As filed with the Securities and Exchange Commission on August 15, 1997
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. 11 [X]
and/or
REGISTRATION STATEMENT
Under the
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13 [X]
(Check appropriate box or boxes)
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Phoenix Multi-Sector Fixed Income Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
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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)
-------------
Thomas N. Steenburg
Vice President, Counsel and Secretary
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, Connecticut 06115
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on ____________ pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(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.
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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, 1996 on December 27, 1996.
================================================================================
<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; Investor
Account Services; 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
of Securities .......................... Not Applicable
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
Securities Being Offered ................ Net Asset Value; How to Buy Shares; Investor
Account Services; How to Redeem Shares
20. Tax Status ................................. Dividends, Distributions and Taxes
21. Underwriter .............................. The Distributor
22. Calculations of Performance Data ......... Performance Data
23. Financial Statements ..................... Financial Statements
</TABLE>
<PAGE>
[FRONT COVER]
P H O E N I X
FUNDS
Phoenix Multi-Sector Fixed Income Fund, Inc.
PROSPECTUS
OCTOBER 14, 1997
[LOGOTYPE] PHOENIX
DUFF & PHELPS
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
101 Munson Street
Greenfield, MA 01301
PROSPECTUS
October 14, 1997
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.
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 50% 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 October 14, 1997, 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: (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 ........................ 5
PERFORMANCE INFORMATION ..................... 6
INVESTMENT OBJECTIVE AND POLICIES ............ 6
INVESTMENT TECHNIQUES AND RELATED RISKS ...... 9
INVESTMENT RESTRICTIONS ..................... 13
PORTFOLIO TURNOVER ........................... 13
MANAGEMENT OF THE FUND ..................... 14
DISTRIBUTION PLANS ........................... 14
HOW TO BUY SHARES ........................... 16
INVESTOR ACCOUNT SERVICES .................. 19
NET ASSET VALUE .............................. 21
HOW TO REDEEM SHARES ........................ 21
DIVIDENDS, DISTRIBUTIONS AND TAXES ......... 22
ADDITIONAL INFORMATION ..................... 23
APPENDIX .................................... 24
</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 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.
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 an indirect subsidiary of Phoenix Home
Life Mutual Insurance Company. See "Management of the Fund" for a description
of the Investment Advisory Agreement and management fees.
Distributor and Distribution Plans
Phoenix Equity Planning Corporation ("Equity Planning" or "Distributor")
serves as national distributor of the Fund's shares. See "Distribution Plans"
and the Statement of Additional Information. Equity Planning also acts as
financial agent and as such receives a fee. See "The Financial Agent." Equity
Planning also serves as the Fund's transfer agent. See "The Custodian and
Transfer Agent."
The Fund has adopted distribution plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). 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 1997. Pursuant
to the distribution plan adopted for Class B Shares, Class C Shares and Class M
Shares, the Fund shall reimburse the Distributor up to a maximum annual rate of
1.00%, 1.00% and 0.50%, respectively, of the Fund's average daily net assets
for such class of shares for distribution expenditures incurred in connection
with the sale and promotion of each Class of Shares of the Fund and for
furnishing shareholder services. See "Distribution Plans."
Purchase of Shares
The Fund offers four 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" and "Class M Shares"), or (ii) on a contingent deferred basis
(the "Class B Shares" and "Class C Shares").
Class A and M 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
("State Street Bank") plus a sales charge. The maximum initial sales charge is
4.75% and 3.50%, respectively, of the offering price on single purchases of
less than $50,000. The sales charges are reduced on a graduated scale on single
purchases of $50,000 or more.
Class B and C Shares are offered to the public at the next determined net
asset value after receipt of an order by State Street Bank with no sales
charge. Class B Shares are subject to a sales charge if they are redeemed
within five years of purchase. Class C Shares redeemed within one year of
purchase are subject to a 1% sales charge.
Shares of each Class represent an identical interest in the investment
portfolio of a Fund and have the same rights. For more information on fees and
charges applicable for each Fund and Class, refer to "Fund Expenses" and
"Alternative Purchase Arrangements."
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.
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 of Shares
Class A and M Shares may be redeemed at any time at the net asset value
per share next computed after receipt of a redemption request by State Street
Bank and Trust Company. Class B and C shareholders redeeming shares within
certain time periods of the date of purchase will normally be assessed a
contingent deferred sales charge. See "How to Redeem Shares."
3
<PAGE>
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 50% 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."
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 period ended
April 30, 1997.
<TABLE>
<CAPTION>
Class A Class B Class C Class M
Shares Shares Shares (b) Shares (b)
----------- ----------------------------- --------------- -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.75% None None 3.50%
Maximum Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load (as a percentage of original purchase None 5% during the first 1% during the None
price or redemption proceeds, as applicable) year, decreasing 1% first year
annually to 2% during
the fourth and fifth years;
decreasing to 0% after
the fifth year
Redemption Fee None None None None
Exchange Fee None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets for the period
ended April 30, 1997)
Management Fees .55% .55% .55% .55%
12b-1 Fees (a) (after waiver) .25% 1.00% 1.00% .50%
Other Operating Expenses .23% .23% .23% .23%
------ ------- ----- ------
Total Fund Operating Expenses 1.03% 1.78% 1.78% 1.28%
====== ======= ===== ======
</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 1997.
(b) Prior to October 14, 1997, Class C and Class M Shares were not offered.
<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 $79 $102 $167
Class B Shares 58 76 96 190
Class C Shares 18 56 96 209
Class M Shares 48 74 103 184
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 $79 $102 $167
Class B Shares 18 56 96 190
Class C Shares 18 56 96 209
Class M Shares 48 74 103 184
</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. Class B Share figures
assume conversion to Class A shares after eight years. See "Management of the
Fund," "Distribution Plans," and "How to Buy Shares."
4
<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 (containing the report of Independent
Accountants and additional information relating to Fund 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
------------------------------------------
Year Ended October 31,
Six Months -------------------------
Ended
4/30/97
(Unaudited) 1996 1995
---------------- ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 13.27 $ 12.56 $ 11.94
Income from investment operations
Net investment income ........................ 0.49 0.94 0.96
Net realized and unrealized gain (loss) ...... 0.18 0.72 0.61
---------- -------- --------
Total from investment operations ............ 0.67 1.66 1.57
---------- -------- --------
Less distributions
Dividends from net investment income ......... (0.47) (0.95) (0.95)
Dividends in excess of net investment income -- -- --
Dividends from net realized gains ............ -- -- --
Tax return of capital ........................ -- -- --
---------- -------- --------
Total distributions ........................ (0.47) (0.95) (0.95)
---------- -------- --------
Change in net asset value ..................... 0.20 0.71 0.62
---------- -------- --------
Net asset value, end of period ............... $ 13.47 $ 13.27 $ 12.56
========== ======== ========
Total return(1) .............................. 5.12%(4) 13.75% 13.83%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 183,408 $169,664 $168,875
Ratio to average net assets of:
Operating expenses ........................... 1.03%(3) 1.07% 1.10%
Net investment income ........................ 7.36%(3) 7.56% 8.10%
Portfolio turnover ........................... 142%(4) 255% 201%
<CAPTION>
From
Inception
12/18/89 to
1994 1993 1992 1991 10/31/90
----------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 14.13 $ 13.29 $ 12.81 $ 11.11 $ 11.91
Income from investment operations
Net investment income ........................ 0.76 1.14 1.24 1.22(2) 1.01(2)
Net realized and unrealized gain (loss) ...... (1.35) 1.08 0.50 1.71 (.78)
---------- -------- -------- ----------- -----------
Total from investment operations ............ (0.59) 2.22 1.74 2.93 .23
---------- -------- -------- ----------- -----------
Less distributions
Dividends from net investment income ......... (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 ........................ (1.60) (1.38) (1.26) (1.23) (1.03)
---------- -------- -------- ----------- -----------
Change in net asset value ..................... (2.19) 0.84 0.48 1.70 0.80
---------- -------- -------- ----------- -----------
Net asset value, end of period ............... $ 11.94 $ 14.13 $ 13.29 $ 12.81 $ 11.11
========== ======== ======== =========== ===========
Total return(1) .............................. (4.57%) 17.55% 14.11% 27.56% 1.85%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $172,966 $176,859 $141,627 $ 68,139 $ 8,667
Ratio to average net assets of:
Operating expenses ........................... 1.13% 1.29% 1.48% 1.50% 1.20%
Net investment income ........................ 7.05% 8.27% 9.42% 10.13% 9.59%
Portfolio turnover ........................... 123% 207% 116% 180% 2%
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------
Six Months
Ended Year Ended October 31,
4/30/97 --------------------------------------------------
(Unaudited) 1996 1995 1994 1993
---------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 13.25 $ 12.54 $ 11.93 $ 14.10 $ 13.25
Income from investment operations
Net investment income ........................ 0.44 0.85 0.86 0.68 1.04
Net realized and unrealized gain (loss) ...... 0.19 0.71 0.61 (1.36) 1.08
---------- -------- -------- ---------- --------
Total from investment operations ............ 0.63 1.56 1.47 (0.68) 2.12
---------- -------- -------- ---------- --------
Less distributions
Dividends from net investment income ......... (0.43) (0.85) (0.86) (0.67) (1.08)
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 ........................ (0.43) (0.85) (0.86) (1.49) (1.27)
---------- -------- -------- ---------- --------
Change in net asset value ..................... 0.20 0.71 0.61 (2.17) 0.85
---------- -------- -------- ---------- --------
Net asset value, end of period ............... $ 13.45 $ 13.25 $ 12.54 $ 11.93 $ 14.10
========== ======== ======== ========== ========
Total return(1) .............................. 4.75%(4) 12.84% 12.96% (5.21%) 16.78%
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 150,513 $142,869 $144,020 $156,629 $193,064
Ratio to average net assets of:
Operating expenses ........................... 1.78%(3) 1.82% 1.85% 1.78% 1.99%
Net investment income ........................ 6.61%(3) 6.80% 7.30% 6.46% 7.36%
Portfolio turnover ........................... 142%(4) 255% 201% 123% 207%
<CAPTION>
From
Inception
1/3/92 to
10/31/92
-----------
<S> <C>
Net asset value, beginning of period ......... $ 13.02
Income from investment operations
Net investment income ........................ 0.94
Net realized and unrealized gain (loss) ...... 0.21
----------
Total from investment operations ............ 1.15
----------
Less distributions
Dividends from net investment income ......... (0.92)
Dividends in excess of net investment income --
Dividends from net realized gains ............ --
Tax return of capital ........................ --
----------
Total distributions ........................ (0.92)
----------
Change in net asset value ..................... 0.23
----------
Net asset value, end of period ............... $ 13.25
==========
Total return(1) .............................. 8.81%(4)
Ratios/supplemental data:
Net assets, end of period (thousands) ......... $ 82,522
Ratio to average net assets of:
Operating expenses ........................... 2.18%(3)
Net investment income ........................ 8.47%(3)
Portfolio turnover ........................... 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
5
<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
each Class of 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 each Class of
Shares will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in such Class of Shares over a period of 1,
5 and 10 years (or the life 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 and Class M Shares or the maximum contingent deferred sales charge applicable
to a complete redemption of the investment in the case of Class B and Class C
Shares, and assume that all dividends and distributions on each Class of Shares
are reinvested when paid. Performance data quoted for a Class of Shares
covering periods prior to the inception of such Class of Shares will reflect
historic performance of Class A Shares adjusted for the higher operating
expenses applicable to such Class of 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 Lehman
Brothers Aggregate Bond Index, Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500"), Dow Jones Industrial Average, Europe Australia Far East
Index (EAFE), Consumer Price Index, Lehman Brothers Corporate Index and Lehman
Brothers T-Bond Index. 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.
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, Lehman Brothers
Aggregate Bond Index, CS First Boston High Yield Index and Salomon Brothers
Corporate and Government Bond Indices.
Performance information for the Fund reflects only the performance of a
hypothetical investment in Class A, Class B, Class C or Class M 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 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
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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 ("Investment Grade Securities") by a nationally
recognized statistical rating organization ("NRSRO"); 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 50% 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 "Investment Techniques and Related Risks."
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.
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
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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 risk considerations of
investing in foreign securities, see "Investment Techniques and Related Risks."
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 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
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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 "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 50% 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 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,
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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 any asset, including equity
securities and non-investment grade debt so long as the asset is liquid,
unencumbered and marked to market daily 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 and unless
deemed liquid pursuant to procedures established by the Directors, they are
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.
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
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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 any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily, 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 50% 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 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
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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 Internal Revenue Code ("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 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. The economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange
12
<PAGE>
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. These economies also have been and may continue to be adversely affected
by economic conditions in the countries with which they trade.
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.
Changes in foreign exchange rates will affect the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar. Exchange rates are determined by forces of supply and demand in the
foreign exchange markets, and these forces are in turn affected by a range of
economic, political, financial, governmental and other factors. Exchange rate
fluctuations can affect the Fund's net asset value and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the short and long term.
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
"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 50% 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. 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's portfolio turnover rate
may be higher 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."
13
<PAGE>
MANAGEMENT OF THE FUND
The Fund is a mutual fund 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. 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 Strategic Equity Series Fund: Phoenix Equity Opportunities Fund,
and the Phoenix Worldwide Opportunities Fund. The Adviser currently has
approximately $1.6 billion in assets under management. The Adviser has acted as
an investment adviser for over sixty years.
As compensation for its services, the Adviser receives a fee, which is
accrued daily against the value of the Fund's net assets and is 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 ratio of management fees to average net assets for
the fiscal year ended October 31, 1996 for Class A and Class B Shares was .55%.
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 Diversified
Income Portfolio of the Phoenix Multi-Portfolio Fund, since April 1993. Mr.
Albrycht has also been the Portfolio Manager of Phoenix Multi-Sector Short Term
Bond Fund since August 1993. Mr. Albrycht is a Managing Director, Fixed Income,
of Phoenix Investment Counsel, Inc. and National. He has held various
investment management positions with Phoenix Home Life from 1989 through 1995.
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 for such services, Equity Planning is entitled to a fee, payable
monthly and based upon (a) the average of the aggregate daily net asset values
of the Fund, at the following incremental annual rates:
First $100 million .05%
$100 million to $300 million .04%
$300 million through $500 million .03%
Greater than $500 million .015%
(b) a minimum fee of $70,000; and (c) an annual fee of $12,000 for each class
of shares beyond one. For its services during the Fund's fiscal year ended
October 31, 1996, Equity Planning received $92,536 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 $19.25 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 Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") 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.
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. David R. Pepin, a director and officer
of Equity Planning, is an officer of the Fund. Michael E. Haylon, a director of
Equity Planning, is an officer of the Fund. G. Jeffrey Bohne, Nancy G. Curtiss,
William E. Keen, III, William R. Moyer, Leonard J. Saltiel, and Thomas N.
Steenburg are officers of the Fund and officers of Equity Planning.
14
<PAGE>
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," the "Class C Plan," the "Class M Plan" and collectively the
"Plans"). The Plans permit the Fund to reimburse the Distributor 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 Distributor monthly for actual expenses of the Distributor up to
0.30% annually of the average daily net assets of the Fund's Class A Shares.
However, the Distributor has voluntarily agreed to limit the maximum amount of
reimbursement under the Class A Plan for fiscal year 1997 to 0.25% annually of
the average daily net assets of the Fund's Class A Shares. Pursuant to the
Plans, the Fund may reimburse the Distributor monthly for actual expenses of
the Distributor up to 1.00% annually for the average daily net assets of the
Fund's Class B and C Shares and up to 0.50% annually for the average daily net
assets of the Fund's Class M 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 Distributor
for services rendered in connection with the sale and distribution of shares of
the Fund; (iv) payment of expenses incurred in sales and promotional activities
including advertising expenditures related to the Fund; (v) the costs of
preparing and distributing promotional materials; (vi) the 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 determine are reasonably calculated to result in the sale of shares
of the Fund; provided, however, that a portion of such fee, 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 Distributor expects to pay a
quarterly fee to qualifying broker-dealer firms, as compensation for providing
personal services and/or the maintenance of shareholder accounts, with respect
to shares sold by such firms. This fee will not exceed on an annual basis 0.25%
of the average annual net asset value of such shares, and will be in addition
to sales charges on Fund shares which are reallowed to such firms. To the
extent that the entire amount of the Service Fee is not paid to such firms, the
balance will serve as compensation for personal and account maintenance
services furnished by the Distributor. The Distributor also pays to dealers, as
additional compensation with respect to sales of Class C and M Shares, 0.75%
and 0.25% of the average annual net asset value of each class, respectively.
In order to receive payments under the Plans, participants must meet such
qualifications as are to be established in the sole discretion of the
Distributor, 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, Class C Plan and Class M Plan, however, do not limit the
reimbursement of distribution related expenses to expenses incurred in
specified time periods.
For the fiscal year ended October 31, 1996, the Fund paid the Distributor
$417,446 under the Class A Plan and $1,414,739 under the Class B Plan. The fees
were used to compensate broker-dealers for servicing shareholder's accounts,
including $53,850 paid to W.S. Griffith & Co., Inc., an affiliate, compensating
sales
15
<PAGE>
personnel and reimbursing the Distributor for commission expenses and expenses
related to preparation of the marketing material. On a quarterly basis, the
Fund's Directors review a report on expenditures under each Plan and the
purposes for which expenditures were made. The Directors conduct an additional
more extensive review annually in determining whether each Plan will be
continued. By its terms, continuation of each Plan from year to year is
contingent on annual approval by a majority of the Fund's Directors and by a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the
operation of either Plan or any related agreements (the "Plan Directors"). Each
Plan provides that it may not be amended to increase materially the costs which
the Fund may bear without approval of the applicable class of shareholders of
the Fund and that other material amendments must be approved by a majority of
the Plan Directors by vote cast in person at a meeting called for the purpose
of considering such amendments. Each Plan further provides that while it is in
effect, the selection and nomination of Directors who are not "interested
persons" shall be committed to the discretion of the Directors who are not
"interested persons." Each Plan may be terminated at any time by vote of a
majority of the Plan Directors or a majority of the applicable class of
outstanding shares of the Fund.
The Directors have concluded that there is a reasonable likelihood that
the Plans will benefit the Fund and all classes of shareholders. The Class A
Plan and the Class B Plan were approved by shareholders of the Fund at a
special meeting of shareholders held on May 7, 1993.
The NASD regards certain distribution fees as asset-based sales charges
subject to NASD sales load limits. The NASD's maximum sales charge rule may
require the Directors to suspend distribution fees or amend either or both
Plans.
HOW TO BUY SHARES
How do you invest?
You may open a fund account with an initial investment of $500. This
amount is reduced to $25 for investments made under the "Investo-Matic" plan
(see the Fund's Application), individual retirement accounts or under the
systematic exchange privilege described below. The initial investment
requirement is waived for investments made under pension, profit sharing or
employee benefit plans as well as in connection with reinvested dividends and
distributions.
You may make additional investments at any time with at least $25. The
subsequent investment minimum is waived for investments made under pension,
profit sharing or employee benefit plans as well as in connection with
reinvested dividends and distributions.
An application should be completed to open a new Phoenix Funds account. A
check for the amount you wish to invest, made payable to the "Phoenix Funds,"
(along with the completed application if opening a new account), must be sent
to: Phoenix Funds, c/o State Street Bank and Trust Company ("State Street
Bank"), P.O. Box 8301, Boston, MA 02266-8301. See the Statement of Additional
Information for more information regarding the reduction or elimination of the
minimum initial or subsequent investments. You may also write to the
Distributor at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-2200 or
call (800) 243-1574.
Shares are sold at the public offering price based on the net asset value
for the class of shares bought next determined after State Street Bank receives
your order. In most cases, in order to receive that day's public offering
price, State Street Bank must receive your order before the close of regular
trading on the New York Stock Exchange. See "Net Asset Value."
What are the classes and how do they differ?
The Fund presently offers investors four classes of shares which bear
sales and distribution charges in different amounts.
Class A Shares. If you buy Class A Shares, you will pay a sales charge at
the time of purchase equal to 4.75% of the offering price (4.99% of the amount
invested). The sales charge may be reduced or waived under certain conditions.
Class A Shares are not subject to any charges by the Fund when they are sold.
Class A Shares have lower Rule 12b-1 fees and pay higher dividends than any
other class.
Class B Shares. If you buy Class B Shares, you will not pay a sales charge
at the time of purchase. If you sell your Class B Shares within the first 5
years after they are bought, you will pay a sales charge of up to 5% of your
shares' value. See "Deferred Sales Charge Alternative--Class B Shares." This
charge declines each year to zero and may be waived under certain conditions.
Class B shares have higher Rule 12b-1 fees and pay lower dividends than Class A
and M Shares. Class B Shares automatically convert to Class A Shares eight
years after purchase. The Distributor intends to limit investments in Class B
Shares to: (a) $250,000 for any person; (b) $1 million for any unallocated
employer sponsored plan; and (c) $250,000 for each participant in any allocated
qualified employer sponsored plan, including 401(k) plans, provided such plan
uses an approved participant tracking system. 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, such entity has assets of over $10 million or
more than 200 participant employees. Class B Shares will not be sold to anyone
who is over 85 years old.
Class C Shares. If you buy Class C Shares, you will not pay a sales charge
at the time of purchase. If you sell your Class C Shares within the first year
after they are bought, you will pay a sales charge of 1% of your shares' value.
See "Deferred Sales Charge Alternative--Class C Shares." Class C Shares have
the same Rule 12b-1 fees and pay comparable dividends as Class B Shares. Class
C Shares do not convert to any other class of shares of the Fund. Class C
Shares are not currently offered for all Phoenix Funds.
Class M Shares. If you buy Class M Shares, you will pay a sales charge at
the time of purchase equal to 3.50% of the offering price (3.63% of the amount
invested). Class M Shares are not subject to any charges by the Fund when they
are sold.
16
<PAGE>
Class M Shares have lower Rule 12b-1 fees and pay higher dividends than Class B
and C Shares. Class M Shares do not convert to any other class of shares of the
Fund. Class M Shares are not currently offered for all Phoenix Funds.
What arrangement is best for you?
The alternative purchase arrangement permits you to choose the method of
buying shares that is most beneficial to you given the amount of the purchase,
the length of time you expect to hold the shares, whether you wish to receive
distributions in cash or to reinvest them in additional shares, and other
circumstances. You should consider whether, during the anticipated term of your
investment, the accumulated continuing distribution and service fees and
contingent deferred sales charges of one class would be more than the initial
sales charge and accumulated distribution and service fees of another class of
shares bought at the same time. See "Distribution Plans" and "Fund Expenses."
Initial Sales Charge Alternative--Class A and M Shares
The public offering price of Class A and M Shares is the net asset value
plus a sales charge that varies depending on the size of any "person's" (see
"How To Obtain Reduced Initial Sales Charges--Class A and M Shares: Combination
Purchase Privilege") purchase. Shares issued based on the automatic
reinvestment of income dividends or capital gains distributions are not subject
to any sales charges. The sales charge is divided between your investment
dealer and the Distributor as shown on the following tables.
Class A Shares
<TABLE>
<CAPTION>
Sales Charge as
a percentage of
-----------------------
Amount of Net Dealer Discount
Transaction Offering Amount Percentage of
at Offering Price Price Invested Offering Price
- - -------------------- ---------- ---------- ----------------
<S> <C> <C> <C>
Under $50,000 4.75% 4.99% 4.25%
$50,000 but under
$100,000 4.50 4.71 4.00
$100,000 but under
$250,000 3.50 3.63 3.00
$250,000 but under
$500,000 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>
Class M Shares
<TABLE>
<CAPTION>
Sales Charge as
a percentage of
-----------------------
Amount of Net Dealer Discount
Transaction Offering Amount Percentage of
at Offering Price Price Invested Offering Price
- - -------------------- ---------- ---------- ----------------
<S> <C> <C> <C>
Under $50,000 3.50% 3.63% 3.00%
$50,000 but under
$100,000 2.50 2.56 2.00
$100,000 but under
$250,000 1.50 1.52 1.00
$250,000 but under
$500,000 1.00 1.01 1.00
$500,000 or more None None None
</TABLE>
Deferred Sales Charge Alternative--
Class B and C Shares
Class B and C Shares are purchased without an initial sales charge;
however, shares sold within a specified time period are subject to a declining
contingent deferred sales charge (the "CDSC") at the rates set forth below. The
charge will be multiplied by the then current market value or the initial cost
of the Shares being redeemed, whichever is less. No sales charge will be
imposed on increases in net asset value. In addition, shares issued based on
the automatic reinvestment of income dividends or capital gains distributions
are not subject to any sales charges. To minimize the CDSC, shares not subject
to any charge will be redeemed first, followed by shares held the longest time.
The Distributor will add up all shares bought in any month and use the last day
of the preceding month in calculating the amount of shares owned and time
period held for Class B Shares. The trade date will be used for purposes of
aging Class C Share investments.
Deferred Sales charge you may pay to sell Class B Shares
Year 1 2 3 4 5 6+
- - ------ ---- ---- ---- ---- ---- ---
CDSC 5% 4% 3% 2% 2% 0%
Deferred Sales charge you may pay to sell Class C Shares
Year 1 2+
- - ------ ---- ---- ---- ---- ---- ---
CDSC 1% 0% -- -- -- --
Dealer Concessions
In addition to the dealer discount on purchases of Class A and M Shares,
the Distributor intends to pay investment dealers a sales commission of 4% of
the sale price of Class B Shares and a sales commission of 1% of the sale price
of Class C Shares sold by such dealers. Your broker, dealer or investment
adviser may also charge you additional commissions or fees for their services
in selling shares to you provided they notify the Distributor of their
intention to do so.
Dealers and other entities who enter into special arrangements with the
Distributor may receive compensation for the sale and promotion of shares of
the Fund and/or for providing other shareholder services. Depending on the
nature of the services, these fees may be paid either from the Fund through
distribution fees, service fees or transfer agent fees or, in some cases, the
Distributor may pay certain fees from its own profits and resources. From its
own profits and resources, the Distributor does intend to: (a) sponsor sales
contests, training and educational meetings and provide additional compensation
to qualifying dealers in the form of trips, merchandise or expense
reimbursements; (b) from time to time pay special incentive and retention fees
to qualified wholesalers, registered financial institutions and third party
marketers; (c) pay broker/dealers an amount equal to 1% of the first $3 million
of Class A Share purchases by an account held in the name of a qualified
employee benefit plan with at least 100 eligible employees, 0.50% on the next
$3 million, plus 0.25% on the amount in excess of $6 million; and (d) excluding
purchases as described in (c) above, pay
17
<PAGE>
broker/dealers an amount equal to 1% of the amount of Class A Shares sold above
$1 million but under $3 million, 0.50% on the next $3 million, plus 0.25% on
the amount in excess of $6 million. If part or all of such investment,
including investments by qualified employee benefit plans, is subsequently
redeemed within one year of the investment date, the broker-dealer will refund
to the Distributor such amounts paid with respect to the investment. In
addition, the Distributor may pay the entire applicable sales charge on
purchases of Class A Shares to selected dealers and agents. Any dealer who
receives more than 90% of a sales charge may be deemed to be an "underwriter"
under the Securities Act of 1933.
How To Obtain Reduced Initial Sales Charges--Class A and M Shares
Investors choosing Class A or M Shares may be entitled to reduced sales
charges. The five ways in which sales charges may be avoided or reduced are
described below.
Qualified Purchasers. If you fall within any one of the following
categories, you will not have to pay a sales charge on your purchase of Class A
or M Shares: (1) any Phoenix Fund trustee, director or officer; (2) any
director or officer, or any full-time employee or sales representative (for at
least 90 days), of the Adviser or Distributor; (3) registered representatives
and employees of securities dealers with whom Distributor has sales agreements;
(4) any qualified retirement plan exclusively for persons described above; (5)
any officer, director or employee of a corporate affiliate of the Adviser or
Distributor; (6) any spouse, child, parent, grandparent, brother or sister of
any person named in (1), (2), (3) or (5) above; (7) employee benefit plans for
employees of the Adviser, Distributor and/or their corporate affiliates; (8)
any employee or agent who retires from Phoenix Home Life, Distributor and/ or
their corporate affiliates; (9) any account held in the name of a qualified
employee benefit plan, endowment fund or foundation if, on the date of the
initial investment, the plan, fund or foundation has assets of $10,000,000 or
more or at least 100 eligible employees; (10) any person with a direct rollover
transfer of shares from an established Phoenix Fund qualified plan; (11) any
Phoenix Home Life separate account which funds group annuity contracts offered
to qualified employee benefit plans; (12) any state, county, city, department,
authority or similar agency prohibited by law from paying a sales charge; (13)
any fully matriculated student in any U.S. service academy; (14) any
unallocated account held by a third party administrator, registered investment
adviser, 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; (16) any deferred compensation plan established for the benefit of
any Phoenix Fund trustee or director; 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; (17) purchasers of Class A or M
Shares bought through investment advisors and financial planners who charge an
advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients; (18) retirement plans and
deferred compensation plans and trusts used to fund those plans (including, for
example, plans qualified or created under sections 401(a), 403(b) or 457 of the
Internal Revenue Code), and "rabbi trusts" that buy shares for their own
accounts, in each case if those purchases are made through a broker or agent or
other financial intermediary that has made special arrangements with the
Distributor for such purchases; or (19) clients of investment advisors or
financial planners who buy shares for their own accounts but only if their
accounts are linked to a master account of their investment advisor or
financial planner on the books and records of the broker, agent or financial
intermediary with which the Distributor has made such special arrangements
(each of the investors described in (17) through (19) may be charged a fee by
the broker, agent or financial intermediary for purchasing shares).
Combination Purchase Privilege. Your purchase of any class of shares of
this or any other Phoenix Fund (other than Phoenix Money Market Fund Series
Class A Shares), if made at the same time by the same "person," will be added
together to determine whether the combined sum entitles you to an immediate
reduction in sales charges. A "person" is defined in this and the following
sections as (a) any individual, their spouse and minor children purchasing
shares for his or their own account (including an IRA account) including his or
their own trust; (b) a trustee or other fiduciary purchasing for a single
trust, estate or single fiduciary account (even though more than one
beneficiary may exist); (c) multiple employer trusts or Section 403(b) plans
for the same employer; (d) multiple accounts (up to 200) under a qualified
employee benefit plan or administered by a third party administrator; or (e)
trust companies, bank trust departments, registered investment advisers, and
similar entities placing orders or providing administrative services with
respect to funds over which they exercise discretionary investment authority
and which are held in a fiduciary, agency, custodial or similar capacity,
provided all shares are held of record in the name, or nominee name, of the
entity placing the order.
Letter of Intent. If you sign a Letter of Intent, your purchase of any
class of shares of this or any other Phoenix Fund (other than Phoenix Money
Market Fund Series Class A Shares), if made by the same person within a
thirteen month period, will be added together to determine whether you are
entitled to an immediate reduction in sales charges. Sales charges are reduced
based on the overall amount you indicate that you will buy under the Letter of
Intent. The Letter of Intent is a mutually non-binding arrangement between you
and the Distributor. Since the Distributor doesn't know whether you will
ultimately fulfill the Letter of Intent, shares worth 5% of the amount of each
purchase will be set aside until you fulfill
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the Letter of Intent. When you buy enough shares to fulfill the Letter of
Intent, these shares will no longer be restricted. If, on the other hand, you
do not satisfy the Letter of Intent, or otherwise wish to sell any restricted
shares, you will be given the choice of either buying enough shares to fulfill
the Letter of Intent or paying the difference between any sales charge you
previously paid and the otherwise applicable sales charge based on the intended
aggregate purchases described in the Letter of Intent. You will be given 20
days to make this decision. If you do not exercise either election, the
Distributor will automatically redeem the number of your restricted shares
needed to make up the deficiency in sales charges received. The Distributor
will redeem restricted Class A or M Shares before Class C or B Shares,
respectively. Oldest shares will be redeemed before selling newer shares. Any
remaining shares will then be deposited to your account.
Right of Accumulation. Your purchase of any class of shares of this or any
other Phoenix Fund, if made over time by the same person may be added together
to determine whether the combined sum entitles you to a prospective reduction
in sales charges. You must provide certain account information to the
Distributor to exercise this right.
Associations. Certain groups or associations may be treated as a "person"
and qualify for reduced Class A Share sales charges. The group or association
must: (1) have been in existence for at least six months; (2) have a legitimate
purpose other than to purchase mutual fund shares at a reduced sales charge;
(3) work through an investment dealer; or (4) not be a group whose sole reason
for existing is to consist of members who are credit card holders of a
particular company, policyholders of an insurance company, customers of a bank
or a broker-dealer or clients of an investment adviser.
How To Obtain Reduced Deferred Sales Charges--
Class B and C Shares
The CDSC is waived on the redemption (sale) of Class B and C Shares if the
redemption is made (a) within one year of death (i) of the sole shareholder on
an individual account, (ii) of a joint tenant where the surviving joint tenant
is the deceased's spouse, or (iii) of the beneficiary of a Uniform Gifts to
Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial
account; (b) within one year of disability, as defined in Code Section
72(m)(7); (c) as a mandatory distribution upon reaching age 701/2 under any
retirement plan qualified under Code Sections 401, 408 or 403(b) or resulting
from the tax-free return of an excess contribution to an IRA; (d) by 401(k)
plans using an approved participant tracking system for participant hardships,
death, disability or normal retirement, and loans which are subsequently
repaid; (e) based on the exercise of exchange privileges among Class B and C
Shares of this or any other Phoenix Fund; (f) based on any direct rollover
transfer of shares from an established Phoenix Fund qualified plan into a
Phoenix Fund IRA by participants terminating from the qualified plan; and (g)
based on the systematic withdrawal program (Class B Shares only). If, as
described in condition (a) above, an account is transferred to an account
registered in the name of a deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year of the death. If
the Class B or C Shares are not redeemed within one year of the death, they
will remain subject to the applicable CDSC.
Conversion Feature--Class B Shares
Class B Shares will automatically convert to Class A Shares of the same
Fund eight years after they are bought. Conversion will be on the basis of the
then prevailing net asset value of Class A and B Shares. There is no sales
load, fee or other charge for this feature. Class B Shares acquired through
dividend or distribution reinvestments will be converted into Class A Shares at
the same time that other Class B Shares are converted based on the proportion
that the reinvested shares bear to purchased Class B Shares. The conversion
feature is subject to the continuing availability of an opinion of counsel or a
ruling of the Internal Revenue Service that the assessment of the higher
distribution fees and associated costs with respect to Class B Shares does not
result in any dividends or distributions constituting "preferential dividends"
under the Code, and that the conversion of shares does not constitute a taxable
event under federal income tax law. If the conversion feature is suspended,
Class B Shares would continue to be subject to the higher distribution fee for
an indefinite period. Even if the Fund was unable to obtain such assurances, it
might continue to make distributions if doing so would assist in complying with
its general practice of distributing sufficient income to reduce or eliminate
federal taxes otherwise payable by the Fund.
INVESTOR ACCOUNT SERVICES
The Fund mails periodic statements and reports to shareholders. In order
to reduce the volume and cost of mailings, 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 toll free at (800)
243-4361.
In most cases, changes to any shareholder account may be accomplished by
calling Shareholder Services at (800) 243-1574. More information relating to
the shareholder account services can be found in the Fund's Statement of
Additional Information ("SAI").
Bank Draft Investing Program (Investo-Matic Plan). By completing the
Investo-Matic Section of the New Account Application, you may authorize the
bank named in the form to draw $25 or more from your personal checking or
savings account to be used to purchase additional shares for your account. The
amount you designate will be made available, in form payable to the order of
the Transfer Agent, by the bank on the date the bank draws on your account and
will be used to purchase shares at the applicable offering price.
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 your option, in cash. By exercising the distribution option,
you may elect to: (1) receive both dividends and capital gain
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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 you elect to receive dividends and/or
distributions in cash and the check cannot be delivered or remains uncashed 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 in your account at the then current net
asset value. Dividends and capital gain distributions received in shares are
taxable to you and credited to your account in full and fractional shares
computed at the closing net asset value on the next business day after the
record date. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Systematic Withdrawal Program. The Systematic Withdrawal Program allows
you to periodically redeem a portion of your account on a predetermined
monthly, quarterly, semiannual or annual basis. A sufficient number of full and
fractional shares will be redeemed so that the designated payment is made on or
about the 20th day of the month. Shares are tendered for redemption by the
Transfer Agent, as agent for the shareowner, on or about the 15th of the month
at the closing net asset value on the date of redemption. The Systematic
Withdrawal Program also provides for redemptions to be tendered on or about the
10th, 15th or 25th of the month with proceeds to be directed through Automated
Clearing House (ACH) to your bank account. In addition to the limitations
stated below, withdrawals may not be less than $25 and minimum account balance
requirements shall continue to apply.
Shareholders participating in the Systematic Withdrawal Program must own
shares of a Fund worth $5,000 or more, as determined by the then current net
asset value per share, and elect to have all dividends reinvested. Participants
in the Program redeeming Class C Shares will be subject to any applicable
contingent deferred sales charge. The purchase of shares while participating in
the withdrawal program will ordinarily be disadvantageous to the Class A or M
Shares investor since a sales charge will be paid by the investor on the
purchase of Class A or M Shares at the same time as other shares are being
redeemed. For this reason, investors in Class A or M Shares may not participate
in an automatic investment program while participating in the Systematic
Withdrawal Program.
Through the Program, Class B shareholders may withdraw up to 1% of their
aggregate net investments (purchases, at initial value, to date net of
non-Program redemptions) each month or up to 3% of their aggregate net
investments each quarter without incurring otherwise applicable contingent
deferred sales charges. Class B shareholders redeeming more shares than the
percentage permitted by the withdrawal program will be subject to any
applicable contingent deferred sales charge on all shares redeemed.
Accordingly, the purchase of Class B Shares will generally not be suitable for
an investor who anticipates withdrawing sums in excess of the above limits
shortly after 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, SIMPLE IRA, SIMPLE 401(k), Profit-Sharing and Money
Purchase Pension Plans which can be adopted by self-employed persons ("Keogh")
and by corporations and 403(b) Retirement Plans. Write or call Equity Planning
at (800) 243-4631 for further information about the plans.
Exchange Privileges
You may exchange shares of one Phoenix Fund for shares of another Phoenix
Fund without paying any fees or sales charges. On exchanges with share classes
that carry a contingent deferred sales charge, the CDSC schedule of the
original shares purchased continues to apply. Exchanges of shares held in
book-entry form may be exchanged for shares of the same class of other Phoenix
Funds, provided the following conditions are met: (1) the shares that will be
acquired in the exchange (the "Acquired Shares") are available for sale; (2)
the Acquired Shares are the same class as the shares to be surrendered (the
"Exchanged Shares"); (3) the Acquired Shares will be registered to the same
shareholder account as the 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 Phoenix Fund after the exchange is made; and
(5) if you have elected not to use the telephone exchange privilege (see
below), a properly executed exchange request must be received by the
Distributor. Exchanges may be made over the telephone or in writing and may be
made at one time or systematically over a period of time. Note, each Phoenix
Fund has different investment objectives and policies. You should read the
prospectus of the Phoenix Fund into which the exchange is to be made before
making any exchanges. This privilege may be modified or terminated at any time
on 60 days' notice.
Market Timer Restrictions. Because excessive trading can hurt Fund
performance and harm shareholders, the Fund reserves the right to temporarily
or permanently terminate exchange privileges or reject any specific order from
anyone whose transactions seem to follow a timing pattern, including those who
request more than one exchange out of a fund within any 30 day period. The
Distributor has entered into agreements with certain market timer entities
permitting them to exchange their clients' shares by telephone. These
privileges are limited under those agreements. The Distributor has the right to
reject or suspend these privileges upon reasonable notice.
Telephone Exchanges. If permitted in your state and unless you waive this
privilege in writing, you or your broker may sell or exchange your shares over
the phone by calling the Distributor at (800) 243-1574. Reasonable procedures
will be used to confirm that telephone instructions are genuine. In addition to
requiring that the exchange is only made between accounts with identical
registrations, the Distributor may require address or other forms of
identification and will record telephone instructions. All exchanges will be
confirmed in writing to you. If procedures reasonably designed to prevent
unauthorized telephone exchanges are not followed, the Fund and/or
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Distributor may be liable for following telephone instructions that prove to be
fraudulent. Broker/dealers other than the Distributor assume the risk of any
loss resulting from any unauthorized telephone exchange instructions from their
firm or their registered representatives. You assume the risk if the
Distributor acts upon unauthorized instructions it reasonably believes to be
genuine. During times of severe economic or market changes, this privilege may
be difficult to exercise or may be temporarily suspended. In such event, an
exchange may be effected by written request by the registered shareowner(s).
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The net asset value per share of the Fund is
determined by adding the values of all securities and other assets of the Fund,
subtracting liabilities, and dividing by the total number of outstanding shares
of the Fund. The total liability allocated to a class, plus that class's
distribution fee and any other expenses allocated solely to that class, are
deducted from the proportionate interest of such class in the assets of the
Fund, and the resulting amount of each is divided by the number of shares of
that class outstanding to produce the net asset value per share.
The Fund's investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by the
Directors or their delegates. Foreign and domestic fixed income securities
(other than short-term investments) are valued on the basis of broker
quotations or valuations provided by a pricing service approved by the
Directors when such prices are believed to reflect the fair value of such
securities. Short-term investments having a remaining maturity of less than
sixty-one days are valued at amortized cost, which the Directors have
determined approximates market value. Foreign and domestic equity securities
are valued at the last sale price or, if there has been no sale that day, at
the last bid price, generally. For further information about security
valuations, see the Statement of Additional Information.
HOW TO REDEEM SHARES
You have the right to have the Fund buy back shares at the net asset value
next determined after receipt of a redemption order, 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. In the case of a Class B or C
Share redemption, you will be subject to the applicable deferred sales charge,
if any, for such shares (see "Deferred Sales Charge Alternative--Class B and C
Shares," above). Subject to certain restrictions, shares may be redeemed by
telephone or in writing. In addition, shares may be sold through securities
dealers, brokers or agents who may charge customary commissions or fees for
their services. The Fund does not charge any redemption fees. Payment for
shares redeemed is made within seven days, provided that redemption proceeds
will not be disbursed until each check used for purchases of shares has been
cleared for payment by your bank, which may take up to 15 days after receipt of
the check.
The requirements to redeem shares are outlined in the table below.
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.
How can I sell my Shares?
[phone symbol]
By Phone [bullet] Sales up to $50,000
[bullet] Not available on most retirement accounts
(800) 243-1574 [bullet] Requests received after 4PM will be executed
on the following business day
[check symbol]
By Check [bullet] Select checkwriting on your New Account
Application
[bullet] $500 or more per check
[bullet] Cannot be used to close an account
[writing symbol]
In Writing [bullet] Letter of instruction from the registered owner
including the fund and account number and
the number of shares or dollar amount you
wish to sell
[bullet] No signature guarantee is required if your
shares are registered individually, jointly,
or as custodian under the Uniform Gifts to
Minors Act or Uniform Transfers to Minors
Act, the proceeds of the redemption do not
exceed $50,000, and the proceeds are payable
to the registered owner(s) at the address of
record
Shares previously issued in certificate form cannot be redeemed until the
certificated shares have been deposited to your account.
Telephone Redemptions
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, telephone redemption instructions will be
recorded on tape, and all redemptions will be confirmed in writing to you. 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, you would bear the risk of
loss resulting from instructions entered by an unauthorized third party that
the Fund and/or the Transfer Agent reasonably believe to be genuine. The
Telephone Redemption Privilege may be modified or terminated at any time on 60
days' notice to shareholders. In addition, during
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times of drastic economic or market changes, the Telephone Redemption Privilege
may be difficult to exercise or may be temporarily suspended. In such event, a
redemption may be effected by written request by following the procedure
outlined above.
Written Redemptions
If you elect not to use the telephone redemption or telephone exchange
privileges, you must submit your request in writing. If the shares are being
exchanged between accounts that are not identically registered, the signature
on such request must be guaranteed by an eligible guarantor institution as
defined by the Transfer Agent in accordance with its signature guarantee
procedures. Currently, such procedures generally permit guarantees by banks,
broker dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
Account Reinstatement Privilege
You have a one time privilege of using redemption proceeds from Class A
and B Shares to purchase Class A Shares of any Phoenix Fund with no sales
charge (at net asset value next determined after the request for reinvestment
is made). In the case of Class C and M Shares, you have a one time privilege of
using redemption proceeds to purchase Class C or M Shares, respectively, of any
Phoenix Fund offering Class C and M Shares. 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 to
reinstate your account must be received by the Transfer Agent within 180 days
of the redemption, accompanied by payment for the shares (not in excess of the
redemption value). Class B shareholders who have had the contingent deferred
sales charge waived through participation in the Systematic Withdrawal Program
are not eligible to use the Reinstatement Privilege.
Redemption of Small Accounts
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account has a value, due to redemptions, of less than $200. Before the
Fund redeems these shares, the shareholder will be given notice that the value
of the shares in the account is less than the minimum amount and will be
allowed 30 days to make an additional investment in an amount which will
increase the value of the account to at least $200.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to qualify annually as a regulated investment
company under Subchapter M of the Code and to distribute annually to
shareholders all or substantially all of its net investment income and net
realized capital gains, after utilization of any capital loss carryovers. If
the Fund so qualifies, it generally will not be subject to Federal income tax
on the income it distributes.
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 and 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
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. 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
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<PAGE>
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 shareholders, within 31 days after the end of the
calendar year, information which is required by the Internal Revenue Service
for preparing Federal income tax returns. 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 Fund was organized as a corporation under the laws of the State of
Maryland on September 20, 1989. On December 23, 1993 shareholders 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 the Fund's
Adviser 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."
The Articles of Incorporation, as amended, provide for the issuance of up
to 500,000,000 Shares. The Fund's Shares are divided equally among four
classes, each consisting of 125,000,000 Shares. The Fund issues Class A, Class
B, Class C and Class M 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 does not contain all the information included in the
Fund's 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.
23
<PAGE>
APPENDIX
Description of Certain 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 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.
24
<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:
Account Type Give Social Security Number or Tax Identification Number of:
<TABLE>
<S> <C>
Individual Individual
Joint (or Joint Tenant) Owner who will be paying tax
Uniform Gifts to Minors Minor
Legal Guardian Ward, Minor or Incompetent
Sole Proprietor Owner of Business (also provide owner's name)
Trust, Estate, Pension Plan Trust Trust, Estate, Pension Plan Trust (not personal TIN of fiduciary)
Corporation, Partnership,
Other Organization Corporation, Partnership, Other Organization
Broker/Nominee Broker/Nominee
</TABLE>
Step 2. If you do not have a TIN, you must obtain Form SS-5 (Application for
Social Security Number) or Form SS-4 (Application for Employer
Identification Number) from your local Social Security or IRS office and
apply for one. Write "Applied For" in the space on the application.
Step 3. If you are one of the entities listed below, you are exempt from backup
withholding.
[bullet] A corporation
[bullet] Financial institution
[bullet] Section 501(a) exempt organization (IRA, Corporate Retirement
Plan, 403(b), Keogh)
[bullet] United States or any agency or instrumentality thereof
[bullet] A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof
[bullet] International organization or any agency or instrumentality
thereof
[bullet] Registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
[bullet] Real estate investment trust
[bullet] Common trust fund operated by a bank under section 584(a)
[bullet] An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1)
[bullet] Regulated Investment Company
If you are in doubt as to whether you are exempt, please contact the Internal
Revenue Service.
Step 4. IRS Penalties--If you do not supply us with your TIN, you will be
subject to an IRS $50 penalty unless your failure is due to reasonable
cause and not willful neglect. If you fail to report interest, dividend
or patronage dividend income on your federal income tax return, you will
be treated as negligent and subject to an IRS 5% penalty tax on any
resulting underpayment of tax unless there is clear and convincing
evidence to the contrary. If you falsify information on this form or make
any other false statement resulting in no backup withholding on an
account which should be subject to a backup withholding, you may be
subject to an IRS $500 penalty and certain criminal penalties including
fines and imprisonment.
- - -----------
This Prospectus sets forth concisely the information about the Phoenix
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 October 14, 1997. The Statement
contains more detailed information about the Fund and is incorporated into this
Prospectus by reference. You may obtain a free copy of the Statement by writing
the Fund c/o Phoenix Equity Planning Corporation, 100 Bright Meadow, P.O. Box
2200, Enfield, Connecticut 06083-2200.
Financial information relating to the Fund is contained in the Semiannual
Report to Shareholders for the period ended April 30, 1997 and is incorporated
into the Statement of Additional Information by reference.
[recycle symbol] Printed on recycled paper using soybean ink
<PAGE>
[BACK COVER]
Phoenix Multi-Sector Fixed Income Fund, Inc. [BULK RATE MAIL
PO Box 2200 U.S. POSTAGE
Enfield CT 06083-2200 PAID
SPRINGFIELD, MA
PERMIT NO. 444]
[LOGOTYPE] PHOENIX
DUFF & PHELPS
PDP 695 (10/97)
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
101 Munson Street
Greenfield, Massachusetts 01301
Statement of Additional Information
October 14, 1997
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 October 14,
1997 and should be read in conjunction with it. The Fund's Prospectus may be
obtained by calling Phoenix Equity Planning Corporation ("Equity Planning") at
(800) 243-4361 or by writing to 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 (6) .................................. 1
INVESTMENT RESTRICTIONS (13) ........................................... 1
INVESTMENT TECHNIQUES (9) .............................................. 2
PERFORMANCE INFORMATION (6) ........................................... 7
PORTFOLIO TRANSACTIONS AND BROKERAGE .................................. 8
SERVICES OF THE ADVISER (14) ........................................... 9
NET ASSET VALUE (21) ................................................. 10
HOW TO BUY SHARES (16) ................................................. 10
INVESTOR ACCOUNT SERVICES (19) ........................................ 11
TAX SHELTERED RETIREMENT PLANS (20) .................................. 12
REDEMPTION OF SHARES (21) .............................................. 12
DIVIDENDS, DISTRIBUTIONS AND TAXES (22) ............................... 13
THE DISTRIBUTOR (14) ................................................. 15
PLANS OF DISTRIBUTION (14) ........................................... 16
DIRECTORS AND OFFICERS ................................................. 17
OTHER INFORMATION .................................................... 24
</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: (800) 367-5877
TTY: (800) 243-1926
PDP 695B (10/97)
<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.
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.
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 50% of its assets, determined at the
time of purchase, in High Yield-High Risk Securities.
1
<PAGE>
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.
INVESTMENT TECHNIQUES
The Fund may utilize the following practices or techniques in pursuing its
investment objectives.
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 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 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
increase in the price of securities it intends to purchase or to purchase a put
option to hedge its portfolio against an anticipated decline in securities
prices. No more than 5% of the assets of the Fund may be invested in the
purchase of put and call options, including index options.
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.
2
<PAGE>
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 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 any asset, including equity securities
and non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily, in a pledged 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
3
<PAGE>
British pounds, German deutsche marks, Canadian dollars, Japanese yen, French
francs, Swiss francs, and European Currency Units (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.
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
4
<PAGE>
in or currently convertible into that currency. If the Fund enters into a
position hedging transaction, it will place in a pledged account with its
custodian any asset, including equity securities and non-investment grade debt
so long as the asset is liquid, unencumbered and marked to market daily, equal
to the value of the total assets the Fund committed to the consummation of the
forward contract. If the value of the securities placed in the pledged 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.
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 when the
U.S. options markets are closed and therefore may not be reflected in the U.S.
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 any asset, including equity securities and non-investment grade debt so
long as the asset is liquid, unencumbered and marked to market daily, having a
value equal to the market value of the contract as collateral in a pledged
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.
5
<PAGE>
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.
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. Illiquid securities are those that the Fund would not likely be
able to sell in any given seven day period. Securities such as private
placements and other restricted securities, loan participations, securities
with legal or contractual restrictions on resale, repurchase agreements that
mature in more than seven days and OTC options tend to be illiquid. The Board
of Directors of the Fund has adopted procedures for evaluating the liquidity of
securities. The procedures take into account the frequency of trades and quotes
for the security, the number of dealers willing to purchase and sell the
security and the number of other, qualified purchasers, dealer undertakings to
make a market in the security, and the nature of the marketplace for effecting
trades (i.e. the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
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<PAGE>
Liquidity issues arise most frequently in two cases. "Rule 144A"
securities and OTC options.
"Rule 144A" securities are restricted securities (those not originally
issued in a public offering) that generally may not be traded. Pursuant to Rule
144A under the Securities Act of 1933, however, these securities can be readily
bought and sold by and among certain types of institutional investors,
including mutual funds. The liquidity procedures adopted by the Fund's Board of
Directors recognize the significance of Rule 144A and the institutional
marketplace it has produced for restricted securities.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets that "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).
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 each Class of
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, 1996, the
Class A Shares yield, calculated pursuant to this formula was 6.58%. The Class
B Shares yield was 6.16% 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).
Performance data quoted for a Class of Shares covering periods prior to
the inception of such Class of Shares will reflect historical performance of
Class A shares adjusted for the higher operating expenses applicable to such
Class of Shares.
Advertisements, sales literature and other communications may contain
information about the Fund and Adviser's current investment strategies and
management style. Current strategies and style may change to allow the Fund to
respond quickly to changing market and economic conditions. From time to time
the Fund may include specific portfolio holdings or industries, in such
communications. To illustrate components of overall performance, the Fund may
separate its cumulative and average annual returns into income and capital
gains components; or cite separately as a return figure the equity or bond
portion of the Fund's portfolio; or compare the Fund's equity or bond figures
to well-known indices of market performance, including, but not limited to: the
S&P 500 Index, Dow Jones Industrial Average, Lehman Brothers Aggregate Bond
Index, CS First Boston High Yield Index and Salomon Brothers Corporate Bond and
Government Bond Indices.
For the 1 and 5 year periods ended October 31, 1996, the average annual
total return of the Class A was 8.31%, 9.56%, and from inception, December 18,
1989, through October 31, 1996 was 11.01%. For the one year ended October 31,
1996 and since inception, January 3, 1992, for Class B shares, the average
annual total return was 7.84%, and 8.98%, respectively.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Class A, Class B, Class C or Class M account with an
assumed initial investment of $10,000. The aggregate return is determined by
dividing the net asset value of this account at the end of the specified period
by the value of the initial investment and is expressed as a percentage.
Calculation of aggregate total return reflects payment of the Class A and Class
M maximum sales charges of 4.75% and 3.50%, respectively, and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
7
<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 are 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. 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 are 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 attitudes
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 executions are
available elsewhere. In the over-the-counter market, securities are usually
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
contains a profit to the dealer. The Fund also expects that securities will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, usually referred to as the underwriter's concession or
discount. 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.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to
lower commission costs on a per-share and per-dollar basis. According to the
bunching procedures, the Adviser shall aggregate transactions unless it
believes in its sole discretion that such aggregation is inconsistent with its
duty to seek best execution (which shall include the duty to seek best price)
for the Fund. No advisory account of the Adviser is to be favored over any
other account and each account that participates in an aggregated order is
expected to participate at the average share price for all transactions of the
Adviser in that security on a given business day, with all transaction costs
shared pro rata based on the Fund's participation in the transaction. If the
aggregated order is filled in its entirety, it shall be allocated among the
Adviser's accounts in accordance with the allocation order, and if the order is
partially filled, it shall be allocated pro rata based on the allocation order.
Notwithstanding the foregoing, the order may be allocated on a basis different
from that specified in the allocation order if all accounts of the Adviser
whose orders are allocated receive fair and equitable treatment and the reason
for such different allocation is explained in writing and is approved in
writing by the Adviser's compliance officer as soon as practicable after the
opening of the markets on the trading day following the day on which the order
is executed. If an aggregated order is partially filled and allocated on a
basis different from that specified in the allocation order, no account that is
benefited by such different allocation may intentionally and knowingly effect
any purchase or sale for a reasonable period following the execution of the
aggregated order that would result in it receiving or selling more shares than
the amount of shares it would have received or sold had the aggregated order
been completely filled. The Directors will annually review these procedures or
as frequently as shall appear appropriate.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm,
with broadest coverage generally from the large full-line firms. Smaller firms
in general tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor
federal, state, local and foreign political developments. Many of the brokers
also provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the
Adviser's staff can follow. In addition, it provides the Adviser with a diverse
perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and is available
for the benefit of other accounts advised by the Adviser and its affiliates and
not all of this information will be used in connection with the Fund. While
this information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value and in the opinion
of the Adviser it does not reduce the Adviser's expenses in a determinable
amount. The extent to which the Adviser makes use of statistical, research and
other services furnished by brokers is considered by the Adviser in the
allocation of brokerage business but there is no formula by which such business
is allocated. The Adviser does so in accordance with its judgment of the best
interest of the Fund and its shareholders.
8
<PAGE>
During the fiscal years ended October 31, 1994, 1995, and 1996 brokerage
commissions paid by the Fund totaled $0, $0, and $0, respectively.
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; outside legal and auditing services; regulatory filing
fees and expenses of printing the Fund's registration statements (but the
Distributor purchases such copies of the Fund's prospectuses and reports and
communications to shareholders as it may require for sales purposes); insurance
expense; association membership dues; brokerage fees; and taxes.
The Adviser is a subsidiary of Phoenix Duff & Phelps Corporation whose
majority shareholder is Phoenix Home Life Mutual Insurance Company ("Phoenix
Home Life"). Phoenix Home Life's principal place of business is located at One
American Row, Hartford, Connecticut. The Adviser also serves as investment
adviser to Phoenix Worldwide Opportunities Fund, Phoenix Multi-Sector Short
Term Bond Fund, Phoenix California Tax Exempt Bonds, Inc., Phoenix Income and
Growth Fund, and Phoenix Strategic Equity Series Fund: Phoenix Equity
Opportunities Fund. The Adviser currently has approximately $1.6 billion in
assets under management and has acted as an 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 it will continue in
effect until lapsed or terminated. The Management Agreement will continue in
effect from year to year if specifically approved annually by a majority of the
Directors who are not interested persons of the parties thereto, as defined in
the 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.
As compensation for its services, the Adviser receives a fee, which is
accrued daily against the value of the Fund's average daily net assets and is
paid by the Fund monthly. The fee is computed at the annual rate of .55% of the
Fund's average daily net assets of up to $1 billion, .50% of the Fund's average
daily net assets from $1 billion to $2 billion, and .45% of the Fund's average
daily net assets in excess of $2 billion. Total management fees for the fiscal
years ended October 31, 1994, 1995, and 1996 amounted to $2,162,069,
$1,692,191, and $1,696,487 respectively.
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 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 Distributor purchases), accounting services fees, insurance
expenses, litigation 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.
The Adviser has agreed, under the terms of the Management Agreement, to
reimburse the Fund to the extent that, in any fiscal year, aggregate annual
expenses of the Fund, exclusive of payments made pursuant to a Rule 12b-1
distribution plan, taxes, brokerage fees, interest, and extraordinary charges
such as litigation costs, exceed the most restrictive expense limitations
imposed by any state in which the Fund's shares are qualified for sale.
Currently, the most restrictive expense limitations applicable to the Fund,
which provides that aggregate annual expenses of an investment company (which
excludes interest, taxes, certain annual distribution plan expenses, litigation
costs, and capital items such as brokerage costs) shall not exceed 2.5% of the
first $30,000,000 of the Fund's average net assets, 2% of the next $70,000,000
of the Fund's average net assets, and 1.5% of the remaining average net assets
of the Fund for any fiscal year. To the extent that the Fund's expenses exceed
this limitation, the Adviser would be required to reduce or rebate its
management fee. The Adviser would not be required to absorb any other Fund
expenses in excess of its fees. In the event legislation were to be adopted in
each state so as to eliminate this restriction, the Fund would take such action
necessary to eliminate this expense limitation. See the "Fund Expenses" table
in the Fund's current Prospectus for further information.
9
<PAGE>
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
regular trading of the New York Stock Exchange (the "Exchange") on days when
the Exchange is open for trading. The Exchange will be closed on the following
observed national holidays: New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Since the Fund does not price securities on weekends or
United States national holidays, the net asset value of the Fund's foreign
assets may be significantly affected on days when the investor has no access to
the Fund. The net asset value per share of the Fund is determined by adding the
values of all securities and other assets of the Fund, subtracting liabilities,
and dividing by the total number of outstanding shares of the Fund. Assets and
liabilities are determined in accordance with generally accepted accounting
principles and applicable rules and regulations of the Securities and Exchange
Commission. The total liability allocated to a class, plus that class's
distribution fee and any other expenses allocated solely to that class, are
deducted from the proportionate interest of such class in the assets of the
Fund, and the resulting amount of each is divided by the number of shares of
that class outstanding to produce the net asset value per share.
A security that is listed or traded on more than one exchange is valued at
the quotation on the exchange determined to be the primary exchange for such
security by the Directors or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world,
the calculation of net asset value may not take place for the Fund if it
invests in foreign securities contemporaneously with the determination of the
prices of the majority of the portfolio securities of such Fund. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair value considerations by the Directors or their
delegates. If at any time the Fund has investments where market quotations are
not readily available, such investments are valued at the fair value thereof as
determined in good faith by the Directors although the actual calculations may
be made by persons acting pursuant to the direction of the Directors.
HOW TO BUY SHARES
The minimum initial investment is $500 and the minimum subsequent
investment is $25. However, both the minimum initial and subsequent investment
amounts are $25 for investments pursuant to the "Investo-Matic" plan, a bank
draft investing program administered by Distributor, or pursuant to the
Systematic Exchange privilege or for an individual retirement account (IRA). In
addition, there are no subsequent investment minimum amounts in connection with
the reinvestment of dividend or capital gain distributions. Completed
applications for the purchase of shares should be mailed to: Phoenix Funds, c/o
State Street Bank and Trust Company, P.O. Box 8301, Boston, MA 02266-8301.
ALTERNATIVE PURCHASE ARRANGEMENTS
Shares may be purchased from investment dealers at a price equal to their
net asset value per share, plus a sales charge which, at the election of the
purchaser, may be imposed either (i) at the time of the purchase (the "initial
sales charge alternative") or (ii) on a contingent deferred basis (the
"deferred sales charge alternative"). Orders received by dealers prior to the
close of trading on the New York Stock Exchange are confirmed at the offering
price effective at that time, provided the order is received by the Distributor
prior to its close of business.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, whether
the investor wishes to receive distributions in cash or to reinvest them in
additional shares of the Fund, and other circumstances. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the accumulated continuing distribution services fee and contingent deferred
sales charges on Class B or C Shares would be less than the initial sales
charge and accumulated distribution services fee on Class A or M Shares
purchased at the same time.
Dividends paid by the Fund, if any, with respect to each Class of Shares
will be calculated in the same manner at the same time on the same day, except
that fees such as higher distribution services fee and any incremental transfer
agency costs relating to each Class of Shares will be borne exclusively by that
class. See "Dividends, Distributions and Taxes."
Class A Shares
Class A Shares incur a sales charge when they are purchased and enjoy the
benefit of not being subject to any sales charge when they are redeemed. Class
A Shares are subject to an ongoing distribution services fee at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
the Class A Shares. In addition, certain purchases of Class A Shares qualify
for reduced initial sales charges. See the Fund's current Prospectus for
additional information.
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 for additional
information.
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<PAGE>
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 adviser and the Distributor to have been
compensated for distribution expenses related to the Class B Shares from most
of the burden of such distribution related expenses.
Class B Shares include all shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period ending
eight years after the end of the month in which the shares were issued. At the
end of this period, Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution 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 other charge.
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 Trust account will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an equal pro rata
portion of the Class B Share dividends in the sub-account will also convert to
Class A Shares.
Class C Shares
Class C Shares are purchased without an initial sales charge but are
subject to a deferred sales charge if redeemed within one year of purchase. The
deferred sales charge may be waived in connection with certain qualifying
redemptions. Shares issued in conjunction with the automatic reinvestment of
income distributions and capital gain distributions are not subject to any
sales charges. Class C Shares are subject to an ongoing distribution services
fee of up to 1.00% of the Fund's aggregate average daily net assets
attributable to Class C Shares. See the Fund's current Prospectus for more
information.
Class M Shares
Class M Shares incur a sales charge at the time of purchase but are not
subject to any sales charge when redeemed. Certain purchases of Class M Shares
may qualify for reduced initial sales charges as described in the Fund's
Prospectus. Class M Shares are subject to an ongoing distribution services fee
of up to 0.50% of the Funds' aggregate average daily net assets attributable to
Class M Shares.
INVESTOR ACCOUNT SERVICES
The Fund offers combination purchase privileges, letters of intent,
accumulation plans, withdrawal plans and reinvestment and exchange privileges
as described in the Fund's current Prospectus. Certain privileges may not be
available in connection with all classes. In most cases, changes to account
services may be accomplished over the phone. Inquiries regarding policies and
procedures relating to shareholder account services should be directed to
Shareholder Services at (800) 243-1574.
Exchanges. Under certain circumstances, shares of any Phoenix Fund may be
exchanged for shares of the same Class of another Phoenix Fund on the basis of
the relative net asset values per share at the time of the exchange. Exchanges
are subject to the minimum initial investment requirement of the designated
Fund, Series, or Portfolio, 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, if currently offered. On exchanges with share classes that carry
a contingent deferred sales charge, the CDSC schedule of the original shares
purchased continues to apply. The exchange of shares is treated as a sale and
purchase for federal income tax purposes (see also "Dividends, Distributions
and Taxes").
Systematic Exchanges. If the conditions above have been met, you or your
broker may, by telephone or written notice, elect to have shares exchanged for
the same class of shares of another Phoenix Fund automatically on a monthly,
quarterly, semi-annual or annual basis or may cancel this privilege at any
time. If you maintain an account balance of at least $5,000, or $2,000 for tax
qualified retirement benefit plans (calculated on the basis of the net asset
value of the shares held in a single account), you may direct that shares be
automatically exchanged at predetermined intervals for shares of the same class
of another Phoenix Fund. This requirement does not apply to Phoenix "Self
Security" program participants. Systematic exchanges will be executed upon the
close of business on the 10th day of each month or the next succeeding business
day. Systematic exchange forms are available from the Distributor. Exchanges
will be based upon each Fund's net asset value per share next computed after
the close of business on the 10th day of each month (or next succeeding
business day), without sales charge. On Class B and C Share exchanges, the CDSC
schedule of the original shares purchased continues to apply.
Dividend Reinvestment Across Accounts. If you maintain an account balance
of at least $5,000, or $2,000 for tax qualified retirement benefit plans
(calculated on the basis of the net asset value of the shares held in a single
account), you may direct that any dividends and distributions paid with respect
to shares in that account be automatically reinvested in a single account of
one of the other Phoenix Fund at net asset value. You should obtain a current
prospectus and consider the objectives and policies of each Fund carefully
before directing dividends and distributions to another Fund. Reinvestment
election forms and prospectuses
11
<PAGE>
are available from Equity Planning. Distributions may also be mailed to a
second payee and/or address. Requests for directing distributions to an
alternate payee must be made in writing with a signature guarantee of the
registered owner(s). To be effective with respect to a particular dividend or
distribution, notification of the new distribution option must be received by
the Transfer Agent at least three days prior to the record date of such
dividend or distribution. If all shares in your account are repurchased or
redeemed or transferred between the record date and the payment date of a
dividend or distribution, you will receive cash for the dividend or
distribution regardless of the distribution option selected.
Invest-by-Phone. This expedited investment service allows you to make an
investment in an account by requesting a transfer of funds from the balance of
your bank account. Once a request is phoned in, the Transfer Agent will
initiate the transaction by wiring a request for monies to your commercial
bank, savings bank or credit union via Automated Clearing House (ACH). Your
bank, which must be an ACH member, will in turn forward the monies to the
Transfer Agent for credit to your 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 your bank
account.
To establish this service, please complete the Invest-by-Phone Application
and attach a voided check. Upon the Transfer Agent's acceptance of the
authorization form (usually within two weeks) you may call toll free (800)
367-5877 prior to 3:00 p.m. (Eastern Time) to place your purchase request.
Instructions as to the account number and amount to be invested must be
communicated to the Transfer Agent. The Transfer Agent will then contact your
bank via ACH with appropriate instructions. The purchase is normally credited
to your 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 the Transfer Agent 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 the Adviser 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,
you should consult the plan documentation and employee enrollment information
which is available from participating employers.
REDEMPTION OF SHARES
Under the 1940 Act, payment for shares redeemed must ordinarily be made
within seven days after tender. The right to redeem shares may be suspended and
payment therefore postponed during periods when the New York Stock Exchange is
closed, other than customary weekend and holiday closings, or if permitted by
rules of the Securities and Exchange Commission, during periods when trading on
the New York Stock Exchange is restricted or during any emergency which makes
it impracticable for the Fund to dispose of its securities or to fairly value
its net assets during any other period permitted by order of the Securities and
Exchange Commission. Furthermore, the Transfer Agent will not mail redemption
proceeds until checks received for shares purchased have cleared, which may
take up to 15 days after receipt of the check. Redemptions by Class B and Class
C shareholders will be subject to the applicable deferred sales charge, if any.
See the Fund's current Prospectus for more information.
By Mail
You 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 your possession, they must be mailed or presented, duly endorsed
in the full name of the account, with a written request to Equity Planning that
the Fund redeem the shares. See the Fund's current Prospectus for more
information.
By Telephone
Unless you elect in writing not to participate in the Telephone Redemption
Privilege, shares for which certificates have not been issued may be redeemed
by calling (800) 243-1574 and telephone redemptions will also be accepted on
your behalf from your 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. 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
12
<PAGE>
registered representatives. However, you 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.
Telephone redemption orders received and accepted by the Transfer Agent on
any day when the Transfer Agent is open for business will be entered at the
next determined net asset value. However, telephone redemption orders received
and accepted by the Transfer Agent after the close of trading hours on the
Exchange will be executed on the following business day. If the amount of the
redemption is $500 or more, the proceeds may 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 your account. 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 after receipt of the check. See the Fund's current
Prospectus for more information. This expedited redemption privilege is not
available to HR-10, IRA and 403(b)(7) Plans. In addition to the Telephone
Redemption Privilege, you may also redeem by telephone through the
"Invest-by-Phone" service.
By Check
You may elect to redeem shares held in your account by check. Checks will
be sent to you upon receipt by Equity Planning of a completed application and
signature card (attached to the application). If the signature card accompanies
your initial account application, the signature guarantee section of the form
may be disregarded. However, the Fund reserves the right to require that all
signatures be guaranteed prior to the establishment of a check writing service
account. When an authorization form is submitted after receipt of the initial
account application, all signatures must be guaranteed regardless of account
value.
Checks may be drawn payable to any person in an amount of not less than
$500, provided that immediately after the payment of the redemption proceeds
the balance in your account is $500 or more.
When a check is presented to Equity Planning for payment, a sufficient
number of full and fractional shares in your account will be redeemed to cover
the amount of the check. The number of shares to be redeemed will be determined
on the date the check is received by the Transfer Agent. Presently there is no
charge to you for the check writing service, but this may be changed or
modified in the future upon two weeks written notice to shareholders. Checks
drawn from Class B and Class C accounts are subject to the applicable deferred
sales charge, if any.
The checkwriting procedure for redemption enables you to receive income
accruing on the shares to be redeemed until such time as the check is presented
to Equity Planning for payment. Inasmuch as canceled checks are returned to
shareholders monthly, no confirmation statement is issued at the time of
redemption.
Shareholders utilizing withdrawal checks will be subject to Equity
Planning's rules governing checking accounts. You should make sure that there
are sufficient shares in your account to cover the amount of any check drawn.
If insufficient shares are in the account and the check is presented to Equity
Planning on a banking day on which the Fund does not redeem shares (for
example, a day on which the New York Stock Exchange is closed), or if the check
is presented against redemption proceeds of an investment made by check which
has not been in the account for at least fifteen calendar days, the check may
be returned marked "Non-sufficient Funds" and no shares will be redeemed. You
may not close your account by a withdrawal check because the exact value of the
account will not be known until after the check is received by Equity Planning.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to qualify as a regulated investment company
under certain provisions of the Internal Revenue Code (as amended 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;
and (b) diversify its holdings so that, at the end of each quarter of the
taxable year (i) at least 50% of the market value of the Fund's assets are
represented by cash, U.S. Government securities, securities of other regulated
investment companies and other securities, 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
13
<PAGE>
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 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.
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 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.
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<PAGE>
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 DISTRIBUTOR
Phoenix Equity Planning Corporation ("Equity Planning") acts as the
Distributor for the Fund and as such will conduct a continuous offering
pursuant to a "best efforts" arrangement requiring it to take and pay for only
such securities as may be sold to the public. Equity Planning is an indirect
less than wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company
and an affiliate of the Adviser. Shares of the Fund may be purchased through
investment dealers who have sales agreements with the Distributor. During the
fiscal years ended October 31, 1994, 1995, and 1996, purchasers of shares of
the Fund paid aggregate sales charges of $1,180,368, $1,114,261, and $841,871,
respectively, of which the Distributor received net commissions of $551,710,
$811,088, and $482,443, respectively, for its services, the balance being paid
to dealers.
The Distribution Agreement may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Distributor, by
vote of a majority of the outstanding voting securities of the Fund, or by vote
of a majority of the Fund's Directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Distribution Plan or in any related agreements. The Distribution Agreement
will terminate automatically in the event of its assignment.
Equity Planning also acts as administrative agent of the Fund and as such
performs administrative, bookkeeping and pricing functions for the Fund. As
compensation for such services, effective as of January 1, 1997, Equity
Planning is entitled to a fee, payable monthly and based upon the average of
the aggregate daily net asset values of the Fund, at the following incremental
annual rates:
<TABLE>
<S> <C>
First $100 million .05% subject to a minimum fee
$100 million to $300 million .04%
$300 million through $500 million .03%
Greater than $500 million .015%
</TABLE>
15
<PAGE>
A minimum fee of $70,000 is applicable. In addition, Equity Planning is
paid $12,000 for each class of shares beyond one. Until December 31, 1996,
Equity Planning's fee for these services was based on an annual rate of 0.03%
of the Fund's aggregate daily net asset value. For its services during the
Fund's fiscal year ended October 31, 1996, Equity Planning received $92,536.
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," the "Class C Plan," the "Class M Plan" and collectively the "Plans").
The Plans permit the Fund to reimburse the Distributor for expenses incurred in
connection with activities intended to promote the sale of shares of each class
of shares of the Fund. For the fiscal year 1997, the Distributor has
voluntarily agreed to limit the Rule 12b-1 fee for Class A Shares to 0.25%.
Pursuant to the Plans, the Funds may reimburse the Distributor for actual
expenses of the Distributor up to 0.30% of the average daily net assets of the
Fund's Class A Shares, up to 1.00% of the average daily net assets of the
Fund's Class B and of Class C Shares, and up to 0.50% of the average daily net
assets of the Fund's Class M Shares. Expenditures under the Plans shall consist
of: (i) commissions to sales personnel for selling shares of the Fund
(including underwriting fees and financing expenses incurred in connection with
the sale of Class B shares); (ii) compensation, sales incentives and payments
to sales, marketing and service personnel; (iii) payments to broker-dealers and
other financial institutions which have entered into agreements with the
Distributor in the form of the Dealer Agreement for Phoenix Funds for services
rendered in connection with the sale and distribution of shares of the Fund;
(iv) payment of expenses incurred in sales and promotional activities,
including advertising expenditures related to the Fund; (v) the costs of
preparing and distributing promotional materials; (vi) the cost of printing the
Fund's Prospectus and Statement of Additional Information for distribution to
potential investors; and (vii) such other similar services that the 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
shareholder accounts (the "Service Fee").
In order to receive payments under the Plans, participants must meet such
qualifications to be established in the sole discretion of the Distributor,
such as services to the Fund's shareholders; or services providing the Fund
with more efficient methods of offering shares to coherent groups of clients,
members or prospects of a participant; or services permitting bulking of
purchases or sales, or transmission of such purchases or sales by computerized
tape or other electronic equipment; or other processing.
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. The Class B Plan, however,
does not limit the reimbursement of distribution related expenses to expenses
incurred in specific time periods. If the Plans are terminated in accordance
with their terms, the obligations of the Fund to make payments to the
Distributor 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 Distributor 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 Distributor) 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 Distributor may, from time to time,
reallow the entire portion of the sales charge on Class A Shares which it
normally retains to individual selling dealers. However, such additional
reallowance generally will be made only when the selling dealer commits to
substantial marketing support such as internal wholesaling through dedicated
personnel, internal communications and mass mailings.
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, 1996,
the Fund paid 12b-1 fees in the amount of $1,832,185 ($417,446 under the
Distribution Plan for Class A shares; $1,414,739 under the Distribution Plan
for Class B shares), of which the Distributor of the Fund received $1,144,260.
The 12b-1 payments were used for: (1) compensating dealers, $1,232,024, (2)
compensating sales personnel, $442,825, (3) compensating the Distributor for
marketing material, $73,232, and (4) advertising, $84,104.
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
16
<PAGE>
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 National Association of Securities Dealers, Inc. (the "NASD") regards
certain distribution fees as asset-based sales charges subject to NASD sales
load limits. The NASD's maximum sales charge rule may require the Directors to
suspend distribution fees or amend the Plans.
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 July 10, 1997 the shareholders of the Fund voted to fix the number of
Directors at fourteen and elect the persons to serve as Directors. The
Directors and executive officers are listed below:
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - ------------------------ ---------------- --------------------------------------------------------------
<S> <C> <C>
C. Duane Blinn (69)** Director Partner in the law firm of Day, Berry & Howard. Director/
Day, Berry & Howard Trustee, Phoenix Funds (1980-present). Trustee, Phoenix-
CityPlace Aberdeen Series Fund and Phoenix Duff & Phelps
Hartford, CT 06103 Institutional Mutual Funds (1996-present). Director/Trustee,
the National Affiliated Investment Companies (until 1993).
Robert Chesek (63) Director Trustee/Director (1981-present) and Chairman (1989-1994)
49 Old Post Road Phoenix Funds. Trustee, Phoenix-Aberdeen Series Fund
Wethersfield, CT 06109 and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Vice President, Common Stock, Phoenix
Home Life Mutual Insurance Company (1980-1994).
Director/Trustee, the National Affiliated Investment
Companies (until 1993).
E. Virgil Conway (68) Director Chairman, Metropolitan Transportation Authority (1992-
9 Rittenhouse Road present). Trustee/Director, Consolidated Edison Company
Bronxville, NY 10708 of New York, Inc. (1970-present), Pace University (1978-
present), Atlantic Mutual Insurance Company (1974-present),
HRE Properties (1989-present), Greater New York
Councils, Boy Scouts of America (1985-present), Union
Pacific Corp. (1978-present), Blackrock Freddie Mac
Mortgage Securities Fund (Advisory Director) (1990-
present), Centennial Insurance Company (1974-present),
Josiah Macy, Jr., Foundation (1975-present), The Harlem
Youth Development Foundation (1987-present), Accuhealth
(1994-present), Trism, Inc. (1994-present), Realty
Foundation of New York (1972-present), New York Housing
Partnership Development Corp. (Chairman) (1981-present)
and Fund Directions (Advisory Director) (1993-present).
Director/Trustee, Phoenix Funds (1993-present). Trustee,
Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director, Duff &
Phelps Utilities Tax-Free Income Inc. and Duff & Phelps
Utility and Corporate Bond Trust Inc. (1995-present).
Chairman, Audit Committee of the City of New York (1981-
1996). Advisory Director, Blackrock Fannie Mae Mortgage
Securities Fund (1989-1996). Chairman, Financial
Accounting Standards Advisory Council (1992- 1995).
Director/Trustee, the National Affiliated Investment
Companies (until 1993).
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - ---------------------------- --------------- -----------------------------------------------------------------
<S> <C> <C>
Harry Dalzell-Payne (68) Director Director/Trustee, Phoenix Funds (1983-present). Trustee,
330 East 39th Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Apartment 29G Institutional Mutual Funds (1996-present). Director, Duff &
New York, NY 10016 Phelps Utilities Tax-Free Income Inc. and Duff & Phelps
Utility and Corporate Bond Trust Inc. (1995-present). Director,
Farragut Mortgage Co., Inc. (1991-1994). Director/Trustee,
the National Affiliated Investment Companies (1983-1993).
Formerly a Major General of the British Army.
*Francis E. Jeffries (66) Director Director/Trustee, Phoenix Funds (1995-present). Trustee,
6585 Nicholas Blvd. Phoenix-Aberdeen Series Inc. and Phoenix Duff & Phelps
Apt. 1601 Institutional Mutual Funds (1996-present). Director,
Naples, FL 33963 Duff & Phelps Utilities Income Fund (1987-present),
Duff & Phelps Utilities Tax-Free Income Inc. (1991-
present) and Duff & Phelps Utility and Corporate Bond
Trust Inc. (1993-present). Director, The Empire District
Electric Company (1984-present). Director (1989-1997),
Chairman of the Board (1993-1997), President (1989-
1993), and Chief Executive Officer (1989-1995), Phoenix
Duff & Phelps Corporation.
Leroy Keith, Jr. (58) Director Chairman and Chief Executive Officer, Carson Products
Chairman and Chief Company (1995-present). Director/Trustee, Phoenix Funds
Executive Officer (1980-present). Trustee, Phoenix-Aberdeen Series Fund
Carson Products Company and Phoenix Duff & Phelps Institutional Mutual Funds
64 Ross Road (1996- present). Director, Equifax Corp. (1991-present) and
Savannah, GA 30750 Keystone International Fund, Inc. (1989-present). Trustee,
Keystone Liquid Trust, Keystone Tax Exempt Trust,
Keystone Tax Free Fund, Master Reserves Tax Free Trust,
and Master Reserves Trust. President, Morehouse College
(1987-1994). Chairman and Chief Executive Officer, Keith
Ventures (1992-1994). Director/Trustee, the National
Affiliated Investment Companies (until 1993) . Director,
Blue Cross/Blue Shield (1989-1993) and First Union Bank
of Georgia (1989-1993).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - ----------------------------- --------------- -------------------------------------------------------------
<S> <C> <C>
*Philip R. McLoughlin (50) Director and Chairman, (1997-present), Vice Chairman (1995-1997) and
President Chief Executive Officer, (1995-present) Phoenix Duff &
Phelps Corporation. Director (1994-present) and Executive
Vice President, Investments (1988-present), Phoenix Home
Life Mutual Insurance Company. Director/Trustee and
President, Phoenix Funds (1989-present). Trustee and
President, Phoenix-Aberdeen Series Fund and Phoenix
Duff & Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income Inc.
(1995-present) and Duff & Phelps Utility and Corporate
Bond Trust Inc. (1995-present). Director (1983-present)
and Chairman (1995-present), Phoenix Investment Counsel,
Inc. Director (1984- present) and President (1990-present),
Phoenix Equity Planning Corporation. Director (1993-
present), Chairman (1993-present) and Chief Executive
Officer (1993-1995), National Securities & Research
Corporation. Director, Phoenix Realty Group, Inc. (1994-
present), Phoenix Realty Advisors, Inc. (1987-present),
Phoenix Realty Investors, Inc. (1994- present), Phoenix
Realty Securities, Inc. (1994-present), PXRE Corporation
(Delaware) (1985-present), and World Trust Fund (1991-
present). Director and Executive Vice President, Phoenix
Life and Annuity Company (1996-present). Director and
Executive Vice President, PHL Variable Insurance
Company (1995-present). Director, Phoenix Charter Oak
Trust Company (1996-present). Director and Vice
President, PM Holdings, Inc. (1985-present). Director and
President, Phoenix Securities Group, Inc. (1993-1995).
Director (1992-present) and President (1992-1994), W.S.
Griffith & Co., Inc. Director (1992-present) and President
(1992-1994), Townsend Financial Advisers, Inc. Director/
Trustee, the National Affiliated Investment Companies
(until 1993).
Everett L. Morris (69) Director Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present). Trustee,
Colts Neck, NJ 07722 Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director, Duff &
Phelps Utilities Tax-Free Income Inc. (1991-present) and
Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993- present). Director, Public Service Enterprise Group,
Incorporated (1986-1993). President and Chief Operating
Officer, Enterprise Diversified Holdings, Incorporated
(1989-1993).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - --------------------------- --------------- ------------------------------------------------------------
<S> <C> <C>
*James M. Oates (51) Director Chairman, IBEX Capital Markets LLC (1997-present).
Managing Director Managing Director, Wydown Group (1994-present).
The Wydown Group Director, Phoenix Duff & Phelps Corporation (1995-
IBEX Capital Markets LLC present). Director/Trustee, Phoenix Fund (1987-present).
60 State Street Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff
Suite 950 & Phelps Institutional Mutual Funds (1996-present).
Boston, MA 02109 Director, Govett Worldwide Opportunity Funds, Inc. (1991-
present), Blue Cross and Blue Shield of New Hampshire
(1994-present), Investors Financial Service Corporation
(1995-present), Investors Bank & Trust Corporation (1995-
present), Plymouth Rubber Co. (1995-present) and Stifel
Financial (1996-present). Member, Chief Executives
Organization (1996-present). Director (1984-1994),
President (1984-1994) and Chief Executive Officer (1986-
1994), Neworld Bank. Director/Trustee, the National
Affiliated Investment Companies (until 1993).
*Calvin J. Pedersen (55) Director Director (1986-present), President (1993-present) and
Phoenix Duff & Phelps Executive Vice President (1992-1993), Phoenix Duff &
Corporation Phelps Corporation. Director/Trustee, Phoenix Funds
55 East Monroe Street (1995- present). Trustee, Phoenix-Aberdeen Series Fund
Suite 3600 and Phoenix Duff & Phelps Institutional Mutual Funds
Chicago, IL 60603 (1996-present). President and Chief Executive Officer,
Duff & Phelps Utilities Tax-Free Income Inc. (1995-
present), Duff & Phelps Utilities Income Inc. (1994-
present) and Duff & Phelps Utility and Corporate Bond
Trust Inc. (1995-present).
Philip R. Reynolds (70)** Director Director/Trustee, Phoenix Funds (1984-present). Trustee,
43 Montclair Drive Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
West Hartford, CT 06107 Institutional Mutual Funds (1996-present). Director,
Vestaur Securities, Inc. (1972-present). Trustee and
Treasurer, J. Walton Bissell Foundation, Inc. (1988-
present). Director/Trustee, the National Affiliated
Investment Companies (until 1993).
Herbert Roth, Jr. (68) Director Director/Trustee, Phoenix Funds (1980-present). Trustee,
134 Lake Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
P.O. Box 909 Institutional Mutual Funds (1996-present). Director, Boston
Sherborn, MA 01770 Edison Company (1978-present), Phoenix Home Life
Mutual Insurance Company (1972-present), Landauer, Inc.
(medical services) (1970-present),Tech Ops./Sevcon, Inc.
(electronic controllers) (1987-present), and Mark IV
Industries (diversified manufacturer) (1985-present).
Director, Key Energy Group (oil rig service) (1988-1994).
Director/Trustee, the National Affiliated Investment
Companies (until 1993).
Richard E. Segerson (51) Director Managing Director, Mullin Associates (1993-present).
102 Valley Road Director/Trustee, Phoenix Funds (1993-present). Trustee,
New Canaan, CT 06840 Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Vice President
and General Manager, Coats & Clark, Inc. (previously
Tootal American, Inc.) (1991-1993). Director/Trustee, the
National Affiliated Investment Companies (1984-1993).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - ----------------------------- --------------- ---------------------------------------------------------------
<S> <C> <C>
Lowell P. Weicker, Jr. (66) Director Trustee/Director, Phoenix Funds (1995-present). Trustee,
731 Lake Avenue Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Greenwich, CT 06830 Institutional Mutual Funds (1996-present). Director, UST
Inc. (1995-present), HPSC Inc. (1995-present), Duty Free
International, Inc. (1997-present) and Compuware (1996-
present). Visiting Professor, University of Virginia (1997-
present). Chairman, Dresing, Lierman, Weicker (1995-
1996). Governor of the State of Connecticut (1991-1995).
Michael E. Haylon (39) Executive Director and Executive Vice President-Investments,
Vice Phoenix Duff & Phelps Corporation (1995-present).
President Director (1994-present), President (1996-present), and
Executive Vice President (1994-1996), National Securities
& Research Corporation. Executive Vice President,
Phoenix Funds (1995-present), Phoenix-Aberdeen Series
Fund (1996-present). Executive Vice President (1997-
present), Vice President (1996-1997), Phoenix Duff &
Phelps Institutional Mutual Funds. Director (1994-present),
President (1995-present), and Executive Vice President
(1994-1995), Phoenix Investment Counsel, Inc. Director,
Phoenix Equity Planning Corporation (1995-present).
Senior Vice President, Securities Investments, Phoenix
Home Life Mutual Insurance Company (1993-1995).
Various other positions with Phoenix Home Life Mutual
Insurance Company (1990-1993).
David R. Pepin (54) Executive Executive Vice President, Phoenix Funds, Phoenix-Aberdeen
Vice Series Fund, and Phoenix Duff & Phelps Institutional Mutual
President Funds (1996-present). Director, Phoenix Investment Counsel,
Inc., and National Securities & Research Corporation (1996-
present). Director and Executive Vice President, Mutual Fund
Sales and Operations, Phoenix Equity Planning Corporation
(1996-present). Managing Director, Phoenix-Aberdeen
International Advisors, LLC (1996-present). Executive Vice
President (1996-present) and Director (1997-present), Phoenix
Duff & Phelps Corporation. Vice President, Phoenix Home
Life Mutual Insurance Company (1994-1995). Vice President
and General Manager, Digital Equipment and Corporation
(1980-1994).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - --------------------------- --------------- -----------------------------------------------------------------
<S> <C> <C>
James D. Wehr (40) Senior Vice Managing Director, Fixed Income, (1996-present), Vice
President President (1991-1996), Phoenix Investment Counsel, Inc.
Managing Director, Fixed Income, (1996-present), Vice
President (1993-1996), National Securities & Research
Corporation. Senior Vice President (1997-present), Vice
President (1988-1997), Phoenix Multi-Portfolio Fund; Senior
Vice President (1997-present), Vice President (1990-1997),
Phoenix Series Fund; Senior Vice President (1997-present),
Vice President (1991-1997), The Phoenix Edge Series Fund;
Senior Vice President (1997-present), Vice President (1993-
1997), Phoenix California Tax Exempt Bonds, Inc.; Senior
Vice President (1997-present), Vice President (1996-1997),
Phoenix Duff & Phelps Institutional Mutual Funds; and
Senior Vice President, Phoenix Multi-Sector Fixed Income
Fund, Inc. and Phoenix Multi-Sector Short Term Bond Fund
(1997-present). Managing Director, Public Fixed Income,
Phoenix Home Life Insurance Company (1991-1995). Various
positions with Phoenix Home Life Insurance Company.
David L. Albrycht (35) Vice Managing Director, Fixed Income (1996-present) and Vice
President President (1995-1996), Phoenix Investment Counsel, Inc.
Managing Director, Fixed Income (1996-present) and
Investment Officer (1994-1996), National Securities &
Research Corporation. Vice President, Phoenix Multi-
Portfolio Fund (1993-present), Phoenix Multi-Sector Short
Term Bond Fund (1993-present), Multi-Sector Fixed
Income Fund (1994-present). Portfolio Manager, Phoenix
Home Life Mutual Insurance Company (1990-1995).
William E. Keen, III (34) Vice Assistant Vice President, Phoenix Equity Planning Corporation
100 Bright Meadow Blvd. President (1996-present). Vice President, Phoenix Funds, Phoenix-
P.O. Box 2200 Aberdeen Series Fund, and Phoenix Duff & Phelps Institutional
Enfield, CT 06083-2200 Mutual Funds (1996-present). Assistant Vice President,
USAffinity Investments LP, (1994-1995). Treasurer and
Secretary, USAffinity Funds (1994-1995). Manager, Fund
Administration, SEI Corporation (1991-1994).
William R. Moyer (53) Vice Senior Vice President and Chief Financial Officer, Phoenix
100 Bright Meadow Blvd. President Duff & Phelps Corporation (1995-present). Senior Vice
P.O. Box 2200 President (1990-present), Chief Financial Officer (1996-
Enfield, CT 06083-2200 present), Finance (until 1996) and Treasurer (1994-1996),
Phoenix Equity Planning Corporation. Senior Vice President
(1990-present), Chief Financial Officer (1996-present),
Finance (until 1996) and Treasurer (1994-present), Phoenix
Investment Counsel, Inc. Senior Vice President (1994-
present), Chief Financial Officer (1996-present), Finance
(until 1996), and Treasurer (1994-present), National Securities
& Research Corporation. Vice President, Phoenix Funds
(1990-present), Phoenix Duff & Phelps Institutional Mutual
Funds (1996-present) and Phoenix-Aberdeen Series Fund
(1996-present). Senior Vice President and Chief Financial
Officer, Phoenix Duff & Phelps Investment Management Co.
(1996-present). Vice President, Investment Products Finance,
Phoenix Home Life Mutual Insurance Company (1990-1995).
Vice President, the National Affiliated Companies (until
1993). Senior Vice President, Finance, Phoenix Securities
Group, Inc. (1993-1995). Senior Vice President and Chief
Financial Officer (1993-1995) and Treasurer (1994-1995),
W.S. Griffith & Co., Inc. and Townsend Financial Advisers, Inc.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- - ------------------------- --------------- -----------------------------------------------------------
<S> <C> <C>
Leonard J. Saltiel (43) Vice Managing Director (1996-present), Senior Vice President
100 Bright Meadow Blvd. President (1994-1996), Phoenix Equity Planning Corporation.
P.O. Box 2200 Vice President, Phoenix Funds (1994-present), Phoenix-
Enfield, CT 06083-2200 Aberdeen Series Fund (1996-present) and Phoenix Duff &
Phelps Institutional Mutual Funds (1996-present). Vice
President, Investment Operations, Phoenix Home Life
Mutual Insurance Company (1994-1995). Various positions
with Home Life Insurance Company and Phoenix Home
Life Mutual Insurance Company (1987-1994).
Nancy G. Curtiss (44) Treasurer Vice President, Fund Accounting (1994-present) and
Treasurer (1996-present), Phoenix Equity Planning
Corporation. Treasurer, Phoenix Funds (1994-present),
Phoenix-Aberdeen Series Fund (1996-present) and Phoenix
Duff & Phelps Institutional Mutual Funds (1996-present).
Second Vice President and Treasurer, Fund Accounting,
Phoenix Home Life Mutual Insurance Company (1994-
1995). Various positions with Phoenix Home Life Mutual
Insurance Company (1987-1994).
G. Jeffrey Bohne (49) Secretary Vice President, Mutual Fund Customer Service, Phoenix
101 Munson Street Equity Planning Corporation (1993-present). Secretary,
Greenfield, MA 01301 Phoenix Funds (1993-present), Phoenix-Aberdeen Series
Fund (1996-present) and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Clerk, Phoenix
Strategic Allocation Fund, Inc. (1994-present). Vice
President and General Manager, Phoenix Home Life
Mutual Insurance Co. (1993-present). Vice President,
Home Life of New York Insurance Company (1984-1992).
</TABLE>
- - -----------
*Messrs. Jeffries, McLoughlin, Oates 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.
**Pursuant to the retirement policy of the Phoenix Funds, Messrs. Blinn and
Reynolds will retire from the Board of Directors effective January 1, 1998.
For services rendered to the Fund for the fiscal year ended October 31,
1996, the Trustees received aggregate remuneration of $16,440. For services on
the Boards of Directors/Trustees of the Phoenix Funds, each Trustee who is not
a full-time employee of the Adviser or any of its affiliates currently receives
a retainer at the annual rate of $40,000 and a fee of $2,500 per joint meeting
of the Boards. Each Trustee who serves on the Audit Committee receives a
retainer at the annual rate of $2,000 and a fee of $2,000 per joint Audit
Committee meeting attended. Each Trustee who serves on the Nominating Committee
receives a retainer at the annual rate of $1,000 and a fee of $1,000 per joint
Nominating Committee meeting attended. Each Trustee who serves on the Executive
Committee and who is not an interested person of the Fund receives a retainer
at the annual rate of $1,000 and $1,000 per joint Executive Committee meeting
attended. The function of the Executive Committee is to serve as a contract
review, compliance review and performance review delegate of the full Board of
Directors. Trustees costs are allocated equally to each of the Series and Funds
within the Fund complex. The foregoing fees do not include the reimbursement of
expenses incurred in connection with meeting attendance. Officers and employees
of the Adviser who are interested persons are compensated by the Adviser and
receive no compensation from the Fund.
23
<PAGE>
For the Fund's last fiscal year ending October 31, 1996, the Trustees received
the following compensation:
<TABLE>
<CAPTION>
Total
Compensation
Pension or From Fund and
Aggregate Retirement Benefits Estimated Fund Complex
Compensation Accrued as Part Annual Benefits (11 Funds)
Name From Fund of Fund Expenses Upon Retirement Paid to Trustees
- - ------------------------ -------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
C. Duane Blinn $ 1,730* $53,750
Robert Chesek $ 1,645 $50,750
E. Virgil Conway+ $ 1,965 $60,000
Harry Dalzell-Payne+ $ 1,645 $51,000
Francis E. Jeffries $ 0 $ 0
Leroy Keith, Jr. $ 1,645 None None $50,750
Philip R. McLoughlin+ $ 0 for any for any $ 0
Everett L. Morris+ $ 1,100* Trustee Trustee $37,000
James M. Oates+ $ 1,890 $57,750
Calvin J. Pedersen $ 0 $ 0
Philip R. Reynolds $ 1,645 $50,750
Herbert Roth, Jr.+ $ 2,070* $63,000
Richard E. Segerson $ 1,890 $58,000
Lowell P. Weicker, Jr. $ 1,890 $57,750
</TABLE>
- - -----------
*This compensation (and the earnings thereon) was deferred pursuant to the
Trustees' Deferred Compensation Plan. At October 31, 1996, the total amount of
deferred compensation (including interest and other accumulation earned on the
original amounts deferred) accrued for Messrs. Blinn, Morris and Roth was
$288,449.41, $33,845.74 and $125,541.39, respectively. At present, by agreement
among the Fund, the Distributor and the electing trustee, trustee fees that are
deferred are paid by the Fund to the Distributor. The liability for the
deferred compensation obligation appears only as a liability of the
Distributor.
+Messrs. Conway, Dalzell-Payne, McLoughlin, Morris, Oates and Roth are members
of the Executive Committee.
On October 31, 1996, 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. Price Waterhouse LLP audits the Fund's annual financial statements and
expresses an opinion thereon.
Custodian and Transfer Agent
State Street Bank and Trust Company, P. O. Box 8301, Boston, MA
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 Semiannual
Report to Shareholders for the period ended April 30, 1997 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 Semiannual Report is incorporated by reference into this Statement of
Additional Information. A copy of the Semiannual Report must precede or
accompany this Statement of Additional Information.
24
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
INVESTMENTS AT APRIL 30, 1997
(Unaudited)
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
------------ --------- ---------------
U.S. GOVERNMENT AND AGENCY SECURITIES--6.3%
U.S. Treasury Bonds--0.4%
U.S. Treasury Bonds 6.625%, '27 ........ AAA $1,250 $ 1,196,713
--------------
U.S. Treasury Notes--1.3%
U.S. Treasury Notes WI 6.375%, '00 (f) AAA 1,000 997,920
U.S. Treasury Notes 6.625%, '02 ........ AAA 1,500 1,503,750
U.S. Treasury Inflation Index Notes
3.375%, '07 (e) ...................... AAA 2,000 1,981,114
--------------
4,482,784
--------------
Agency Mortgage-Backed Securities--4.6%
FHLMC 7.50%, '18 ....................... AAA 203 204,300
FHLMC 8.75%, '20 ....................... AAA 319 324,036
FNMA 8.70%, '16 ....................... AAA 675 691,797
FNMA 6.65%, '17 ....................... AAA 1,000 990,142
FNMA 6.50%, '18 ....................... AAA 1,000 981,150
FNMA 7%, '07-'21 ....................... AAA 804 780,576
GNMA 6.50%, '26 ....................... AAA 3,015 2,835,999
GNMA 8%, '26-'27 ....................... AAA 8,491 8,610,845
--------------
15,418,845
--------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES
(Identified cost $20,905,602) ............................... 21,098,342
--------------
NON-CONVERTIBLE BONDS--44.5%
Asset-Backed Securities--6.1%
Airplanes Pass Through Trust 1D
10.875%, '19 ......................... BB 4,780 5,284,577
Green Tree Financial Corp. 93-2, B 8%,
'18 (g) .............................. Baa(c) 5,000 5,085,937
Green Tree Financial Corp. 94-1, B2
7.85%, '19 (g) ...................... Baa(c) 2,000 1,981,875
Green Tree Financial Corp. 96-8, M1
7.85%, '27 (g) ...................... AA- 5,000 5,043,750
Team Fleet Financing Corp. 96-1, B
144A 7.10%, '02 (b) .................. BBB 3,000 2,947,500
--------------
20,343,639
--------------
Auto & Truck Parts--1.0%
Titan Wheel International, Inc. 8.75%,
'07 ................................. BB- 3,350 3,358,375
--------------
Building & Materials--0.2%
Neenah Corp. 144A 11.125%, '07 (b) ..... B-(c) 550 569,250
--------------
Insurance--1.9%
Middletown Trust Notes Series C, PIK
interest capitalization, 11.75%,
'10 (e) .............................. A+ 1,600 6,334,560
--------------
Non-Agency Mortgage-Backed Securities--30.3%
Bear Stearns Mortgage Securities, Inc.
95-1, 1B3 144A 6.481%, '10 (b) ....... NR 644 545,375
Bear Stearns Mortgage Securities, Inc.
95-1, 2B3 144A 7.40%, '10 (b) ........ NR 222 198,684
Chase Mortgage Finance Corp. 94-1, B2
144A 6.613%, '25 (b) ................ A+(c) 3,269 3,061,777
Citicorp Mortgage Securities, Inc.
96-1, M 7.50%, '26 ................... AA(c) 3,990 3,870,495
Criimi Mae Trust I 96-C1, A2 144A
7.56%, '33 (b) ...................... BBB 5,125 5,027,305
Equitable Life 174 C1 144A 7.52%, '06
(b) ................................. A(c) 1,000 1,008,750
Equitable Life 174 D1 144A 7.77%, '06
(b) (g) .............................. Baa(c) 4,000 4,050,625
FDIC REMIC 94-C1, 2D 8.70%, '25 (g) ... A(c) 5,000 5,298,438
FDIC REMIC 96-C1, 1D 7.25%, '26 ........ Baa(c) 3,500 3,401,563
First Chicago/Lennar Trust 1
Commercial Mortgage 97-CHL1, D 144A
8.11%, '08 (b) ...................... BB(c) 4,000 3,772,500
Fund America Structured Trust 96-1, A
144A 0%, '30 (b) ..................... Baa(c) 3,000 2,251,875
G.E. Capital Mortgage Services, Inc.
97-1, A14 7.50%, '27 ................ AAA 5,000 4,923,438
G.E. Capital Mortgage Services, Inc.
96-8, 2A5 7.50%, '26 ................ AAA 3,649 3,601,297
Lehman Structured Securities Corp.
96-1, E1 7.995%, '26 ................ BBB(c) 2,914 2,948,428
Morgan Stanley Capital I 96-WF1, C
144A 6.59%, '06 (b) .................. A(c) 3,350 3,152,141
Mortgage Capital Funding, Inc. 96-MC2,
D 7.257%, '06 ........................ Baa(c) 3,900 3,786,047
Norwest Asset Securities Corp. 96-3,
B1 7.25%, '26 ........................ A(c) 3,483 3,320,024
Norwest Asset Securities Corp. 96-3,
B2 7.25%, '26 ........................ BBB(c) 2,176 2,058,792
Prudential Home Mortgage Securities
93-H, B4 144A 6.759%, '08 (b) ........ Baa(c) 4,780 4,561,906
See Notes to Financial Statements
2
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
------------ --------- ---------------
Non-Agency Mortgage-Backed Securities--continued
Prudential Home Mortgage Securities
93-L, 3B2 144A 6.641%, '23 (b) ....... NR $ 4,770 $ 4,622,428
Resolution Trust Corp. 92-C3, B 9.05%,
'23 ................................. AA 2,985 3,048,302
Resolution Trust Corp. 92-C8, D
8.835%, '23 ......................... BB- 4,219 4,325,913
Resolution Trust Corp. 93-C3, A4
6.55%, '24 ........................... Aaa(c) 410 408,721
Resolution Trust Corp. 95-1, C2 7.50%,
'28 ................................. BBB 3,035 3,026,371
Resolution Trust Corp. 95-2, C1 7.45%,
'29 ................................. Baa(c) 2,943 2,923,894
Resolution Trust Corp. 95-C2, C 7%,
'27 ................................. A(c) 2,763 2,679,897
Ryland Mortgage Security Corp. III
92-A, 1A 8.33%, '30 .................. A- 367 364,213
Structured Asset Securities Corp.
93-C1, B 6.60%, '24 .................. A+ 5,000 4,778,518
Structured Asset Securities Corp.
95-C1, D 7.375%, '24 ................ BBB 5,260 5,189,319
Structured Asset Securities Corp.
95-C4, D 7%, '26 ..................... BBB 5,600 5,383,000
Structured Asset Securities Corp.
96-C3, C 144A 7.375%, '30 (b) ........ BBB 3,500 3,467,188
--------------
101,057,224
--------------
Oil--1.3%
Lomak Petroleum, Inc. 8.75%, '07 ...... B 4,550 4,345,250
--------------
Paper & Forest Products--1.5%
Buckeye Cellulose Corp. 8.50%, '05 (g).. BB- 5,000 4,900,000
--------------
Publishing, Broadcasting, Printing & Cable--0.6%
Hollinger International Publishing
9.25%, '07 ........................... BB- 2,125 2,114,375
--------------
Retail-Food Service--0.0%
ARA Services, Inc. 10.625%, '00 ........ BBB- 54 58,995
--------------
Utility-Electric--1.6%
California Energy Co. 10.25%, '04 (g)... BB+ 5,000 5,312,500
Rural Electric Cooperative 9.73%, '17... AAA 140 148,992
--------------
5,461,492
--------------
TOTAL NON-CONVERTIBLE BONDS
(Identified cost $147,927,947) ............................... 148,543,160
--------------
FOREIGN GOVERNMENT SECURITIES--26.7%
Algeria--0.6%
Algeria Tranche A Loans 7.25%, '00 (e).. NR 1,195 941,420
Algeria Tranche 1 Unaffected Loans
6.563%, '06 (e) ...................... NR 1,434 1,129,705
--------------
2,071,125
--------------
Argentina--7.7%
Republic of Argentina Global Bond
11.375%, '17 ......................... BB 1,000 1,062,250
Republic of Argentina 144A 11.75%, '07
(b) ................................. BBB- 7,000 7,367,500
Republic of Argentina Bearer FRB
6.75%, '05 (e) ....................... BB 1,407 1,292,222
Republic of Argentina Bocon Pro1 M1,
PIK interest capitalization, 3.238%,
'07 (e) .............................. BBB- 19,391 14,505,562
Republic of Argentina Registered
11.75%, '07 ......................... BBB- 1,500 1,578,750
--------------
25,806,284
--------------
Brazil--4.4%
Republic of Brazil FLIRB L-BR 4.50%,
'09 (e) .............................. B(c) 500 375,000
Republic of Brazil C Bond, PIK
interest capitalization, 8%, '14 (e).. BB- 6,164 4,671,859
Republic of Brazil DCB-L Euro 6.938%,
'12 (e) .............................. BB- 12,000 9,570,000
--------------
14,616,859
--------------
Bulgaria--1.0%
Bulgaria FLIRB-A Bearer Euro 2.25%,
'12 (e) .............................. B(c) 3,000 1,436,250
Republic of Bulgaria IAB PDI Euro
6.563%, '11 (e) ...................... B(c) 3,000 1,889,063
--------------
3,325,313
--------------
Colombia--1.3%
Republic of Colombia Yankee 7.25%, '04 . BBB- 2,000 1,882,500
Republic of Colombia 7.625%, '07 ...... Baa(c) 2,500 2,331,250
--------------
4,213,750
--------------
Croatia--0.6%
Croatia Series B 6.50%,
'06 (e) .............................. BBB- 1,928 1,889,028
--------------
Dominican Republic--0.3%
Stripped Dominican Republic 6.375%,
'98 (e) .............................. NR 1,500 941,100
--------------
See Notes to Financial Statements
3
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
------------ --------- ---------------
Ecuador--0.5%
Ecuador Bearer PDI Euro, PIK interest
capitalization, 6.438%, '15 (e) ..... NR $ 2,422 $ 1,461,782
Ecuador Registered PDI, PIK interest
capitalization, 6.438%, '15 (e) ..... NR 538 324,840
--------------
1,786,622
--------------
Ivory Coast--0.5%
Ivory Coast Non-Performing Loans (d) ... NR 4,000 1,550,000
--------------
Mexico--2.7%
Mexican Cetes 0%, '97 (h) .............. A 14,298 1,583,186
United Mexican States Global Bond
11.375%, '16 ......................... BB 7,110 7,505,494
--------------
9,088,680
--------------
Morocco--0.5%
Morocco R&C Agreement Series A 6.375%,
'09 (e) .............................. NR 1,700 1,496,000
--------------
Peru--0.7%
Peru FLIRB 144A 3.25%, '17 (b) (e) ..... NR 2,250 1,220,625
Peru PDI 144A 4%, '17
(b) (e) .............................. NR 1,980 1,188,000
--------------
2,408,625
--------------
Poland--1.5%
Poland Discount Euro 6.938%, '24 (e) ... BBB- 2,000 1,945,000
Poland Global Registered RSTA 3.25%,
'24 (e) .............................. BBB- 5,250 3,195,938
--------------
5,140,938
--------------
Russia--1.2%
CS First Boston GKO LinkNote 144A 0%,
'98 (b) (i) ......................... NR 30,271 4,040,688
--------------
Venezuela--3.2%
Republic of Venezuela DCB Euro 6.50%,
'07 (e) .............................. Ba(c) 11,250 9,935,156
Republic of Venezuela- FLIRB A 6.75%,
'07 (e) .............................. Ba(c) 952 855,357
--------------
10,790,513
--------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $87,861,189) ............................... 89,165,525
--------------
FOREIGN NON-CONVERTIBLE BONDS--8.5%
Brazil--0.5%
Tevecap SA 144A 12.625%, '04 (b) ...... B 1,650 1,668,563
--------------
Chile--1.9%
CSAV 144A 7.375%, '03 (b) .............. BBB 5,000 4,837,500
Petropower I Funding Trust 144A 7.36%,
'14 (b) .............................. BBB 1,450 1,362,058
--------------
6,199,558
--------------
China--0.7%
AES China Generating Co. Yankee
10.125%, '06 ......................... BB- 2,300 2,409,250
--------------
Colombia--0.8%
Centragas Yankee 144A 10.65%, '10 (b)... BBB- 2,413 2,618,290
--------------
Ecuador--0.4%
Consorcio Ecuatoriano TE 144A 14%, '02
(b) ................................. NR 1,200 1,215,000
--------------
Indonesia--1.4%
Asia Pulp & Paper Co. Yankee 144A 12%,
'04 (b) (e) .......................... B+ 4,900 4,606,000
--------------
Mexico--0.7%
Banco Nacional de Mexico 144A 7.57%,
'00 (b) .............................. NR 2,275 2,238,386
--------------
Russia--2.1%
Vnescheconombank Loans Yankee (d) ..... NR 8,650 7,028,125
--------------
TOTAL FOREIGN NON-CONVERTIBLE BONDS
(Identified cost $27,928,726) ................................ 27,983,172
--------------
FOREIGN CONVERTIBLE BONDS--0.7%
Mexico--0.7%
Empresas ICA Sociedad Cv. 5%, '04 ...... BB- 3,000 2,242,500
--------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $2,395,037) .................................. 2,242,500
--------------
MUNICIPAL BONDS--6.1%
California--0.8%
Fresno Pension Obligation 7.80%, '14 ... AAA 500 511,835
Orange County Pension A Taxable 7.67%,
'09 (g) .............................. AAA 2,000 2,034,740
--------------
2,546,575
--------------
See Notes to Financial Statements
4
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STANDARD PAR
& POOR'S VALUE
RATING (000) VALUE
------------ --------- ---------------
Florida--1.6%
Palm Beach Waste Revenue Project B
Taxable 10.50%, '11 .................. NR $ 3,750 $ 3,493,537
University of Miami Exchange Revenue A
Taxable 7.65%, '20 (g) ............... AAA 1,965 1,927,370
--------------
5,420,907
--------------
Pennsylvania--2.9%
Pennsylvania Economic Development
6.75%, '07 ........................... NR 4,050 4,144,608
Pennsylvania Economic Development
9.50%, '12 ........................... NR 6,200 5,549,372
--------------
9,693,980
--------------
Virginia--0.8%
Newport News Taxable Series B 7.05%,
'25 ................................. AA- 1,000 907,930
Pittsylvania County Series B 7.65%,
'10 ................................. NR 1,800 1,931,382
--------------
2,839,312
--------------
TOTAL MUNICIPAL BONDS
(Identified cost $20,781,903) ................................ 20,500,774
--------------
SHARES VALUE
------- --------------
PREFERRED STOCKS--6.1%
Publishing, Broadcasting, Printing & Cable--1.1%
American Radio Systems Pfd.
PIK 144A 11.375% (b) .......... 38,389 $ 3,771,695
--------------
REITS--5.0%
Marquette Real Estate Fund
Step-down Pfd. 144A 13.701%
(b) ........................... 5,000 4,918,800
Home Ownership Funding 2
Step-down Pfd. 144A 13.338%
(b) ........................... 12,000 11,759,712
--------------
16,678,512
--------------
TOTAL PREFERRED STOCKS
(Identified cost $20,782,475) ........... 20,450,207
--------------
TOTAL LONG-TERM INVESTMENTS--98.9%
(Identified cost $328,582,879) ........... 329,983,680
--------------
STANDARD PAR
& POOR'S VALUE
RATING (000)
--------- -------
SHORT-TERM OBLIGATIONS--0.5%
Commercial Paper--0.5%
AT&T Corp. 5.52%,
5-1-97 ............. A-1+ $ 1,815 1,815,000
--------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,815,000) ............ 1,815,000
--------------
TOTAL INVESTMENTS--99.4%
(Identified cost $330,397,879) .......... 331,798,680(a)
Cash and receivables, less
liabilities--0.6% .................... 2,122,077
--------------
NET ASSETS--100.0% ...................... $333,920,757
==============
(a)Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $5,807,035 and gross
depreciation of $4,406,234 for income tax purposes. At April 30, 1997, the
aggregate cost of securities for federal income tax purposes was
$330,397,879.
(b)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 April 30,
1997, these securities amounted to a value of $92,050,121 or 27.6% of net
assets.
(c)As rated by Moody's, Fitch, or Duff & Phelps.
(d)Non-income producing.
(e)Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(f)When issued.
(g)Segregated as collateral.
(h)Par value represents Mexican Pesos.
(i)Par value represents Russian Rubles.
See Notes to Financial Statements
5
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
(Unaudited)
Assets
Investment securities at value
(Identified cost $330,397,879) $331,798,680
Receivables
Investment securities sold 21,603,167
Fund shares sold 1,020,592
Interest and dividends 3,702,395
--------------
Total assets 358,124,834
--------------
Liabilities
Payables
Custodian 61,459
Investment securities purchased 22,690,944
Fund shares repurchased 584,930
Income distribution payable 394,505
Distribution fee 158,642
Investment advisory fee 148,453
Transfer agent fee 56,813
Financial agent fee 12,371
Directors' fee 4,253
Accrued expenses 91,707
--------------
Total liabilities 24,204,077
--------------
Net Assets $333,920,757
==============
Net Assets Consist of:
Capital paid in on shares of common stock $330,074,879
Undistributed net investment income 117,637
Accumulated net realized gain 2,327,440
Net unrealized appreciation 1,400,801
--------------
Net Assets $333,920,757
==============
Class A
Shares of common stock outstanding,
$0.10 par value, 250,000,000 shares authorized
(Net Assets $183,408,033) 13,619,121
Net asset value per share $13.47
Offering price per share
$13.47/(1-4.75%) $14.14
Class B
Shares of common stock outstanding,
$0.10 par value, 250,000,000 shares authorized
(Net Assets $150,512,724) 11,193,735
Net asset value and offering price per share $13.45
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997
(Unaudited)
Investment Income
Interest $13,351,226
Dividends 226,948
------------
Total investment income 13,578,174
------------
Expenses
Investment advisory fee 889,647
Distribution fee--Class A 220,184
Distribution fee--Class B 736,805
Financial agent fee 65,622
Transfer agent 208,496
Professional 25,938
Printing 22,012
Registration 20,124
Custodian 17,854
Directors 11,354
Miscellaneous 7,423
------------
Total expenses 2,225,459
------------
Net investment income 11,352,715
------------
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain on securities 11,097,730
Net realized loss on foreign currency transactions (10,732)
Net change in unrealized appreciation (depreciation)
on investments (7,043,305)
------------
Net gain on investments 4,043,693
------------
Net increase in net assets resulting from operations $15,396,408
============
See Notes to Financial Statements
6
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
April 30, 1997 Year Ended
(Unaudited) October 31, 1996
---------------- ----------------
<S> <C> <C>
From Operations
Net investment income $ 11,352,715 $ 22,244,512
Net realized gain 11,086,998 10,341,278
Net change in unrealized appreciation (depreciation) (7,043,305) 5,985,981
-------------- --------------
Increase in net assets resulting from operations 15,396,408 38,571,771
-------------- --------------
From Distributions to Shareholders
Net investment income--Class A (6,231,272) (12,387,209)
Net investment income--Class B (4,687,712) (9,458,214)
-------------- --------------
Decrease in net assets resulting from distributions to shareholders (10,918,984) (21,845,423)
-------------- --------------
From Share Transactions
Class A
Proceeds from sales of shares (2,204,044 and 5,502,177 shares,
respectively) 29,915,441 70,788,640
Net asset value of shares issued from reinvestment of distributions
(293,548 and 587,270 shares, respectively) 3,969,891 7,517,879
Cost of shares repurchased (1,666,649 and 6,751,478 shares,
respectively) (22,511,629) (86,500,171)
-------------- --------------
Total 11,373,703 (8,193,652)
-------------- --------------
Class B
Proceeds from sales of shares (1,271,479 and 1,249,907 shares,
respectively) 17,138,237 16,054,776
Net asset value of shares issued from reinvestment of distributions
(135,967 and 275,807 shares, respectively) 1,836,077 3,526,914
Cost of shares repurchased (996,746 and 2,226,264 shares,
respectively) (13,437,886) (28,475,995)
-------------- --------------
Total 5,536,428 (8,894,305)
-------------- --------------
Increase (decrease) in net assets from share transactions 16,910,131 (17,087,957)
-------------- --------------
Net increase (decrease) in net assets 21,387,555 (361,609)
Net Assets
Beginning of period 312,533,202 312,894,811
-------------- --------------
End of period (including undistributed net investment income and
distributions in excess of net investment income of $117,637 and
($316,094), respectively) $333,920,757 $312,533,202
============== ==============
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Phoenix Multi-Sector Fixed Income Fund, Inc.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------
Six Months
Ended
4/30/97 Year Ended October 31,
(Unaudited) 1996 1995 1994 1993 1992
----------- ---------------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $13.27 $12.56 $11.94 $14.13 $13.29 $12.81
Income from investment operations
Net investment income 0.49 0.94 0.96 0.76 1.14 1.24
Net realized and unrealized gain
(loss) 0.18 0.72 0.61 (1.35) 1.08 0.50
--------- -------- ---------- --------- -------- ---------
Total from investment
operations 0.67 1.66 1.57 (0.59) 2.22 1.74
--------- -------- ---------- --------- -------- ---------
Less distributions
Dividends from net investment
income (0.47) (0.95) (0.95) (0.77) (1.19) (1.21)
Dividends from net realized
gains -- -- -- (0.63) (0.17) (0.05)
In excess of net investment
income -- -- -- (0.05) (0.02) --
Tax return of capital -- -- -- (0.15) -- --
--------- -------- ---------- --------- -------- ---------
Total distributions (0.47) (0.95) (0.95) (1.60) (1.38) (1.26)
--------- -------- ---------- --------- -------- ---------
Change in net asset value 0.20 0.71 0.62 (2.19) 0.84 0.48
--------- -------- ---------- --------- -------- ---------
Net asset value, end of period $13.47 $13.27 $12.56 $11.94 $14.13 $13.29
========= ======== ========== ========= ======== =========
Total return(1) 5.12%(2) 13.75% 13.83% (4.57)% 17.55% 14.11%
Ratios/supplemental data:
Net assets, end of period
(thousands) $183,408 $169,664 $168,875 $172,966 $176,859 $141,627
Ratio to average net assets of:
Operating expenses 1.03%(3) 1.07% 1.10% 1.13% 1.29% 1.48%
Net investment income 7.36%(3) 7.56% 8.10% 7.05% 8.27% 9.42%
Portfolio turnover 142%(2) 255% 201% 123% 207% 116%
</TABLE>
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------
Year Ended October 31,
Six Months From
Ended Inception
4/30/97 1/3/92 to
(Unaudited) 1996 1995 1994 1993 10/31/92
----------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $13.25 $12.54 $11.93 $14.10 $13.25 $13.02
Income from investment operations
Net investment income 0.44 0.85 0.86 0.68 1.04 0.94
Net realized and unrealized gain
(loss) 0.19 0.71 0.61 (1.36) 1.08 0.21
--------- --------- --------- --------- --------- ---------
Total from investment
operations 0.63 1.56 1.47 (0.68) 2.12 1.15
--------- --------- --------- --------- --------- ---------
Less distributions
Dividends from net investment
income (0.43) (0.85) (0.86) (0.67) (1.08) (0.92)
Dividends from net realized
gains -- -- -- (0.63) (0.17) --
In excess of net investment
income -- -- -- (0.05) (0.02) --
Tax return of capital -- -- -- (0.14) -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.43) (0.85) (0.86) (1.49) (1.27) (0.92)
--------- --------- --------- --------- --------- ---------
Change in net asset value 0.20 0.71 0.61 (2.17) 0.85 0.23
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $13.45 $13.25 $12.54 $11.93 $14.10 $13.25
========= ========= ========= ========= ========= =========
Total return(1) 4.75%(2) 12.84% 12.96% (5.21)% 16.78% 8.81%(2)
Ratios/supplemental data:
Net assets, end of period
(thousands) $150,513 $142,869 $144,020 $156,629 $193,064 $82,522
Ratio to average net assets of:
Operating expenses 1.78%(3) 1.82% 1.85% 1.78% 1.99% 2.18%(3)
Net investment income 6.61%(3) 6.80% 7.30% 6.46% 7.36% 8.47%(3)
Portfolio turnover 142%(2) 255% 201% 123% 207% 116%
</TABLE>
(1) Maximum sales charges are not reflected in the total return calculation.
(2) Not annualized
(3) Annualized
See Notes to Financial Statements
8
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (Unaudited)
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's
investment objective is to maximize current income consistent with the
preservation of capital by investing in fixed income securities. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.
A. Security valuation:
Debt securities are valued on the basis of broker quotations or valuations
provided by a pricing service which utilizes information with respect to recent
sales, market transactions in comparable securities, quotations from dealers,
and various relationships between securities in determining value. Short-term
investments having a remaining maturity of 60 days or less are valued at
amortized cost which approximates market. All other securities and assets are
valued at their fair value as determined in good faith by or under the direction
of the Directors.
B. Security transactions and related income:
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Discounts and premiums are amortized to income
using the effective interest method. Realized gains and losses are determined on
the identified cost basis.
C. Income taxes:
It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies, and to
distribute substantially all of its taxable 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, 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 and 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
trade date. 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.
F. When-Issued and delayed delivery transactions:
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains collateral for
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis begin earning interest on the settlement date.
G. Credit risk:
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such investments
may be volatile. The consequences of political, social or economic changes in
these markets may have disruptive effects on the market prices of these
investments and the income they generate, as well as a fund's ability to
repatriate such amounts.
H. Loan agreements:
The Fund may invest in direct debt instruments which are interests in
amounts owned by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments
9
<PAGE>
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 (Unaudited) (Continued)
in loans may be in the form of participations in loans or assignments of all or
a portion of loans from third parties. A loan is often administered by a bank or
other financial institution (the lender) that acts as agent for all holders. The
agent administers the terms of the loan, as specified in the loan agreement.
When investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only from
the lender selling the loan agreement and only upon receipt by the lender of
payments from the borrower. The Fund generally has no right to enforce
compliance with the terms of the loan agreement with the borrower. As a result,
the Fund may be subject to the credit risk of both the borrower and the lender
that is selling the loan agreement. When the Fund purchases assignments from
lenders it acquires direct rights against the borrower on the loan. Direct
indebtedness of emerging countries involves a risk that the government entities
reponsible for the repayment of the debt may be unable, or unwilling to pay the
principal and interest when due.
2. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS
As compensation for its services to the Fund, the Investment Adviser, National
Securities and Research Corporation, an indirect majority-owned subsidiary of
Phoenix Home Life Mutual Insurance Company ("PHL"), is entitled to a fee at an
annual rate of 0.55% 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 majority-owned subsidiary of PHL, has advised the Fund that it
retained net selling commissions of $39,465 for Class A shares and deferred
sales charges of $233,387 for Class B shares for the six months ended April 30,
1997. 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 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 six months ended April 30, 1997,
$628,540 was earned by the distributor and $328,449 was earned by unaffiliated
participants.
As Financial Agent of the Fund, PEPCO received a fee for bookkeeping,
administration, and pricing services at an annual rate of 0.03% of the average
daily net assets of the Fund through December 31, 1996, and starting on January
1, 1997, at an annual rate of 0.05% of average daily net assets up to $100
million, 0.04% of average daily net assets of $100 million to $300 million,
0.03% of average daily net assets of $300 million through $500 million, and
0.015% of average daily net assets greater than $500 million; a minimum fee may
apply. PEPCO serves as the Fund's Transfer Agent with State Street Bank and
Trust Company as sub-transfer agent. For the six months ended April 30, 1997,
transfer agent fees were $208,496 of which PEPCO retained $100,652 which is net
of the fees paid to State Street.
At April 30, 1997, PHL and affiliates held 11,135 Class A shares and 12 Class
B shares of the Fund with a combined value of $150,151.
3. PURCHASE AND SALE OF SECURITIES
Purchases and sales of securities, excluding short-term securities and
options, for the six months ended April 30, 1997, aggregated $473,028,758 and
$460,285,577, including $97,244,422 and $117,237,050, of U.S. Government and
agency securities, respectively.
4. CAPITAL LOSS CARRYFORWARDS
At October 31, 1996, the Fund had capital loss carryforwards aggregating
$8,579,546 available to offset future gains and expiring in 2003.
This report is not authorized for distribution to prospective investors in the
Phoenix Multi-Sector Fixed Income Fund, Inc. unless preceded or accompanied by
an effective Prospectus which includes information concerning the sales charge,
Fund's record and other pertinent information.
10
<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 the
Semiannual Report to Shareholders for the period ended April
30, 1997, incorporated by reference.
(b) Exhibits:
<TABLE>
<S> <C>
1. Articles of Incorporation of the Registrant and amendments thereto, previously filed, filed via Edgar with
Post-Effective Amendment No. 10 on February 24, 1997 and herein incorporated by reference.
1.1 Articles of Amendment changing name of Corporation to Phoenix Multi-Sector Fixed Income Fund, Inc.,
and Articles Supplementary reclassifying shares filed with Post-Effective Amendment No. 8 on February
27, 1995, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 and incorporated
herein by reference.
2. By-laws of the Registrant, previously filed, filed via Edgar with Post-Effective Amendment No. 10 on
February 24, 1997 and herein incorporated by reference.
3. Not applicable.
4. Reference is made to Exhibit 1.1, Articles Supplementary to the Articles of Incorporation reclassifying shares.
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, filed via Edgar with Post-
Effective Amendment No. 10 on February 24, 1997 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, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 and
incorporated herein by reference.
6. 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, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 and incorporated
herein by reference.
6.1 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, filed via Edgar with Post-Effective
Amendment No. 10 on February 24, 1997 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.
8.1 Amendment to Custodian Contract between Registrant and State Street Bank and Trust Company dated
October 17, 1996 filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 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, filed via Edgar with
Post-Effective Amendment No. 10 on February 24, 1997 and incorporated herein by reference.
9.1 Form of Sales Agreement filed with Post-Effective Amendment No. 6 on December 30, 1993, filed via
Edgar with Post-Effective Amendment No. 10 on February 24, 1997 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, filed via Edgar with Post-Effective
Amendment No. 10 on February 24, 1997 and incorporated herein by reference.
9.3 Financial Agent Agreement between Registrant and Phoenix Equity Planning Corporation dated
December 11, 1996, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 and
incorporated herein by reference.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
9.4 First Amendment to Financial Agent Agreement between Registrant and Phoenix Equity Planning
Corporation dated January 1, 1997 filed via Edgar herewith.
9.5 Second Amendment to Financial Agent Agreement between Registrant and Phoenix Equity Planning
Corporation dated July 1, 1997 filed via EDGAR herewith.
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, filed via Edgar with Post-Effective Amendment No. 10 on
February 24, 1997 and incorporated herein by reference.
11. Consent of Independent Accountants filed via Edgar with Post-Effective Amendment No. 10 on February
24, 1997 and incorporated herein by reference.
12. Not Applicable
13. None.
14. None.
15. Distribution Plan for Class A Shares dated May 14, 1993 filed with Post-Effective Amendment No. 6 on
December 30, 1993, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 and
incorporated herein by reference.
15.1 Distribution Plan for Class B Shares dated May 14, 1993 filed with Post-Effective Amendment No. 6 on
December 30, 1993, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 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, filed via Edgar with Post-Effective Amendment No. 10 on February 24, 1997 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 via Edgar with Post-Effective
Amendment No. 9 and incorporated herein by reference.
18.1 Amended and Restated Plan Pursuant to Rule 18f-3 effective November 1, 1995 filed via Edgar with
Post-Effective Amendment No. 10 on February 24, 1997 and incorporated herein by reference.
18.2 Amended and Restated Plan Pursuant to Rule 18f-3 effective November 1, 1996 filed via Edgar with
Post-Effective Amendment No. 10 on February 24, 1997 and incorporated herein by reference.
18.3 First Amendment to the Amended and Restated Plan Pursuant to Rule 18f-3 dated May 28, 1997 filed via
Edgar herewith.
19. Powers of Attorney for Ms. Curtiss and Messrs. Blinn, Chesek, Conroy, Dalzell-Payne, Jeffries, Keith,
Morris, Oates, Pedersen, Reynolds, Roth, Segerson and Weicker filed via Edgar with Post-Effective
Amendment No. 10 on February 24, 1997 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, 1996, the number of record holders of each class of
securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Number of
Title of Class Record-holders
- - ------------------------- ---------------
<S> <C>
Common Stock--Class A 7,529
Common Stock--Class B 5,530
Common Stock--Class C 0
Common Stock--Class M 0
</TABLE>
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.
C-2
<PAGE>
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 to the
Registration Statement.
For information as to the business, profession, vocation or employment of
a substantial nature of directors and officers of National Securities &
Research Corporation, the Adviser, reference is made to the Adviser's current
Form ADV (SEC File No. 801-8177) filed under the Investment Advisers Act of
1940 and incorporated herein by reference.
Item 29. Principal Underwriters
(a) See "Distribution Plans" and "How to Buy Shares" in the Prospectus and
"The Distributor" and "Plans of Distribution" in the Statement of
Additional Information, both of which are included in this Post-Effective
Amendment to the Registration Statement.
(b)
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name and Principal Address with Distributor with Registrant
- - ---------------------------- --------------------------- -------------------------
<S> <C> <C>
Michael E. Haylon Director Executive Vice President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and President Director and President
56 Prospect St.
P.O. Box 150480
Hartford, CT 06115-0480
David R. Pepin Executive Vice President, Executive Vice President
56 Prospect St. Mutual Fund Sales and
P.O. Box 150480 Operations
Hartford, CT 06115-0480
Leonard J. Saltiel Managing Director, Vice President
100 Bright Meadow Blvd. Operations and Service
P.O. Box 1900
Enfield, CT 06083-1900
Paul A. Atkins Senior Vice President and None
56 Prospect St. Sales Manager
P.O. Box 150480
Hartford, CT 06115-0480
Maris L. Lambergs Senior Vice President, None
100 Bright Meadow Blvd. Insurance and Independent
P.O. Box 1900 Division
Enfield, CT 06083-1900
William R. Moyer Senior Vice President and Vice President
100 Bright Meadow Blvd. Chief Financial Officer
P.O. Box 1900
Enfield, CT 06083-1900
John F. Sharry Managing Director, Mutual None
100 Bright Meadow Blvd. Fund Distribution
P.O. Box 1900
Enfield, CT 06083-1900
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name and Principal Address with Distributor with Registrant
- - ---------------------------- ------------------------------- -----------------------
<S> <C> <C>
G. Jeffrey Bohne Vice President, Mutual Fund Secretary
101 Munson Street Customer Service
P.O. Box 810
Greenfield, MA 01302-0810
Eugene A. Charon Vice President and Controller None
100 Bright Meadow Blvd.
P.O. Box 1900
Enfield, CT 06083-1900
Nancy G. Curtiss Vice President and Treasurer, Treasurer
56 Prospect St. Fund Accounting
P.O. Box 150480
Hartford, CT 06115-0480
Elizabeth R. Sadowinski Vice President, None
56 Prospect St. Administration
P.O. Box 150480
Hartford, CT 06115-0480
Thomas N. Steenburg Vice President, Counsel and Assistant Secretary
56 Prospect St. Secretary
P.O. Box 150480
Hartford, CT 06115-0480
William E. Keen, III Assistant Vice President, Vice President
100 Bright Meadow Blvd. Mutual Fund Regulation
P.O. Box 1900
Enfield, CT 06083-1900
</TABLE>
(c) To the best of the Registrant's knowledge, no commissions or other
compensation was received by any principal underwriter who is not an
affiliated person of the Registrant or an affiliated person of such
affiliated person, directly or indirectly, from the Registrant during the
Registrant's last fiscal year.
Item 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, 56
Prospect Street, Hartford, Connecticut 06115, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Hartford and State of Connecticut on
the 15th day of August, 1997.
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 indicated, on the 15th day of August, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Director
- - ---------------------------------
Duane Blinn*
Director
- - ---------------------------------
Robert Chesek*
Director
- - ---------------------------------
E. Virgil Conway*
Treasurer
- - --------------------------------- (Principal Financial and Accounting Officer)
Nancy G. Curtiss*
Director
- - ---------------------------------
Harry Dalzell-Payne*
Director
- - ---------------------------------
Francis E. Jeffries*
Director
- - ---------------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin President and Director
- - --------------------------------- (Principal Executive Officer)
Philip R. McLoughlin
Director
- - ---------------------------------
Everett L. Morris*
Director
- - ---------------------------------
James M. Oates*
Director
- - ---------------------------------
Calvin J. Pedersen*
Director
- - ---------------------------------
Philip R. Reynolds*
Director
- - ---------------------------------
Herbert Roth, Jr.*
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Director
---------------------------------
Richard E. Segerson*
Director
---------------------------------
Lowell P. Weicker, Jr.*
By: /s/ Philip R. McLoughlin
- - ----------------------------------
</TABLE>
* Philip R. McLoughlin, attorney-in-fact pursuant to powers of attorney
previously filed.
S-2
FIRST AMENDMENT TO FINANCIAL AGENT AGREEMENT
THIS AMENDMENT made effective as of the 1st day of January, 1997 amends that
certain Financial Agent Agreement dated December 11, 1996 by and among the
following parties (the "Agreement") as hereinbelow provided.
W I T N E S S E T H :
WHEREAS, due to a scrivener's error, the Phoenix Convertible Fund
Series was incorrectly classified as an "Equity" series rather than a "Balanced"
series for purposes of applying the minimum fee; and
WHEREAS, the parties wish to correct this error and correctly classify
the Phoenix Convertible Fund Series as a "Balanced" series:
NOW, THEREFORE, in consideration of the foregoing premises, Schedule A
to the Agreement is hereby replaced with "Revised Schedule A" attached hereto
and made a part hereof. Except as hereinabove provided, the Agreement shall be
and remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers on this 25th day of February, 1997.
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX SERIES FUND
PHOENIX STRATEGIC ALLOCATION FUND, INC.
PHOENIX STRATEGIC EQUITY SERIES FUND
PHOENIX WORLDWIDE OPPORTUNITIES FUND
By: /s/ Philip R. McLoughlin
-----------------------------------
Philip R. McLoughlin
President (as to all)
PHOENIX EQUITY PLANNING CORPORATION
By: /s/ David R. Pepin
-----------------------------------
David R. Pepin
Executive Vice President
<PAGE>
REVISED SCHEDULE A
FEE SCHEDULE
FEE INFORMATION FOR SERVICES AS FINANCIAL AGENT
Annual Financial Agent Fees shall be based on the following formula:
(1) An incremental schedule applies as follows:
<TABLE>
<S> <C>
Up to $100 million: 5 basis points on average daily net assets
$100 million to $300 million: 4 basis points on average daily net assets
$300 million thru $500 million: 3 basis points on average daily net assets
Greater than $500 million: 1.5 basis points on average daily net assets
</TABLE>
A minimum fee will apply as follows:
Money Market $35,000
Equity $50,000
Balanced $60,000
Fixed Income $70,000
International $70,000
REIT $70,000
(2) An additional charge of $12,000 applies for each additional class
of shares above one, over and above the minimum asset-based fee previously
noted.
The following tables indicates the classification and effective date
for each of the applicable fund/series/portfolio:
Classification Series Name
-------------- -----------
Money Market Phoenix Money Market Fund Series
Equity Phoenix Aggressive Growth Fund Series
Phoenix Endowment Equity Portfolio
Phoenix Equity Opportunities Fund
Phoenix Growth Fund Series
Phoenix Micro Cap Fund
Phoenix Mid Cap Portfolio
Phoenix Small Cap Fund
Phoenix Strategic Theme Fund
<PAGE>
Classification Series Name
-------------- -----------
Balanced Phoenix Balanced Fund Series
Phoenix Convertible Fund Series
Phoenix Income and Growth Fund
Phoenix Strategic Allocation Fund, Inc.
Fixed Income Phoenix California Tax Exempt Bonds, Inc.
Phoenix Diversified Income Portfolio
Phoenix Emerging Markets Bond Portfolio
Phoenix High Yield Fund Series
Phoenix Multi-Sector Fixed Income Fund, Inc.
Phoenix Multi-Sector Short Term Bond Fund
Phoenix Tax-Exempt Bond Portfolio
Phoenix U.S. Government Securities Fund Series
International Phoenix International Portfolio
Phoenix Worldwide Opportunities Fund
REIT Phoenix Real Estate Securities Portfolio
EXHIBIT 9.5
SECOND AMENDMENT TO FINANCIAL AGENT AGREEMENT
THIS AMENDMENT made effective as of the 1st day of July, 1997 amends that
certain Financial Agent Agreement dated December 11, 1997 and amended January 1,
1997 by and among the following parties (the "Agreement") as hereinbelow
provided.
W I T N E S S E T H :
WHEREAS, the parties hereto wish to amend the Agreement to include an
express provision to allow the addition of funds without necessitating a formal
amendment to said Agreement:
NOW, THEREFORE, in consideration of the foregoing premise, Paragraph 8
of the Agreement is renumbered to Paragraph 9 and the following language
inserted as the new Paragraph 8:
8. Additional Funds
Additional funds may become party to this Agreement by
notifying the Financial Agent in writing, and if the Financial Agent
agrees in writing to provide its services, such fund shall become a
Trust subject to the terms of the Agreement. Such notification shall
include a revised Schedule A reflecting the new fund(s) as added to
the appropriate fund classification(s).
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed by their duly authorized officers on this 22nd day of
July, 1997.
PHOENIX CALIFORNIA TAX EXEMPT BONDS, INC.
PHOENIX INCOME AND GROWTH FUND
PHOENIX MULTI-PORTFOLIO FUND
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC.
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
PHOENIX SERIES FUND
PHOENIX STRATEGIC ALLOCATION FUND, INC.
PHOENIX STRATEGIC EQUITY SERIES FUND
PHOENIX WORLDWIDE OPPORTUNITIES FUND
By: /s/ Philip R. McLoughlin
--------------------------------------
Philip R. McLoughlin
President
PHOENIX EQUITY PLANNING CORPORATION
By: /s/ David R. Pepin
---------------------------------------
David R. Pepin
Executive Vice President
EXHIBIT 18.3
PHOENIX FUNDS
(the "Funds")
FIRST AMENDMENT TO THE
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18f-3
under the
INVESTMENT COMPANY ACT OF 1940
That certain Amended and Restated Plan Pursuant to Rule 18f-3 under the
Investment Company Act of 1940 duly adopted by the Board of Directors/Trustees
of the Funds on November 20, 1996, is hereby amended as follows:
1. The first and last sentences of Section 2. The Multi-Class Structure
are deleted and the following two sentences substituted therefor:
The portfolios of the Funds listed on Schedule A hereto shall offer up to four
classes of shares as indicated on Schedule A: Class A, Class B, Class C and
Class M. ( . . . ) In addition, Class A, Class B, Class C and Class M shares
shall have the features described in Sections a, b, c and d, below.
2. The following two subparagraphs are added to Section 2a. Distribution
Plans immediately following subparagraph 2a(ii):
iii. Class C shares of each Multi-Class Portfolio shall reimburse the
Distributor for costs and expenses incurred in connection with distribution
and marketing of shares thereof, as provided in the Class C Distribution
Plan and any supplements thereto, subject to an annual limit of 1.00%, or
in some cases 0.50%, of the average daily net assets of a Multi-Class
Portfolio's Class C shares.
iv. Class M shares of each Multi-Class Portfolio shall reimburse the
Distributor for costs and expenses incurred in connection with distribution
and marketing of shares thereof, as provided in the Class M Distribution
Plan and any supplements thereto, subject to an annual limit of 0.50% of
the average daily net assets of a Multi-Class Portfolio's Class M shares.
3. Schedule A is amended as attached hereto.
This Amendment was approved by the Board of Directors/Trustees at a meeting
held on May 28, 1997.
/s/ Thomas N. Steenburg
---------------------------------
Assistant Secretary
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Class A Class B Class C Class M
<S> <C> <C> <C> <C>
PHOENIX CALIFORNIA TAX -EXEMPT BONDS, INC. X X __ __
PHOENIX INCOME AND GROWTH FUND X X __ __
PHOENIX MULTI-PORTFOLIO FUND:
EMERGING MARKETS BOND PORTFOLIO X X X X
INTERNATIONAL PORTFOLIO X X __ __
MID CAP PORTFOLIO X X __ __
REAL ESTATE SECURITIES PORTFOLIO X X __ __
STRATEGIC INCOME PORTFOLIO X X X X
TAX-EXEMPT BOND PORTFOLIO X X __ __
PHOENIX MULTI-SECTOR FIXED INCOME FUND, INC. X X X X
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND X X X __
PHOENIX SERIES FUND:
AGGRESSIVE GROWTH FUND SERIES X X __ __
BALANCED FUND SERIES X X __ __
CONVERTIBLE FUND SERIES X X __ __
GROWTH FUND SERIES X X __ __
HIGH YIELD FUND SERIES X X X X
MONEY MARKET FUND SERIES X X X X
U.S. GOVERNMENT SECURITIES FUND X X __ __
SERIES
PHOENIX STRATEGIC EQUITY SERIES FUND:
EQUITY OPPORTUNITIES FUND X X __ __
MICRO CAP FUND X X __ __
SMALL CAP FUND X X __ __
STRATEGIC THEME FUND X X X X
PHOENIX STRATEGIC ALLOCATION FUND, INC. X X __ __
PHOENIX WORLDWIDE OPPORTUNITIES FUND X X __ __
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> PHOENIX MULTI-SECTOR FIXED INCOME FUND INC. CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 330398
<INVESTMENTS-AT-VALUE> 331799
<RECEIVABLES> 26326
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 358125
<PAYABLE-FOR-SECURITIES> 22691
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1513
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