the results of
operations arising from changes in exchange rates and that portion arising
from changes in the market prices of securities.
2. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS
As compensation for its services to the Fund, the Investment Adviser,
National Securities and Research Corporation, an indirect wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"), is entitled
to a fee at an annual rate of 0.55% for the first $1 billion of the average
daily net assets of the Fund.
As Distributor of the Fund's shares, Phoenix Equity Planning Corp.
("PEPCO"), an indirect wholly-owned subsidiary of PHL, has advised the Fund
that it received selling commissions of $37,770 for Class A shares and
deferred sales charges of $773,318 for Class B shares for the year ended
October 31, 1995. In addition, the Fund pays PEPCO a distribution fee at an
annual rate of 0.25% for Class A shares and 1.00% for Class B shares of the
average daily net assets of the Fund. The Distribution Plan
8
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995 (Continued)
for Class A shares provides for fees to be paid up to a maximum on an annual
basis of 0.30%; the Distributor has voluntarily agreed to limit the fee to
0.25%. The Distributor has advised the Fund that of the total amount expensed
for the year ended October 31, 1995, $1,216,002 was earned by the Distributor
and $639,116 was earned by unaffiliated participants.
As Financial Agent of the Fund, PEPCO receives a fee at an annual rate of
0.03% of the average daily net assets of the Fund for bookkeeping,
administration and pricing services. PEPCO serves as the Fund's Transfer
Agent with State Street Bank and Trust Company as sub-transfer agent. For the
year ended October 31, 1995, transfer agent fees were $517,823 of which PEPCO
retained $203,646 which is net of the fees paid to State Street.
At October 31, 1995, PHL and affiliates held 9,988 Class A shares and 11
Class B shares of the Fund with a combined value of $125,580.
3. PURCHASE AND SALE OF SECURITIES
Purchases and sales of securities, excluding short-term securities, for the
year ended October 31, 1995, aggregated $590,467,437 and $633,345,404,
including $313,024,367 and $302,455,798, of U.S. Government securities,
respectively.
4. PRIVATE PLACEMENTS
At October 31, 1995, the Fund held the following securities which were
private placements and represented 1.5% (at market value) of the net assets
of the Fund:
Acquisition
Security Date Cost
- --------------------------------- --------- ----------
Chase Mortgage Finance Corp.
92-2, B-2 8.02%, '22 11/13/93 $4,693,620
The Fund will bear any costs, including those involved in registration under
the Securities Act of 1933, in connection with the disposition of such
securities.
5. RECLASS OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Fund has recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Fund and are designed generally to
present undistributed income and realized gains on a tax basis which is
considered to be more informative to the shareholder. As of October 31, 1995,
the Fund has decreased undistributed net investment income by $238,902,
increased accumulated net realized gains by $270,623 and decreased capital
paid in on shares of beneficial interest by $31,721.
This report is authorized for use by other than shareholders only when
accompanied or preceded by the delivery of a current prospectus showing the
sales charge and other material information.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[graphic]Price Waterhouse LLP [PW logo]
To the Board of Directors and Shareholders of
Phoenix Multi-Sector Fixed Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for bond ratings), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Phoenix Multi-Sector Fixed Income Fund, Inc. (the "Fund") at
October 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
/s/Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
10
<PAGE>
PHOENIX MULTI-SECTOR FIXED
INCOME FUND, INC.
101 Munson Street
Greenfield, Massachusetts 01301
Directors
C. Duane Blinn
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Leroy Keith, Jr.
Philip R. McLoughlin
James M. Oates
Philip R. Reynolds
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
Officers
Philip R. McLoughlin, President
Martin J. Gavin, Executive Vice President
Michael E. Haylon, Executive Vice President
David L. Albrycht, Vice President
James M. Dolan, Vice President
William R. Moyer, Vice President
Leonard J. Saltiel, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
Investment Adviser
National Securities & Research Corporation
56 Prospect Street
Hartford, Connecticut 06115-0480
Principal Underwriter
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
Transfer Agent
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
Legal Counsel
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005-1208
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
11
<PAGE>
[cover]
Phoenix Funds
Phoenix Multi-Sector
Fixed Income Fund, Inc.
Annual Report
October 31, 1995
[photo of money]
[logo-Phoenix Duff & Phelps]
Phoenix Multi-Sector Fixed Income Fund, Inc.
P.O. Box 2200
Enfield, CT 06083-2200
[logo-Phoenix Duff & Phelps]
PDP 660 (12/95)
[indicia]
Bulk Rate Mail
U.S. Postage
PAID
Springfield, MA
Permit No. 444
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PART C--OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A: Financial Highlights
Included in Part B: Financial Statements and Notes thereto, and Report of
Independent Accountants are included in the Annual Report to Shareholders for
the year ended October 31, 1995, incorporated by reference.
(b) Exhibits:
<TABLE>
<CAPTION>
<S> <C>
1. Articles of Incorporation of the Registrant and amendments thereto, previously filed, and
herein incorporated by reference.
1.1 Amendment to Articles of Incorporation changing name of Corporation to Phoenix
Multi-Sector Fixed Income Fund, Inc., and reclassifying shares, filed with Post-
Effective Amendment No. 8 on February 27, 1995 and incorporated herein by reference.
2. By-laws of the Registrant, previously filed, and herein incorporated by reference.
3. Not Applicable.
4. Reference is made to the Articles Supplementary to the Articles of Incorporation
reclassifying shares, filed with Post-Effective Amendment No. 8 on February 27, 1995 and
incorporated herein by reference.
5. Management Agreement between Registrant and National Securities & Research Corporation
dated May 14, 1993 filed with Post-Effective Amendment No. 6 on December 30, 1993 and
incorporated herein by reference.
5.1 Amendment to Management Agreement dated January 1, 1994, filed with Post-Effective
Amendment No. 8 on February 27, 1995 and incorporated herein by reference.
6. (a) Underwriting Agreement for Class A Shares between Registrant and Phoenix Equity
Planning Corporation ("Equity Planning") dated May 14, 1993 filed with Post-Effective
Amendment No. 6 on December 30, 1993 and incorporated herein by reference.
(b) Underwriting Agreement for Class B Shares between Registrant and Equity Planning dated
May 14, 1993 filed with Post-Effective Amendment No. 6 on December 30, 1993 and
incorporated herein by reference.
7. None.
8. Custodian Contract between Registrant and State Street Bank and Trust Company dated October
14, 1993 filed with Post-Effective Amendment No. 6 on December 30, 1993 and incorporated
herein by reference.
9. Transfer Agency and Service Agreement between Registrant and Phoenix Equity Planning
Corporation dated June 1, 1994, filed with Post-Effective Amendment No. 8 on February 27,
1995 and incorporated herein by reference.
9.1 Form of Sales Agreement filed with Post-Effective Amendment No. 6 on December 30, 1993,
and incorporated herein by reference.
9.2 Financial Agent Agreement between Registrant and Phoenix Equity Planning Corporation
dated May 25, 1994, filed with Post-Effective Amendment No. 8 on February 27, 1995 and
incorporated herein by reference.
10. Opinion of counsel as to legality of the shares, dated February 24, 1995, filed with
Post-Effective Amendment No. 8 on February 27, 1995 and incorporated herein by reference.
11. Consent of Independent Accountants, filed herewith, and herein incorporated by reference.
12. Not Applicable
13. None.
14. None.
15. (a) Distribution Plan for Class A Shares dated May 14, 1993 filed with Post-Effective
Amendment No. 6 on December 30, 1993, and incorporated herein by reference.
C-1
<PAGE>
(b) Distribution Plan for Class B Shares dated May 14, 1993 filed with Post-Effective Amendment No. 6 on
December 30, 1993, and incorporated herein by reference.
16. Schedule for computation of yield and effective yield quotations, filed with Post-Effective Amendment No. 8
on February 27, 1995 and incorporated herein by reference.
17. Financial Data Schedule filed herewith and reflected on EDGAR as Exhibit 27.
18. Rule 18f-3 Dual Distribution Plan effective November 15, 1995 filed herewith, and incorporated herein by
reference.
19. Power of attorney, filed herewith and powers of attorney filed with Post-Effective Amendment No. 7 on March
1, 1994, and a power of attorney filed with Post-Effectivement Amendment No. 8 on February 27, 1995, and
incorporated herein by reference.
</TABLE>
Item 25. Persons Controlled by or Under Common Control With Registrant
No person is controlled by, or under common control with, the Registrant.
Item 26. Number of Holders of Securities
As of December 31, 1995, the number of record holders of each class of
securities of the Registrant was as follows:
Number of
Title of Class Record-holders
---------------------- -------------
Common Stock--Class A 7,809
Common Stock--Class B 5,691
------------
Item 27. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect
to any proceeding against a present or former director, officer, agent, or
employee of the Registrant (a "corporation representative"), except a
proceeding brought by or on behalf of the Registrant, the Registrant may
indemnify the corporation representative against expenses, including
attorney's fees and judgments, fines, and amounts paid in settlement actually
and reasonably incurred by the corporate representative in connection with
the proceeding, if: (i) he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant; and
(ii) with respect to any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
The Registrant is also authorized under Section 2-418 of the Maryland
General Corporation Law to indemnify a corporate representative under certain
circumstances against expenses incurred in connection with the defense of a
suit or action by or in the right of the Registrant. Reference is made to
Article VI of Registrant's Articles of Incorporation, Article VI of
Registrant's By-laws and Section 2-418 of the Maryland General Corporation
Law.
Item 28. Business and Other Connections of Investment Adviser
See "Management of the Fund" in the Prospectus and "Services of the
Adviser" and "Directors and Officers" in the Statement of Additional
Information, each of which is included in this Post-Effective Amendment.
The directors and officers of National Securities & Research Corporation
(the "Adviser") and their business and other connections are as follows:
<TABLE>
<CAPTION>
Position with
Name Investment Adviser Other Vocation or Employment
-------------------------- ----------------------- ------------------------------------------------------
<S> <C> <C>
Martin J. Gavin Director and Executive Executive Vice President--Finance and Operations,
Vice President Phoenix Duff & Phelps Corporation. Senior Vice
President, Investment Products, Phoenix Home Life
Mutual Insurance Company. Executive Vice President and
Director, Phoenix Investment Counsel, Inc., Phoenix
Securities Group, Inc. and Phoenix Equity Planning
Corporation. Director and Executive Vice President,
W.S. Griffith & Co., Inc. Director and Vice President,
PM Holdings, Inc. Executive Vice President, Phoenix
Funds.
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Position with
Name Investment Adviser Other Vocation or Employment
-------------------------- ----------------------- ------------------------------------------------------
<S> <C> <C>
Michael E. Haylon Director and Executive Executive Vice President--Investments, Phoenix Duff &
Vice President Phelps Corporation. Senior Vice President, Securities
Investments, Phoenix Home Life Mutual Insurance
Company. Executive Vice President, Phoenix Funds.
Director and President, Phoenix Investment Counsel,
Inc. Director, Phoenix Equity Planning Corporation.
Philip R. McLoughlin President, CEO & Director, Vice Chairman and Chief Executive Officer,
Director Phoenix Duff & Phelps Corporation. Director and
Executive Vice President, Investments, Phoenix Home
Life Mutual Insurance Company. Director and President,
Phoenix Equity Planning Corporation. Director and
Chairman, Phoenix Investment Counsel, Inc., Director,
Phoenix Realty Advisors, Inc., Phoenix Realty Group,
Inc., Phoenix Realty Investors, Inc., Phoenix Realty
Securities, Inc., Phoenix Founders, Inc., and World
Trust Fund; Director and Vice President, PM Holdings,
Inc. Director/Trustee/President of the Phoenix Funds;
President and Director of Phoenix Securities Group,
Inc. Director, W.S. Griffith & Co., Inc.
William R. Moyer Senior Vice President, Senior Vice President and Chief Financial Officer,
Finance and Treasurer Phoenix Duff & Phelps Corporation. Vice President,
Investment Products Finance, Phoenix Home Life Mutual
Life Insurance Company. Senior Vice President, Finance
and Treasurer, Phoenix Equity Planning Corporation and
Phoenix Investment Counsel, Inc. Vice President,
Phoenix Funds, Senior Vice President, Finance, Phoenix
Securities Group, Inc., and Senior Vice President,
Chief Financial Officer and Treasurer, W.S. Griffith &
Co., Inc.
William J. Newman Senior Vice President Vice President, Common Stock and Chief Investment
Strategist, Phoenix Home Life Mutual Insurance
Company. Executive Vice President, Phoenix Investment
Counsel, Inc. and Senior Vice President, Phoenix
Equity Planning Corporation. Senior Vice President,
The Phoenix Edge Series Fund and Phoenix
Multi-Portfolio Fund. Vice President, Phoenix
Strategic Equity Series Fund.
Michael K. Arends Vice President Portfolio Manager, Phoenix Home Life Mutual Insurance
Company. Vice President, Phoenix Series Fund, Phoenix
Strategic Equity Series Fund, and Phoenix Investment
Counsel, Inc.
Curtiss O. Barrows Vice President Portfolio Manager, Public Bonds, Phoenix Home Life
Mutual Insurance Company. Vice President, Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, The Phoenix
Edge Series Fund, and Phoenix Investment Counsel, Inc.
James M. Dolan Vice President and Assistant Vice President Compliance, Phoenix Home Life
Compliance Officer, Mutual Insurance Company. Vice President and
Assistant Secretary Compliance Officer; Assistant Secretary, Phoenix
Equity Planning Corporation. Vice President, Phoenix
Funds. Vice President, Assistant Clerk and Assistant
Secretary, Phoenix Investment Counsel, Inc. Vice
President and Chief Compliance Officer, Phoenix Realty
Advisors, Inc. and Chief Compliance Officer, Phoenix
Realty Securities, Inc.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Position with
Name Investment Adviser Other Vocation or Employment
-------------------------- ----------------------- ------------------------------------------------------
<S> <C> <C>
Jeanne H. Dorey Vice President Portfolio Manager, International, Phoenix Home Life
Mutual Insurance Company. Vice President, The Phoenix
Edge Series Fund, Phoenix Multi-Portfolio Fund,
Phoenix Investment Counsel, Inc., and Phoenix
Worldwide Opportunities Fund.
Christopher J. Kelleher Vice President Portfolio Manager, Public Bonds, Phoenix Home Life
Mutual Insurance Company. Vice President, Phoenix
Series Fund, The Phoenix Edge Series Fund and Phoenix
Investment Counsel, Inc.
Thomas S. Melvin, Jr. Vice President Portfolio Manager, Common Stock, Phoenix Home Life
Mutual Insurance Company. Vice President, Phoenix
Investment Counsel, Inc. and Phoenix Multi-Portfolio
Fund.
Amy L. Robinson Vice President Managing Director, Securities Administration, Phoenix
Home Life Mutual Insurance Company. Vice President,
The Phoenix Edge Series Fund, Phoenix Series Fund, and
Phoenix Investment Counsel, Inc.
Leonard J. Saltiel Vice President Vice President, Investment Operations, Phoenix Home
Life Mutual Insurance Company. Senior Vice President,
Phoenix Equity Planning Corporation. Vice President,
Phoenix Funds.
Elizabeth R. Sadowinski Vice President Vice President, Mutual Fund Customer Service, Phoenix
Home Life Mutual Insurance Company. Vice President,
Field and Investor Services, Phoenix Equity Planning
Corporation.
Dorothy J. Skaret Vice President Director, Public Fixed Income, Phoenix Home Life
Mutual Life Insurance Company. Vice President, Phoenix
Series Fund, The Phoenix Edge Series Fund, and Phoenix
Investment Counsel, Inc. and Phoenix Realty
Securities, Inc.
James D. Wehr Vice President Managing Director, Public Fixed Income, Phoenix Home
Life Mutual Insurance Company. Vice President, Phoenix
Series Fund, The Phoenix Edge Series Fund, Phoenix
Multi-Portfolio Fund, Phoenix Investment Counsel,
Inc., and Phoenix California Tax-Exempt Bonds, Inc.
John T. Wilson Vice President Portfolio Manager, Common Stock, Phoenix Home Life
Mutual Insurance Company. Vice President, Phoenix
Multi-Portfolio Fund, The Phoenix Edge Series Fund,
Phoenix Worldwide Opportunities Fund and Phoenix
Investment Counsel, Inc.
Eugene A. Charon Controller Controller, Phoenix Equity Planning Corporation and
Phoenix Investment Counsel, Inc.
Thomas N. Steenburg Secretary Senior Vice President and Counsel, Phoenix Duff &
Phelps Corporation. Counsel, Phoenix Home Life Mutual
Insurance Company. Secretary, Phoenix Investment
Counsel, Inc. and Phoenix Equity Planning Corporation.
</TABLE>
The respective principal addresses of the companies or other entities
named above are as follows:
<TABLE>
<CAPTION>
<S> <C>
Phoenix Duff & Phelps Corporation 56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
C-4
<PAGE>
Phoenix Equity Planning Corporation 100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, CT 06083-2200
Phoenix Home Life Mutual Insurance Company One American Row
Hartford, CT 06115
Phoenix Investment Counsel, Inc. One American Row
Hartford, CT 06115
Phoenix Realty Advisors, Inc. One American Row
Hartford, CT 06115
Phoenix Realty Group, Inc. One American Row
Hartford, CT 06115
Phoenix Realty Investors, Inc. One American Row
Hartford, CT 06115
Phoenix Realty Securities, Inc. One American Row
Hartford, CT 06115
Phoenix Securities Group, Inc. One American Row
Hartford, CT 06115
PM Holdings, Inc. One American Row
Hartford, CT 06115
The Phoenix Funds 101 Munson Street
Greenfield, MA 01301
W.S. Griffith & Co., Inc. 100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, CT 06083-2200
World Trust Fund KREDIETRUST
Societe Anonyme
11, rue Aldringen
L-2690 Luxembourg
R.C. Luxembourg B 10.750
</TABLE>
Item 29. Principal Underwriters
(a) See "The Underwriter" and "How to Buy Shares" in the Prospectus and
"The National Distributor" and "Plan of Distribution" in the Statement of
Additional Information, both of which are included in this Post-Effective
Amendment to the Registration Statement.
Item 30. Location of Accounts and Records
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder will be maintained at the offices of the Fund, 100
Bright Meadow Boulevard, Enfield, Connecticut 06083-1900, at the offices of
Registrant's investment adviser, National Securities & Research Corporation,
One American Row, Hartford, Connecticut 06102-5056, at the offices of the
Fund's Custodian, State Street Bank and Trust Company, P.O. Box 8301, Boston,
Massachusetts 02266-8301, and at the offices of the Transfer Agent, Financial
Agent and Principal Underwriter, Phoenix Equity Planning Corporation, 100
Bright Meadow Boulevard, Enfield, Connecticut 06083-1900.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish to each person to whom a prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.
C-5
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name and Principal Address with Underwriter with Registrant
----------------------------- --------------------------- ---------------------------
<S> <C> <C>
Martin J. Gavin Director and Executive Executive Vice President
56 Prospect St. Vice President
P.O. Box 150480
Hartford, CT 06115-0480
Michael E. Haylon Director Executive Vice President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and President Trustee and President
One American Row
Hartford, CT 06102-5056
Leonard J. Saltiel Senior Vice President Vice President
100 Bright Meadow Blvd.
P.O. Box 1900
Enfield, CT 06083-1900
William R. Moyer Senior Vice President, Vice President
100 Bright Meadow Blvd. Finance, and Treasurer
P.O. Box 1900
Enfield, CT 06083-1900
William J. Newman Senior Vice President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
G. Jeffrey Bohne Vice President, Secretary
101 Munson Street Transfer Agent Operations
P.O. Box 810
Greenfield, MA 01302-0810
Nancy G. Curtiss Vice President, Fund Treasurer
56 Prospect Street Accounting
P.O. Box 150480
Hartford, CT 06115-0480
Maris Lambergs Vice President/National None
100 Bright Meadow Blvd. Sales Manager
P.O. Box 1900
Enfield, CT 06083-1900
James M. Dolan Vice President and Vice President
100 Bright Meadow Blvd. Compliance Officer;
P.O. Box 2200 Assistant Secretary
Enfield, CT 06083-2200
Elizabeth R. Sadowinski Vice President, Field and Assistant Secretary
100 Bright Meadow Blvd. Investor Services
Enfield, CT 06083-2200
Eugene A. Charon Controller None
100 Bright Meadow Blvd.
P.O. Box 2200
Enfield, CT 06083-2200
Thomas N. Steenburg Secretary Assistant Secretary
One American Row
Hartford, CT 06102-5056
</TABLE>
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hartford
and State of Connecticut on the 26th day of February, 1996.
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
ATTEST: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
------------------------- --------------------------
Thomas N. Steenburg Philip R. McLoughlin
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons
in the capacities and on the date indicated, on the 26th day of February,
1996.
Signature Title
-------------------------- -----------------------
-------------------------- Director
C. Duane Blinn*
-------------------------- Director
Robert Chesek*
-------------------------- Director
E. Virgil Conway*
-------------------------- Treasurer (Principal
Nancy G. Curtiss** Financial and
Accounting Officer)
-------------------------- Director
Harry Dalzell-Payne*
-------------------------- Director
Francis E. Jeffries
-------------------------- Director
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin President and Director
-------------------------- (Principal Executive
Philip R. McLoughlin Officer)
-------------------------- Director
Everett L. Morris
-------------------------- Director
James M. Oates*
-------------------------- Director
Calvin J. Pedersen
-------------------------- Director
Philip R. Reynolds*
-------------------------- Director
Herbert Roth, Jr.*
-------------------------- Director
Richard E. Segerson*
-------------------------- Director
Lowell P. Weicker, Jr.***
By: /s/ Philip R. McLoughlin
- -----------------------------
Philip R. McLoughlin
*Attorney-in-fact pursuant to powers of attorney filed with Post-Effective
Amendment No. 7 under this Registration Statement.
**Attorney-in-fact pursuant to power of attorney filed with Post-Effective
Amendment No. 8 under this Registration Statement.
***Philip R. McLoughlin Attorney-in-fact pursuant to power of attorney filed
herewith.
S-1(c)
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 9 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 18, 1995, relating to the financial
statements and financial highlights appearing in the October 31, 1995 Annual
Report to Shareholders of the Phoenix Multi-Sector Fixed Income Fund, Inc.,
which is also incorporated by reference into the Registration Statement. We
also consent to the reference to us under the heading "Financial Highlights"
in the Prospectus and under the heading "Independent Accountants" in the
Statement of Additional Information.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
EXHIBIT 18
RULE 18f-3 DUAL DISTRIBUTION PLAN
<PAGE>
PHOENIX FUNDS
(the "Funds")
PLAN PURSUANT TO RULE 18f-3
under the
INVESTMENT COMPANY ACT OF 1940
1. Introduction
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
("1940 Act"), this Plan describes the multi-class system for the Funds,
including the separate classes of shares' arrangements for distribution, the
method for allocating expenses to those classes and any related conversion or
exchange privileges applicable to these classes.
Upon the effective date of this Plan, the Funds shall offer multiple
classes of shares, as described herein, pursuant to Rule 18f-3 and this Plan.
2. The Multi-Class Structure
The portfolios of the Funds listed on Schedule A hereto shall offer two
classes of shares, Class A and Class B ("Multi-Class Portfolios"). Shares of
the Multi-Class Portfolios shall represent an equal pro rata interest in the
respective Portfolio and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class shall bear any Class
Expenses, as defined by Section B, below; (c) each class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to
its distribution arrangement; and (d) each class shall have separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class. In addition, Class A and
Class B shares shall have the features described in Sections a, b, c and d,
below.
a. Distribution Plan
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 with
respect to Class B shares for each Multi-Class Portfolio, continuing
substantially the following terms:
Class B shares of each Portfolio shall reimburse Phoenix Equity Planning
Corporation (the "Distributor") for costs and expenses incurred in connection
with distribution and marketing of shares of the Fund, as provided in the
Distribution Plan and any supplements thereto, subject to an annual limit of
1.00% of the average daily net assets of a Portfolio's Class B shares.
b. Allocation of Income and Expenses
i. General
The gross income, realized and unrealized capital gains and losses and
expenses (other than Class Expenses, as defined below) of each Portfolio
shall be allocated to each class on the basis of its net asset value relative
to the net asset value of the Portfolio. Expenses to be so allocated include
expenses of the Fund that are not attributable to a particular Portfolio that
are not attributable to a particular class of that Portfolio ("Portfolio
Expenses"). Fund Expenses include, but are not limited to, Trustees' fees,
insurance costs and certain legal fees. Portfolio Expenses include, but are
not limited to, certain state registration fees, custodial fees, advisory
fees and other expenses relating to the management of the Portfolio's assets.
ii. Class Expenses.
Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (a) payments pursuant to the Distribution Plan for that class;
(b) transfer agent fees attributable to a specific class, (c) printing and
postage expenses related to preparing and distributing material such as
shareholder reports, prospectuses and proxy materials to current shareholders
of the class; (d) registration fees for shares of the class (other than those
set forth in Section b.i. above); (e) the expense of administrative personnel
and services as required to suppport the shareholders of a specific class;
(f) litigation or other legal expenses relating solely to one class of
shares; and (g) Trustees' fees incurred as a result of issues relating to a
class of shares. Expenses described in (a) of this paragraph must be
allocated to the class for which they are incurred. All other expenses
described in this paragraph may be allocated as Class Expenses, if the Fund's
President and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be treated as Class
Expenses, consistent with applicable legal principles under the 1940 Act and
the Internal Revenue Code of 1986, as amended ("code).
In the event that a particular expense is no longer reasonably allocable
by class or to a particular class, it shall be treated as a Fund Expense or
Portfolio Expense as applicable, and in the event a Fund Expense or Portfolio
Expense becomes allocable as a Class Expense, it shall be so allocated,
subject to compliance with Rule 18f-3 and Board approval or ratification.
The initial determination of expenses that will be allocated as Class
Expenses and any subsequent changes thereto as set forth in this Plan shall
be reviewed by the Board of Trustees and approved by such Board and by a
majority of the Trustees who are not "interested persons" of the Fund, as
defined in the 1940 Act ("Independent Trustees").
<PAGE>
iii. Waivers or Reimbursements of Expenses
Expenses may be waived or reimbursed by the Funds' investment adviser(s),
their principal underwriters, or any other provider of services to a
Portfolio or fund without the prior approval of the Board of Trustees.
c. Exchange Privileges
Shareholders of a Multi-Class Portfolio may exchange shares of a particular
class for shares of the same class in another Multi- Class Portfolio, at the
relative net asset values of the respective shares to be exchanged and with
no sales charge, provided the shares to be acquired in the exchange are, as
may be necessary, qualified for sale in the shareholder's state of residence
and subject to the applicable requirements, if any, as to minimum amount.
d. Conversion Feature
Class B Shares of a Multi-Class Portfolio will automatically convert to
Class A Shares of the portfolio, without sales charge, at the relative net
asset values of each of such classes, not later than eight years from the
acquisition of the Class B Shares. The conversion of Class B Shares to Class
A Shares is subject to the continuing availability of an opinion of counsel
or a ruling from the Internal Revenue Service to the effect that (i) the
assessment of the higher distribution fees and transfer agency costs with
respect to Class B Shares does not result in any dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and (ii) that the conversion of shares does not constitute
a taxable event under federal income tax law.
3. Board Review
a. Initial Approval
The Board of Trustees, including the Independent Trustees at a meeting held
on November 15, 1995, initially approved the Plan based on a determination
that the Plan, including the expense allocation, is in the best interests of
each class and Portfolio individually and of the Funds.
b. Approval of Amendments
The Plan may not be amended materially unless the Board of Trustees, the
Independent Trustees, have found that the proposed amendment, including any
proposed related expense allocation, is in the best interests of each class
and Portfolio individually and of the Fund.
c. Periodic Review
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such schedule, as
they may determine consistent with applicable legal requirements.
4. Contracts
Any agreement related to the Multi-Class System shall require the parties
thereto to furnish to the Board of Trustees, upon their request, such
information as is reasonably necessary to permit the Trustees to evaluate the
Plan or any proposed amendment.
5. Effective Date
The Plan, having been reviewed and approved by the Board of Trustees and
the Independent Trustees, shall take effect as of November 15, 1995.
6. Amendments
The Plan may not be amended to modify materially its terms unless such
amendment has been approved in the manner specified in Section 3.b. of this
Plan.
<PAGE>
SCHEDULE A
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX CALIFORNIA TAX-EXEMPT BONDS, INC.
PHOENIX STRATEGIC EQUITY SERIES FUND.
EQUITY OPPORTUNITIES FUND
STRATEGIC THEME FUND
SMALL CAP FUND
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND:
CAPITAL APPRECIATION PORTFOLIO
DIVERSIFIED INCOME
INTERNATIONAL PORTFOLIO
REAL ESTATE SECURITIES PORTFOLIO
TAX-EXEMPT BOND PORTFOLIO
EMERGING MARKETS BOND PORTFOLIO
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PHOENIX SERIES FUND:
BALANCED SERIES
CONVERTIBLE SERIES
GROWTH SERIES
HIGH YIELD FUND SERIES
MONEY MARKET FUND SERIES
U.S. GOVERNMENT SECURITIES FUND
U.S. STOCK FUND
PHOENIX TOTAL RETURN FUND, INC.
PHOENIX WORLDWIDE OPPORTUNITIES FUND
EXHIBIT 19
POWER OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the board of Directors of Phoenix Multi-Sector
Fixed Income Fund, Inc., hereby constitute and appoint Philip R. McLoughlin
and Patricia O. McLaughlin as my true and lawful attorneys and agents with
full power to sign for me in the capacity indicated below, any or all
Registration Statements or amendments thereto filed with the Securities and
Exchange Commission under the Securities Act of 1933 and/or the Investment
Company Act of 1940 relating to Phoenix Multi-Sector Fixed Income Fund, Inc.,
and hereby ratify and confirm my signature as it may be signed by said
attorneys and agents.
WITNESS my hand and seal on the date set forth below.
June 6, , 1995 /s/ Lowell P. Weicker, Jr. , Director
- ----------------- ---------------------------------------
Lowell P. Weicker, Jr.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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