As filed with the Securities and Exchange Commission on September 26, 1997
Registration No. 33-45758
Investment Company Act File No. 811-6566
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
and/or
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 9 [X]
(Check appropriate box or boxes.)
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Phoenix Multi-Sector Short Term Bond Fund
(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--Shareholder Services
(800) 243-1574
(Registrant's Telephone Number including Area Code)
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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)
[X] on October 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on _______________________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on _______________________ pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Declaration Pursuant to Rule 24f-2
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Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. A
Rule 24f-2 Notice for the fiscal year ended on October 31, 1996 was filed by
Registrant with the Commission on December 28, 1996.
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<PAGE>
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
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
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<S> <C> <C>
1. Cover Page ................................. Cover Page
2. Synopsis ................................. Introduction
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; Distribution
Plans; Investor Account Services
8. Redemption or Repurchase .................. How to Redeem Shares
9. Pending Legal Proceedings .................. 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 ........................ Cover Page; Investment Objective; Investment
Policies; Investment Restrictions
14. Management of the Fund .................................... Services of the Adviser; Trustees and Officers; Other
Information
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 Net Asset Value; How to Buy Shares; Investor Account
Offered ................................................... Services; How to Redeem Shares
20. Tax Status ................................................ Dividends, Distributions and Taxes
21. Underwriters ............................................. The Distributor
22. Calculation of Performance Data ........................... Performance Information
23. Financial Statements .................................... Financial Statements
</TABLE>
<PAGE>
[FRONT COVER]
P H O E N I X
FUNDS
Prospectus October 1, 1997
o Phoenix Multi-Sector
Short Term Bond Fund
[LOGOTYPE] PHOENIX
DUFF & PHELPS
<PAGE>
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
101 Munson Street
Greenfield, MA 01301
PROSPECTUS
October 1, 1997
Phoenix Multi-Sector Short Term Bond Fund (the "Fund") is a diversified,
open-end management investment company with an investment objective of
providing high current income relative to short-term alternatives, while
attempting to limit fluctuations in the net asset value of Fund shares
resulting from movements in interest rates.
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 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 1, 1997, which has been filed with the Securities and
Exchange Commission (the "Commission") and which is available 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 ..................... 14
PORTFOLIO TURNOVER ........................... 14
MANAGEMENT OF THE FUND ........................ 14
DISTRIBUTION PLANS ........................... 15
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
</TABLE>
2
<PAGE>
INTRODUCTION
This Prospectus describes the shares offered by, and the operations of
Phoenix Multi-Sector Short Term Bond Fund (the "Fund"). The Fund is a
diversified, open-end management investment company established as a business
trust under the laws of Massachusetts. The Fund's investment objective is to
provide high current income relative to other short-term investment
alternatives, while attempting to limit fluctuations in the net asset value of
Fund shares resulting from movements in interest rates. The Fund will seek to
achieve its objective by investing in the following market sectors: (a)
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; (b) debt securities issued by
foreign issuers, including foreign governments and their political
subdivisions; and (c) high yield ("junk bonds") and investment grade fixed
income securities. 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. There can be no
assurance that the Fund's 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 of the Fund and as such receives a fee. See "The Financial
Agent." Equity Planning also serves as the Fund's transfer agent. See "The
Custodian and Transfer Agent."
The Fund has adopted distribution plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). 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 plans adopted for Class B and C Shares, the Fund shall
reimburse the Distributor up to a maximum annual rate of .75% of the Fund's
average daily Class B Share net assets and .50% of the Fund's average daily
Class C Share net assets for distribution expenditures incurred in connection
with the sale and promotion of Class B and C Shares, respectively, and for
furnishing shareholder services. See "Distribution Plans."
Purchase of Shares
The Fund offers two classes of shares which may be purchased at a price
equal to their net asset value per share plus sales charges which, at the
election of the purchaser, may be imposed (i) at the time of purchase (the
"Class A Shares"), or (ii) on a contingent deferred basis (the "Class B
Shares"), and one class of shares which may be purchased at a price equal to
their net asset value without a sales charge (the "Class C Shares").
Class A Shares are offered to the public at the next determined net asset
value after receipt of the order by State Street Bank and Trust Company ("State
Street Bank") plus a maximum sales charge of 2.25% of the offering price (2.30%
of the amount invested) on single purchases of less than $50,000. The sales
charge for Class A Shares is reduced on a graduated scale on single purchases
of $50,000 or more and subject to other conditions stated below. See "Initial
Sales Charge Alternative--Class A Shares" and "How to Obtain Reduced Sales
Charges--Class A Shares."
Class B 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 three
years of purchase. See "Deferred Sales Charge Alternative--Class B Shares" and
"How to Obtain Reduced Sales Charges--Class B Shares."
Class 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. See
"No Sales Charge Alternative--Class C Shares" and "How to Buy Shares."
Shares of each class represent an identical interest in the investment
portfolio of the Fund and generally have the same rights. For more information
on fees and charges applicable to the Fund and each Class, refer to the "Fund
Expenses" and "How to Buy Shares."
Completed applications for the purchase of shares should be mailed to the
Phoenix Funds, c/o State Street Bank and Trust Company, P.O. Box 8301, Boston,
MA 02266-8301. See "How to Buy Shares."
Minimum Initial and Subsequent Investments
The minimum initial investment is $500 ($25 if using the bank draft
investment program designated "Investo-Matic"), and the minimum subsequent
investment is $25. Exceptions to the minimum and subsequent investment amounts
are available under certain circumstances. See "How to Buy Shares."
Redemption Price
Class A and C 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. Class B shareholders redeeming shares within three years of the date of
purchase will normally be assessed a contingent deferred sales charge. See "How
to Redeem Shares."
Risk Factors
There can be no assurance that the Fund will achieve its investment
objective. In addition, special risks may be presented
3
<PAGE>
by the particular types of securities in which the Fund may invest. For
example, the Fund may invest up to 35% of its assets in below investment grade
securities (rated below BBB/Baa by Standard & Poor's Corporation and Moody's
Investor's Service, Inc.). 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 all fees and expenses a shareholder will
incur. The fees and expenses set forth in the table are for the six month
period ended April 30, 1997 and have been pro-rated to reflect a full year of
operation.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares (c)
---------------- --------------------- --------------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 2.25% None None
Maximum Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load (as a percentage of original None 2% during the first None
purchase price or redemption proceeds, as applicable) year, decreasing
.50% annually to
1% during the third
year and dropping
from 1% to 0% after
the third year.
Redemption Fee None None None
Exchange Fee None None None
Annual Fund Operating Expenses
(as a percentage of average net assets for
the year ended October 31, 1996)
Management Fees .55% .55% .55%
12b-1 Fees .25%(a) .75% .50%
Other Operating Expenses
(After Expense Reimbursement) (b) .20% .20% .20%
----- ------ ------
Total Fund Operating Expenses 1.00% 1.50% 1.25%
===== ====== ======
</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 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) The Adviser has agreed to reimburse the Fund's operating expenses other
than Management Fees and Rule 12b-1 Fees related to Class A, Class B and Class C
Shares for the amount, if any, by which such operating expenses for the fiscal
year ended October 31, 1997, exceed .20% of the average net assets. Other
Operating Expenses for Class A and Class B Shares would have been 1.39% and
1.39%, respectively, and Total Fund Operating Expenses for Class A and Class B
Shares would have been 2.19% and 2.69%, respectively, absent such waiver or
reimbursement, for the fiscal year ended October 31, 1996.
(c) Prior to October 1, 1997, Class C Shares were not issued.
<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 $32 $54 $77 $142
Class B Shares $30 $47 $82 $153
Class C Shares $13 $40 $69 $151
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 $32 $54 $77 $142
Class B Shares $15 $47 $82 $153
Class C Shares $13 $40 $69 $151
</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 six 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, except for the six month
period ending April 30, 1997, 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 by calling
(800) 243-4361.
FINANCIAL HIGHLIGHTS
(Selected data for a share outstanding throughout the indicated period)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Six Months Year Ended From
Ended October 31, Inception
4/30/97 ------------------------------------------------- 7/6/92 to
(Unaudited) 1996 1995 1994 1993 10/31/92
------------ ---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $ 4.91 $ 4.74 $ 4.61 $ 4.91 $ 4.83 $ 4.89
Income from investment
operations
Net investment income ...... 0.17(2) 0.33(2) 0.33(2) 0.29(2) 0.32(2) 0.08(2)
Net realized and
unrealized gain (loss) ...... 0.06 0.17 0.13 (0.26) 0.08 (0.06)
------- -------- ------- ------- ------- ------
Total from investment
operations ............... 0.23 0.50 0.46 0.03 0.40 0.02
------- -------- ------- ------- ------- ------
Less distributions
Dividends from net
investment income ......... (0.17) (0.33) (0.33) (0.29) (0.32) (0.08)
Dividends from net
realized gains ............ -- -- -- (0.03) -- --
Tax return of capital ...... -- -- -- (0.01) -- --
------- -------- ------- ------- ------- ------
Total distributions ......... (0.17) (0.33) (0.33) (0.33) (0.32) (0.08)
------- -------- ------- ------- ------- ------
Change in net asset value ... 0.06 0.17 0.13 (0.30) 0.08 (0.06)
------- -------- ------- ------- ------- ------
Net asset value, end of
period ..................... $ 4.97 $ 4.91 $ 4.74 $ 4.61 $ 4.91 $ 4.83
======= ======== ======= ======= ======= ======
Total return(1) ............... 4.66%(5) 10.91% 10.27% 0.40% 8.49% 0.40%(5)
Ratios/supplemental data:
Net assets, end of period
(thousands) .................. $21,606 $13,702 $9,303 $9,371 $6,829 $6,531
Ratio to average net assets of:
Operating expenses ......... 1.00%(4) 1.00% 1.00% 1.00% 1.00% 1.00%(4)
Net investment income ...... 6.67%(4) 6.88% 7.07% 5.99% 6.39% 5.79%(4)
Portfolio turnover ............ 120%(5) 232% 344% 121% 128% 6%(4)
<CAPTION>
Class B
-------------------------------------------------------------------------------------------
Six Months Year Ended From
Ended October 31, Inception
4/30/97 ----------------------------------------------------------- 7/6/92 to
(Unaudited) 1996 1995 1994 1993 10/31/92
---------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $ 4.91 $ 4.74 $ 4.61 $ 4.91 $ 4.83 $ 4.89
Income from investment
operations
Net investment income ...... 0.15(3) 0.31(3) 0.30(3) 0.27(3) 0.30(3) 0.07(3)
Net realized and
unrealized gain (loss) ...... 0.06 0.17 0.13 (0.26) 0.08 (0.06)
------ ------- ------- ------- ------- ------
Total from investment
operations ............... 0.21 0.48 0.43 0.01 0.38 0.01
------ ------- ------- ------- ------- ------
Less distributions
Dividends from net
investment income ......... (0.15) (0.31) (0.30) (0.27) (0.30) (0.07)
Dividends from net
realized gains ............ -- -- -- (0.03) -- --
Tax return of capital ...... -- -- -- (0.01) -- --
------ ------- ------- ------- ------- ------
Total distributions ......... (0.15) (0.31) (0.30) (0.31) (0.30) (0.07)
------ ------- ------- ------- ------- ------
Change in net asset value ... 0.06 0.17 0.13 (0.30) 0.08 (0.06)
------ ------- ------- ------- ------- ------
Net asset value, end of
period ..................... $ 4.97 $ 4.91 $ 4.74 $ 4.61 $ 4.91 $ 4.83
====== ======= ======= ======= ======= ======
Total return(1) ............... 4.41%(5) 10.36% 9.71% (0.03%) 8.02% 0.20%(5)
Ratios/supplemental data:
Net assets, end of period
(thousands) .................. $8,287 $5,943 $4,659 $6,418 $3,968 $1,357
Ratio to average net assets of:
Operating expenses ......... 1.50%(4) 1.50% 1.50% 1.45% 1.45% 1.45%(4)
Net investment income ...... 6.22%(4) 6.38% 6.59% 5.74% 5.79% 5.30%(4)
Portfolio turnover ............ 120%(5) 232% 344% 121% 128% 6%(4)
</TABLE>
- -----------
(1) Maximum sales charges are not included in total return calculation.
(2) Includes reimbursement of operating expenses by investment adviser of
$0.02, $0.06, $0.08, $0.08, $0.09 and $0.14, respectively.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.02, $0.06, $0.08, $0.08, $0.09 and $0.21, respectively.
(4) Annualized.
(5) 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 proportionate share of each Class's expenses (on an
annual basis), deduction of the maximum initial sales load in the case of Class
A Shares or the maximum contingent deferred sales load applicable to a complete
redemption of the investment in the case of Class B Shares, and assume that all
dividends and distributions on each Class of Shares are reinvested when paid.
Performance data quoted for Class C Shares covering periods prior to the
inception of Class C Shares will reflect historical performance of Class A
Shares adjusted for the higher operating expenses applicable to Class C Shares.
The Fund also may quote supplementally a rate of total return over different
periods of time by means of aggregate, average, and year-by-year or other types
of total return figures. In addition, the Fund may from time to time publish
materials citing historical volatility for shares of the Fund.
The Fund may from time to time include in advertisements containing total
return the ranking of those performance figures relative to such figures for
groups of mutual funds having similar investment objectives as categorized by
ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and rating services
such as Morningstar, Inc. Additionally, the Fund may compare its performance
results to other investment or savings vehicles (such as certificates of
deposit) and may refer to results published in various publications such as
Changing Times, Forbes, Fortune, Money, Barrons, Business Week and Investor's
Daily, Stanger's Mutual Fund Monitor, The Stanger Register, Stanger's
Investment Adviser, The Wall Street Journal, The New York Times, Consumer
Reports, Registered Representative, Financial Planning, Financial Services
Weekly, Financial World, U.S. News and World Report, Standard and Poor's The
Outlook, and Personal Investor. The Fund may from time to time illustrate the
benefits of tax deferral by comparing taxable investments to investments made
through tax-deferred retirement plans. The total return may also be used to
compare the performance of the Fund against certain widely acknowledged outside
standards or indices for stock and bond market performance, such as the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), Dow Jones
Industrial Average, Europe Australia Far East Index (EAFE), Consumer Price
Index, Lehman Brothers Aggregate Bond Index, Merrill Lynch Medium Quality
Corporate Short-Term Bond 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 indices.
Advertisements, sales literature and communications may contain
information about the Fund or Adviser's current investment strategies and
management style. Current strategies and style may change to allow the Fund to
respond quickly to a changing market and economic 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, Merrill Lynch
Medium Quality Corporate Short-Term 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, or Class C Shares of the Fund
during the particular time period on which the calculations are based.
Performance information should be considered in light of the Fund's investment
objective and policies, characteristics and 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 provide high current income relative
to short-term investment alternatives, while attempting to limit fluctuations
in the net asset value of Fund shares resulting from movements in interest
rates. The Fund's investment objective is a fundamental policy and may not be
changed without approval of the holders of a majority of the outstanding shares
of the Fund. There can be no assurance that the Fund will achieve its
investment objective.
6
<PAGE>
The Fund will seek to achieve its objective by investing in a diversified
portfolio of fixed income securities comprised primarily of shorter-term
securities having an expected remaining weighted average maturity of three
years or less. The Fund will seek to achieve its objective by investing
primarily in a portfolio of shorter-term securities in the following market
sectors: (a) securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Securities"), (b) debt securities issued by foreign issuers, including foreign
governments and their political subdivisions ("Foreign Securities"); and (c)
high yield and investment grade fixed income securities. The Fund's assets
generally will be invested in each fixed income sector; however, the Fund may
invest any amount of its assets in any one sector (except the Fund may not
invest more than 35% of its assets determined at the time of investment in
foreign debt securities). The Fund may choose not to invest in a sector in
order to achieve its investment objective. By following this strategy, the
Fund's net asset value is anticipated to be relatively stable because, in
general, broad diversification over several market sectors tends to reduce
volatility. Under normal circumstances, the Fund's portfolio will be invested
primarily in shorter-term fixed income securities.
The Fund may, however, invest up to 35% of its assets in non-short-term
securities of differing maturities and in preferred stock. There will be
fluctuations in the Fund's net asset value per share in response to changes in
the value of the securities in which the Fund invests due to changes in
prevailing interest rates and other market and credit factors. It is
anticipated that such fluctuations will generally be less than that of
long-term securities, since the asset values of short-term securities (without
regard to other market and credit factors) are typically less sensitive to
interest rate movements than longer term securities.
The Fund has no requirements regarding whether the securities it purchases
must be rated. The Fund will typically invest at least 65% of its assets in
Investment Grade Securities which are rated, at the time of investment, BBB or
above by Standard & Poor's Corporation ("S&P"), Duff & Phelps Credit Rating Co.
("D&P") or Fitch Investor Services, Inc. ("Fitch"), or Baa or above by Moody's
Investor's Service, Inc. ("Moody's") (or, in the case of unrated securities,
judged by the Adviser to be of comparable quality). The Fund may invest up to
10% of its assets in High Yield-High Risk Securities rated, at the time of
investment, lower than B and as low as Caa by Moody's and CCC by S&P, D&P, or
Fitch. Fixed income securities rated lower than BBB by S&P or Baa by Moody's
are commonly referred to as "junk bonds." The Fund may invest up to 35% of its
assets in securities rated, at the time of investment, in securities rated
below BBB/Baa to as low as B by S&P, D&P, Fitch or Moody's. The Fund will not
invest in high yield securities rated at the time of investment lower than CCC
by S&P, D&P or Fitch or lower than Caa by Moody's. Securities rated CCC by S&P
are regarded by S&P as, on balance, 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. Securities rated Caa by Moody's are
regarded by Moody's to be of poor standing. The Fund may, but is not obligated
to, dispose of debt securities whose credit quality falls below investment
grade. For a more complete description of ratings of corporate obligations, see
the Appendix in the Statement of Additional Information. See also "Risk Factors
and Special Considerations."
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
time 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 the 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
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shares. In addition, the market value of U.S. Government Securities fluctuates
as interest rates change.
U.S. Government Securities in which the Fund invests may be issued by U.S.
Government agencies in the form of collateralized mortgage-backed obligations
("CMOs"). CMOs are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semiannually.
U.S. Government agency issued 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.
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.
U.S. Government Securities in which the Fund invests may be structured as
mortgage pass-through securities. 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 and other mortgage-related securities 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 markets 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 these securities. Prepayments occur when the holder of an
individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Although the specific pattern of prepayments is estimated and
reflected in the price paid for pass-through securities at the time of
purchase, the actual prepayment behavior of the relevant mortgages cannot be
known at that time. Therefore, it is not possible to predict accurately the
realized yield or average life of a particular issue of pass-through
securities. Prepayments that occur faster than estimated adversely affect
yields for pass-throughs purchased at a premium (that is, a price in excess of
principal amount), and may cause a loss of principal, because the premium may
not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase pass-through securities at a premium or at a discount.
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.
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. Therefore, pass-through
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. Changes in the
value of such securities will not affect interest payments 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 markets. 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 "Risk Factors and Special Considerations." While 35% or
less of the Fund's assets normally will be invested in foreign securities, the
overall percentage invested and the allocations among specific foreign
securities will vary depending upon the relative yields of such securities, the
relative strength of the economies and financial markets of eligible issuers
and the expected trends in the value of foreign currencies compared to the U.S.
dollar. The Fund will make this comparative analysis based on a review of
economic, financial, political and other relevant information reasonably
available to it. The Fund may hold foreign currency deposits or buy and sell
foreign currency contracts (including forward and swap contracts) in order to
protect against decreases in the U.S. dollar value of foreign securities. The
Fund's investment restrictions provide that it will not acquire a security if,
as a result, the Fund would have 25% or more of the value of its total assets
invested in the securities of any one industry. A foreign government will be
treated as an industry for purposes of this restriction. See "Investment
Restrictions" in the Statement of Additional Information.
Investment Grade Securities
Investment Grade Securities of domestic issuers in which the Fund may
invest include the following types of debt obligations of varying maturities
("Debt Obligations"): bonds, debentures, notes, municipal bonds, zero coupon
bonds, convertible securities, equipment lease certificates,
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equipment trust certificates, commercial and residential pass-through
securities and other mortgage-related securities deemed appropriate by the
Adviser, collateralized mortgage obligations issued by private issuers
("private label CMOs"), conditional sales contracts and commercial paper
(including obligations secured by such instruments).
Municipal bonds are debt obligations which generally have a maturity at
the time of issue in excess of one year and are issued to obtain funds for
various public purposes. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge
of the full faith and credit of the issuer of such bonds, but depend for
payment on the ability of the industrial user to meet its obligations (or any
property pledged as security).
Mortgage pass-through securities created by non-governmental issuers (such
as commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers) may be supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance and letters of credit, which may be issued by
governmental entities, private insurers or the mortgage poolers.
The Investment Grade Securities that the Fund may purchase consist of
securities rated Aaa/AAA, Aa/AA, A/A and Baa/BBB (the top four rating
categories) by Moody's, S&P, D&P or Fitch, respectively. Securities rated Baa
by Moody's or BBB by S&P are medium grade investment obligations. Moody's
describes securities rated Baa as having 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. See the Appendix in
the Statement of Additional Information for a complete description of ratings
of corporate obligations. The Fund may invest in Investment Grade Securities of
U.S. issuers that are denominated in foreign currencies. Such securities shall
not be counted for purposes of the 35% limit applicable to Foreign Securities.
The Fund may hold foreign currency deposits or buy and sell foreign currency
contracts (including forward and swap contracts) in order to protect against
decreases in the U.S. dollar value of such securities.
High Yield-High Risk Securities
High Yield-High Risk Securities in which the Fund may invest are preferred
or preference stock and debt obligations rated below investment grade by the
established rating agencies and unrated securities deemed to be of comparable
quality, which the Adviser believes will produce a relatively high yield
compared to short-term investments. These lower-rated and comparable unrated
securities, while selected for their relatively high yield, may be subject to
greater fluctuations in market value and greater risks of loss of income and
principal than higher-rated securities. High yields often reflect the greater
risks associated with the securities that offer such yields. Because of these
greater risks, high yield securities often carry lower ratings. They are also
colloquially known as "junk bonds."
The Adviser evaluates the purchase of high yield securities for the Fund
primarily through the exercise of its own investment and credit analysis and on
the ratings assigned by the rating agencies. The Adviser seeks to reduce risk
resulting from fluctuations in market value and limit fluctuations in the net
asset value per share of the Fund through diversification and by attention to
current developments and trends in both the economy and financial markets. The
Fund will invest only in the high yield securities of issuers which the Adviser
believes will continue to meet principal and interest payments.
The Fund may invest in high yield securities of domestic issuers which are
denominated in foreign currencies. Depending upon the specifics of each issue,
such securities may or may not be counted for purposes of the 35% limit
applicable to foreign securities. The Fund may hold foreign currency deposits
or buy and sell foreign currency contracts (including forward and swap
contracts) in order to protect against decreases in the U.S. dollar value of
such securities.
High yield securities may also include increasing rate notes. Increasing
rate notes are high yield, high risk securities with maturities ranging from
two to five years, whose interest rates increase under specified conditions.
They are normally issued as temporary financing with the anticipation of being
replaced or refinanced within six months to two years after issuance.
The Fund's investments in high yield securities will be limited to not
more than 35% of its assets. This restriction applies at the time of investment
and any subsequent change in the percentage due to changes in market value of
portfolio securities or other changes in the total assets will not be
considered a violation of this restriction. Because of the additional risks
associated with investments in these securities, an investor may wish to
consider carefully the manner in which the Fund seeks its objective, and the
investor's ability to assume these risks, before investing in the Fund.
INVESTMENT TECHNIQUES AND RELATED RISKS
In addition to the investment policies described above, the Fund may
utilize the following investment practices or techniques.
Hedging
General Policies. To preserve a return or spread on a particular
investment or portion of its portfolio, the Fund may enter into various hedging
transactions, such as interest rate swaps, and the purchase or sale of interest
rate collars, caps
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and floors. Hedging transactions may also be used to attempt to protect against
possible declines in the market value of the Fund's assets resulting from
downward trends in the debt securities markets (generally due to a rise in
interest rates), to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities or to establish
a position in the securities markets as a temporary substitute for purchasing
particular securities. Any or all of these techniques may be used at any time.
There is no particular strategy that requires use of one technique rather than
another. Use of any hedging transaction is a function of market conditions. The
hedging transactions that the Fund currently contemplates using are described
in more detail below. Further hedging transactions may be used by the Fund in
the future as they are developed or deemed by the Trustees to be appropriate,
and to be in the best interest of investors in the Fund. The Fund intends to
use these transactions as a hedge against interest rate fluctuations and not as
speculative investments. The Fund reserves the right, but has no current
intention, to enter into futures contracts, and to write and purchase options,
including foreign currency options and over-the-counter options.
Interest Rate Transactions. Interest rate swaps involve the exchange with
another party of commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate floor. An interest rate collar combines the elements of purchasing a cap
and selling a floor. The collar protects against an interest rate rise above
the maximum amount but gives up the benefit of an interest rate decline below
the minimum amount. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and any asset, including equity securities and
non-investment grade debt so long as the asset is liquid, unencumbered and
marked to market daily having an aggregate net asset value at least equal to
the accrued excess will be maintained in a pledged account by the Fund's
custodian. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction.
When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices and secure a favorable rate of return. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date, which can be a month or more
after the date of the transaction. At the time the Fund makes the commitment to
purchase securities on a when-issued or forward commitment basis, it will
record the transaction and thereafter reflect the value of such securities in
determining its net asset value. At the time the Fund enters into a transaction
on a when-issued or forward commitment basis, a segregated account consisting
of 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 when-issued or forward commitment securities will be established
and maintained with the Custodian. On the delivery date, the Fund will meet its
obligations from securities that are then maturing or from then available cash
flow. Typically no income accrues on securities purchased on a when-issued
basis prior to the time delivery of the securities is made, although the Fund
may earn income on securities it has deposited in a pledged account. When
purchasing a security on a when-issued basis, the Fund assumes the rights and
risks of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. Because the Fund is not required to pay for the security until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If the Fund remains substantially fully invested at a
time when when-issued purchases are outstanding, the when-issued purchases may
result in a form of leverage, which magnifies the potential for gain or loss
and increases the speculative nature of the Fund. The Trustees, however, do not
believe the Fund's net asset value or income will be exposed to additional risk
as the result of when-issued purchases. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund presently
intends to enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be. If the Fund disposes of the right to acquire a when-issued security prior
to its acquisition or disposes of its right to deliver or receive against a
forward commitment, it can incur a gain or loss due to market fluctuation.
There is always a risk that the securities may not be delivered and that the
Fund may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the pledged asset account.
Repurchase Agreements
The Fund may invest in repurchase agreements, which are agreements
pursuant to which securities are acquired by the Fund from a third party with
the commitment that they will be repurchased by the seller at a fixed price on
an agreed-upon date. These agreements may be made with respect to those U.S.
Government Securities in which the Fund is authorized to invest. Repurchase
agreements may be characterized as loans secured by the underlying securities.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral will be marked to market daily.
Repurchase agreements facilitate portfolio management and allow the Fund
to earn additional revenue. The Fund
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<PAGE>
enters into repurchase agreements in order to increase liquidity or as a
temporary investment while the Fund is acquiring suitable long term
investments. The Fund may enter into repurchase agreements with (i) depository
institutions ("banks") and (ii) securities dealers ("dealers"), provided that
such banks or dealers meet the creditworthiness standards established by the
Trustees. The Adviser will monitor the continued creditworthiness of banks and
dealers, subject to oversight by the Trustees.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Fund will seek to dispose of such securities,
which action could involve costs or delays. To minimize the risk, the
securities underlying the repurchase agreement will be held by the Custodian at
all times in an amount at least equal to the repurchase price, including
accrued interest.
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 pledged 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 pledged accounts, by requirements relating to
the Fund's status as a regulated investment company under the Code, and by the
Fund's overall limitations on borrowing. Furthermore, because dollar roll
transactions may be for terms ranging between one and six months, they may be
deemed to be "illiquid" and subject to the Fund's overall limitations on
investment in illiquid securities.
While the use of reverse repurchase agreements and dollar roll agreements
creates opportunities for increased income, the use of these agreements may
cause losses. Reverse repurchase agreements and dollar roll agreements involve
the risk that the market value of the securities to be repurchased by the Fund
may decline below the price at which the Fund is obligated to repurchase. Also,
in the event the buyer of securities under a reverse repurchase agreement or a
dollar roll agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether
to enforce the Fund's obligation to repurchase the securities, and the Fund's
use of the proceeds of the reverse repurchase agreement or the dollar roll
agreement may effectively be restricted pending such decision.
U.S. Treasury and Corporate Zero Coupon Securities
The Fund may invest from time to time in U.S. Treasury and corporate zero
coupon securities. Zero coupon securities are issued and traded at a discount
from their face amount. The amount of the discount varies depending on such
factors as the time remaining until maturity of the securities and prevailing
interest rates. The market prices of U.S. Treasury zero coupon securities are
generally more volatile than the market prices of securities that pay interest
periodically and are more 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 securities. Because the Fund
will not receive on a current basis cash payments in respect of accrued
original issue discount on zero coupon securities during the period before
maturity, the Fund will distribute cash obtained from other sources in order to
satisfy the distribution requirement under the Code. The Fund will not invest
more than 3% of its assets in zero coupon securities. See "Dividends,
Distributions and Taxes."
Lending of Securities
The Fund may make secured loans of its portfolio securities to brokers,
dealers and financial institutions provided that cash, U.S. government
securities or other liquid high-quality debt securities, or bank letters of
credit equal to at least 100% of the market value of the securities loaned are
deposited and maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other extensions of credit, consist of possible
loss of rights in the collateral should the borrower fail financially. In
determining whether to lend securities to a particular borrower, the Adviser
(subject to review by the Trustees) will consider all relevant facts and
circumstances, including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned thereon and the
Fund may invest any cash collateral in liquid high-grade portfolio securities,
thereby earning additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. The Fund may pay
reasonable finders, administrative and custodial fees in connection with a
loan. The Fund will not lend portfolio securities in excess of 5% of the value
of its total assets or lend its portfolio securities to any officer, director,
employee or affiliate of the Fund or the Adviser. The Trustees will monitor the
Fund's lending of portfolio securities.
Illiquid Securities
The Fund will not invest more than 15% of its net assets (taken at market
value at the time of the investment) in "illiquid securities." For this
purpose, illiquid securities include:
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<PAGE>
securities subject to legal or contractual restrictions on resale (which may
include private placements (Rule 144A securities)); repurchase agreements
maturing in more than seven days; certain options traded over-the-counter that
the Fund has purchased; certain securities being used to cover options a Fund
has written; certain positions in interest-rate swaps, or interest-rate caps,
collars, or floors; certain private issue interest-only and principal-only
stripped securities; securities for which market quotations are not readily
available; or other securities which legally or in the Adviser's or Trustees'
opinion may be deemed illiquid. Rule 144A of the Securities Act provides an
exemption for the sale of restricted stock to facilitate trading between
institutional investors in the private placement market. In determining whether
a Rule 144A security is liquid, the Trustees 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). Dollar roll
transactions may be for terms ranging between one and six months and unless
deemed liquid pursuant to procedures established by the Trustees are subject to
the Fund's overall limitations on investment in illiquid securities.
Loan Participations and Assignments
The Fund may invest up to 5% of its net assets, determined at the time of
investment, in loan participations and assignments. 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. When the Fund
purchases loan assignments from lenders, it will acquire direct rights against
the borrower, but these rights and the Fund's obligations may differ from, and
be more limited than, those held by the assignment lender. The principal credit
risk associated with acquiring loan participation and assignment interests is
the credit risk associated with the underlying corporate borrower. There is
also a risk that there may not be a readily available market for participation
loan interests and, in some cases, this could result in the Fund disposing of
such securities at a substantial discount from face value or holding such
securities until maturity.
Borrowing
As a fundamental policy, the Fund may borrow money from banks to the
extent permitted under the 1940 Act. The Fund does not intend at present to
borrow money from banks or financial institutions other than for emergency or
extraordinary purposes. The Fund will not borrow in excess of 10% of total
assets or 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. Reverse repurchase agreements and dollar
roll transactions are treated as borrowings by the Fund, and therefore the
Fund's entry into such transactions is subject to the Fund's overall
limitations on borrowing.
Risk Factors and Special Considerations
High Yield-High Risk Securities
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.
Factors adversely impacting the market value of high yield 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. The risk of loss
due to default by the issuer is significantly greater for the holders of high
yield securities because such securities are generally unsecured and are often
subordinated to other debt of the issuer. During an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of high
yield 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.
The Fund may have difficulty disposing of certain high yield securities
because there may be a thin trading market for such securities. Because not all
dealers maintain markets in all high yield 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 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, on
the Fund's net asset value, and on the Fund's ability to dispose of particular
issues when necessary to meet the Fund's liquidity needs or on the Fund's
ability to respond to a specific economic event, or an event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities may also make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio. Market quotations are generally available on many high yield issues
only from a limited number of dealers and may not necessarily represent firm
bids of such dealers of prices for actual sales. While all these considerations
are generally relevant to many high yield securities, they may be particularly
relevant to securities which represent, for example, the right to receive only
the interest payments ("IOs") to be made on a particular security. The yield
and value of IOs can be very sensitive to the rate of principal payments on the
debt security as well as to various market factors. IOs issued by private
issuers are generally considered illiquid. Government-issued IOs backed by
fixed-rate mortgages may be deemed liquid if they can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used in
the calculation of net
12
<PAGE>
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 securities, especially in a thinly-traded market.
From time to time, proposals have been discussed and legislation adopted
designed to limit the use of certain high yield securities by issuers in
connection with leveraged buyouts, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. For example, under a
provision of the Internal Revenue Code (the "Code") enacted in 1989, a
corporate issuer may be limited from deducting all of the original issue
discount on high yield discount obligations (i.e., certain types of debt
securities issued at a significant discount to their face amount).
The market values of high yield 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.
While credit rating agencies evaluate the safety of principal and interest
payments, they do not evaluate market value risk of high yield securities. In
addition, credit rating agencies may not change credit ratings on a timely
basis to reflect subsequent events. Accordingly, investing in 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.
Foreign Securities
Under normal conditions, up to 35% of the Fund's assets may be invested in
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 values
and 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 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 value of 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 to 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
13
<PAGE>
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.
INVESTMENT RESTRICTIONS
Not more than 25% of the total assets of the Fund will be concentrated in
the securities of any one industry. The Fund may not, with respect to 75% of
the total assets of the Fund, invest more than 5% of the value of its total
assets in the securities of any one issuer, or, with respect to 100% of the
total assets of the Fund, own more than 10% of the outstanding voting
securities of any one issuer (other than U.S. Government obligations). 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 increase if the Fund finds it necessary to significantly change its
portfolio to adopt a temporary defensive position. A high turnover rate
involves 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."
MANAGEMENT OF THE FUND
The Fund is an open-end management investment company, known as a mutual
fund. The Trustees of the Fund ("Trustees") are responsible for the overall
supervision of the operations of the Fund and perform the various duties
imposed on Trustees by the 1940 Act and the laws of the Commonwealth of
Massachusetts.
The Adviser
The Fund's investment adviser is National Securities & Research
Corporation (the "Adviser"), which is located at 56 Prospect Street, Hartford,
Connecticut 06115. The Adviser is a subsidiary of Phoenix Duff & Phelps
Corporation of Chicago, Illinois. Prior to November 1, 1995, the Adviser was an
indirect, wholly owned subsidiary of Phoenix Home Life Mutual Insurance Company
("Phoenix Home Life") of Hartford, Connecticut. Phoenix Home Life is a majority
shareholder of Phoenix Duff & Phelps Corporation. Phoenix Home Life is in the
business of writing ordinary and group life and health insurance and annuities.
Its principal offices are located at One American Row, Hartford, Connecticut
06115. 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 Fixed Income Fund, Inc., Phoenix California
Tax-Exempt Bonds, Inc., Phoenix Strategic Equity Series Fund: Phoenix Equity
Opportunities Fund and Phoenix Worldwide Opportunities Fund. The Adviser
currently has approximately $1.7 billion in assets under management. The
Adviser has acted as an investment adviser for over 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% of the
Fund's average daily net assets up to $1 billion; .50% of the Fund's average
daily net assets between $1 billion and $2 billion; and .45% on the average
daily net assets in excess of $2 billion. The Adviser's fee is accrued daily
against the value of the Fund's net assets and is payable by the Fund monthly.
The ratio of management fees to average net assets for the fiscal year ended
October 31, 1996 for Class A Shares and Class B Shares was .55%.
The Portfolio Manager
Mr. David L. Albrycht has been the Portfolio Manager of the Fund since
August 1993. As such, Mr. Albrycht is primarily responsible for the day to day
management of the Fund's portfolio. Since April of 1993, Mr. Albrycht has also
been the Portfolio Manager of the Phoenix Diversified Income Portfolio of the
Phoenix Multi-Portfolio Fund, advised by Phoenix Investment Counsel, Inc.
("PIC"), an affiliate of National. Mr. Albrycht is Vice President of Phoenix
Multi-Sector Fixed Income Fund, Inc. and assumed full management of the Fund
August 1995. Mr. Albrycht is Managing Director, Fixed Income of PIC and
National and has held various investment management positions with Phoenix Home
Life from 1989 through 1995.
The Financial Agent
Equity Planning acts as financial agent of the Fund and, as such, performs
administrative, bookkeeping and pricing functions for the Fund. As
compensation, Equity Planning is entitled to a fee, payable monthly and based
upon (a) the average of the aggregate daily net asset values of the Fund, at
the following incremental annual rates:
14
<PAGE>
<TABLE>
<S> <C>
First $100 million .05%
$100 million to $300 million .04%
$300 million through $500 million .03%
Greater than $500 million .015%
</TABLE>
(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 $4,717, 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 service 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 are 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 Trust's
shares, are located at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083-2200. Philip R. McLoughlin is a Trustee 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 Trust and officers of Equity Planning.
Equity Planning and the Fund have entered into distribution agreements
under which Equity Planning has agreed to use its best efforts to find
purchasers for Fund shares. 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 Trustees
will consider what action, if any, is appropriate. It is not anticipated that
termination of sales agreements with banks or bank affiliated securities
brokers would result in a loss to their customers or a change in the net asset
value per share of the Fund.
The sale of Fund shares through 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 Trustees 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" 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. Under the Class B Plan, the Fund
may reimburse the Distributor monthly for actual expenses of the Distributor up
to 0.75% annually of the average daily net assets of the Fund's Class B Shares.
Pursuant to the Class C Plan, the Fund may reimburse the Distributor monthly
for actual expenses of the Distributor up to 0.50% annually of the average
daily net assets of the Fund's Class C 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
15
<PAGE>
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 Trustees 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 shares,
0.25% of the average annual net asset value of that class.
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 and Class C Plans, 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 $27,005 under
the Class A Plan and $36,914 under the Class B Plan. From those amounts, the
Distributor paid a total of $7,178 to W.S. Griffith & Co., Inc., an affiliate,
and the remainder was paid to unaffiliated dealers. The fees were used to
compensate broker-dealers for servicing shareholder's accounts, compensating
sales personnel and reimbursing the Distributor for commission expenses and
expenses related to preparation of the marketing material. On a quarterly
basis, the Fund's Trustees review a report on expenditures under each Plan and
the purposes for which expenditures were made. The Trustees conduct an
additional more extensive review annually in determining whether each Plan will
be continued. By its terms, continuation of each Plan from year to year is
contingent on annual approval by a majority of the Fund's Trustees and by a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the
operation of either Plan or any related agreements (the "Plan Trustees"). 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 Trustees by vote cast in person at a meeting called for the purpose of
considering such amendments. Each Plan further provides that while it is in
effect, the selection and nomination of Trustees who are not "interested
persons" shall be committed to the discretion of the Trustees who are not
"interested persons". Each Plan may be terminated at any time by vote of a
majority of the Plan Trustees or a majority of the applicable class of
outstanding shares of the Fund.
The Trustees 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 April 30, 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 Trustees 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.
The maximum investment in Class B Shares is: (a) $1 million for any
unallocated qualified employer sponsored plan; (b) $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;
and (c) $250,000 for any other "person" (see How to Obtain Reduced Sales
Charges--Class A Shares: Combination Purchase Privilege). 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 100 eligible employees. Class B Shares will not
be sold to anyone who is over 85 years old. There is no maximum investment
restriction on Class A Shares.
Additional investments may be made at any time with at least $25. The
subsequent investment minimum is waived for
16
<PAGE>
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 purchased at the public offering price based on the net asset
value for each class of shares, plus the applicable sales charge for Class A
Shares, 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. Ownership of shares is recorded electronically in book entry
form; no share certificates are available.
What are the classes and how do they differ?
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A Shares is the net asset value plus a
sales charge that varies depending on the size of any "person's" (see also "How
To Obtain Reduced Sales Charges--Class A 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 in the table below.
Sales charge you may pay to buy Class A Shares
<TABLE>
<CAPTION>
Sales Charge as
a percentage of Dealer
----------------------- Discount
Percentage
Amount of Net of
Transaction Offering Amount Offering
at Offering Price Price Invested Price
- -------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Under $50,000 2.25% 2.30% 2.00%
$50,000 but under
$100,000 1.25 1.27 1.00
$100,000 but under
$500,000 1.00 1.01 1.00
$500,000 but under
$1,000,000 0.75 0.76 0.75
$1,000,000 or more None None None
</TABLE>
Deferred Sales Charge Alternative--Class B Shares
Class B Shares are purchased without an initial sales charge; however,
shares sold within a specified time period are subject to a declining
contingent deferred sales charge (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 sales 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.
Sales charge you may pay to sell Class B Shares
<TABLE>
<CAPTION>
Year 1 2 3 4+
- ------ ---- ------ ---- ---
<S> <C> <C> <C> <C>
CDSC 2% 1.5% 1% 0%
</TABLE>
No Sales Charge Alternative--Class C Shares
Class C Shares are purchased without an initial sales charge and are not
subject to any sales charge when shares are redeemed. All purchases, including
reinvestments of dividend and capital gain distributions, and redemptions are
made at the net asset value per share of the Fund. Class C Shares do not
convert to another Class of shares and long term investors may therefore pay
more through accumulated distribution fees than the economic equivalent of any
applicable sales charge and accumulated distribution fees in the other classes.
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 sales
charges, where applicable, of one class would be more than the sales charge and
accumulated distribution and service fees of another Class of Shares bought at
the same time. See "Distribution Plans" and "Fund Expenses."
How To Obtain Reduced Sales Charges--Class A Shares
Investors choosing Class A 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
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,
17
<PAGE>
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 Shares bought through investment
advisers and financial planners who charge an advisory, consulting or other fee
for their services and buy shares for their own accounts or the accounts of
their clients; (18) retirement plans and deferred compensation plans and trusts
used to fund those plans (including, for example, plans qualified or created
under sections 401(a), 403(b) or 457 of the Internal Revenue Code), and "rabbi
trusts" that buy shares for their own accounts, in each case if those purchases
are made through a broker or agent or other financial intermediary that has
made special arrangements with the Distributor for such purchases; or (19)
clients of investment advisers or financial planners who buy shares for their
own accounts but only if their accounts are linked to a master account of their
investment adviser 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 segregated until you fulfill the Letter of Intent. When you
buy enough shares to fulfill the Letter of Intent, these shares will no longer
be restricted. If, on the other hand, you do not satisfy the Letter of Intent,
or otherwise wish to sell any restricted shares, you will be given the choice
of either buying enough shares to fulfill the Letter of Intent or paying the
difference between any sales charge you previously paid and the otherwise
applicable sales charge based on your actual aggregate purchases made under the
Letter of Intent. You will be given 20 days to make this decision. If you do
not exercise either election, the Distributor will automatically redeem the
number of your restricted shares needed to make up the deficiency in sales
charges received. The Distributor will redeem restricted Class A Shares before
Class C or B Shares, respectively. Oldest shares will be redeemed before
selling newer shares. Any remaining shares will then be deposited to your
account.
Right of Accumulation. Your purchase of any class of shares of this or
any other Phoenix Fund, if made over time by the same person, may be added
together to determine whether the combined sum entitles you to a 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
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<PAGE>
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 Sales Charges--Class B Shares
The CDSC is waived on the redemption (sale) of Class B shares if the
redemption is made (a) within one year of death (i) of the sole shareholder on
an individual account, (ii) of a joint tenant where the surviving joint tenant
is the deceased's spouse, or (iii) of the beneficiary of a Uniform Gifts to
Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial
account; (b) within one year of disability, as defined in Internal Revenue Code
Section 72(m)(7); (c) as a mandatory distribution upon reaching age 70-1/2
under any retirement plan qualified under Code Sections 401, 408 or 403(b) or
resulting from the tax-free return of an excess contribution to an IRA; (d) by
401(k) plans using an approved participant tracking system for participant
hardships, death, disability or normal retirement, and loans which are
subsequently repaid; (e) based on the exercise of exchange privileges among
Class B 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. If, as described in
condition (a) above, an account is transferred to an account registered in the
name of a deceased's estate, the CDSC will be waived on any redemption from the
estate account occurring within one year of the death. If the Class B Shares
are not redeemed within one year of the death, they will remain subject to the
applicable CDSC.
Conversion Feature--Class B Shares
Class B Shares will automatically convert to Class A Shares six 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 were 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.
Dealer Concessions
In addition to the dealer discount on purchases of Class A Shares, the
Distributor intends to pay investment dealers a sales commission of 2% of the
sale price of Class B 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 as well as 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. 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; (d) subject
to certain exclusions, pay broker/dealers an amount equal to 1% of the amount
of Class A Shares sold above $1 million but under $3 million, 0.50% on the next
$3 million, plus 0.25% on the amount in excess of $6 million; and (e) subject
to certain exclusions, pay broker/dealers an amount equal to 0.50% of the amount
of Class C Shares of the Fund sold above $250,000 but under $3 million plus
0.25% on the amount in excess of $3 million. 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.
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 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.
19
<PAGE>
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 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.
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.
Class A and C shareholders participating in the Systematic Withdrawal
Program must own shares of the Fund worth $5,000 or more, as determined by the
then current net asset value per share, and elect to have all dividends
reinvested. The purchase of shares while participating in the withdrawal
program will ordinarily be disadvantageous to the Class A Shares investor since
a sales charge will be paid by the investor on the purchase of Class A Shares
at the same time as other shares are being redeemed. For this reason, investors
in Class A Shares may not participate in an automatic investment program while
participating in the Systematic Withdrawal Program.
To participate in the Systematic Withdrawal Program, Class B shareholders
must initially own shares of the Fund worth $5,000 or more and elect to have
all dividends reinvested in additional Class B Shares of the Fund. Through the
Program, Class B shareholders may withdraw up to 1% of their aggregate net
investments (purchases, at initial value, to date net of non-Program
redemptions) each month or up to 3% of their aggregate net investments each
quarter without incurring otherwise applicable contingent deferred sales
charges.
Class B shareholders redeeming more shares than the percentage permitted
by the withdrawal program 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) 243-4361 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. Class A Shares of the Fund held
less than six months are not eligible for the Exchange Privilege. 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
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<PAGE>
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 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 following the
procedure outlined for selling shares represented by certificate(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
Trustees 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 Trustees
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 Trustees 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 Share
redemption, you will be subject to the applicable deferred sales charge, if
any, for such shares (see "Deferred Sales Charge Alternative--Class B Shares,"
above). Subject to certain restrictions, shares may be redeemed by telephone,
by check 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, however, 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?
<TABLE>
<S> <C> <C>
[GRAPHIC SYMBOL OF PHONE] By Phone [bullet] Sales up to $50,000
(800)243-1574 [bullet] Not available on most retirement
accounts
[bullet] Requests received after 4 PM will be
executed on the following business day
[GRAPHIC SYMBOL OF
PEN IN HAND] By Check [bullet] Select checkwriting on your
New Account Application
[bullet] $500 or more per check
[bullet] Cannot be used to close an account
[GRAPHIC SYMBOL OF ENVELOPE] 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 owners(s) at
the address of record
</TABLE>
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
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<PAGE>
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 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.
Certificated Shares
Ownership of shares is recorded electronically in book entry form; no
share certificates are available. If you elect not to use the telephone
redemption or telephone exchange privileges or if the shares being exchanged
are represented by a previously issued certificate(s), you must submit your
request in writing. If your shares are being redeemed or 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. Any outstanding
certificate or certificates for the tendered shares must be duly endorsed and
submitted. The Distributor reserves the right to charge you for lost or stolen
certificates.
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). 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
account that has a value, due to redemptions, of less than $200. Before the
Fund redeems these shares, you 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 qualify annually as a regulated investment company
under Subchapter M of the Code and to distribute annually to shareholders
substantially all of its net investment income and net realized capital gains,
after utilization of any capital loss carryovers. If the Fund so qualifies, it
generally will not be subject to Federal income tax on the income it
distributes. The discussion below is based upon the assumption that the Fund
will be treated as a regulated investment company.
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 you elect 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. You will be notified
annually about the amount and character of distributions made to you by the
Fund.
Capital gains, if any, distributed to you and designated by the Fund as
long-term capital gain dividends are taxable to you as long-term capital gain
distributions regardless of the length of time shares of the Fund have been
held by you. Distributions of short-term capital gains and net investment
income, if any, are taxable to you as ordinary income.
Dividends and distributions generally will be taxable to you in the
taxable year 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 you on December 31
of the calendar year in which they were declared.
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<PAGE>
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), depending upon your holding period for the shares sold. A
capital loss realized on a disposition of Fund shares held six months or less
will be treated as a long-term capital loss to the extent of capital gain
dividends received with respect to such shares. In addition, if shares of the
Fund are disposed of at a loss and are replaced (either through purchases or
through reinvestment of dividends) within a period commencing thirty days
before and ending thirty days after the disposition of such shares, the
realized loss will be disallowed and appropriate adjustments to the tax basis
of the new shares will be made. In addition, special rules may apply to
determine the amount of gain or loss realized on an exchange.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
The Fund may recognize interest attributable to it from holding zero
coupon securities. Current Federal law requires that for most zero coupon
securities, a holder (such as the Fund) must accrue a portion of the discount
at which the security was purchased as income each year even though the Fund
receives no interest payment in cash on the security during the year. As a
regulated investment company, the Fund must pay out substantially all of its
net investment income each year. Accordingly, the Fund may be required to pay
out as an income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received. Such distributions
will be made from the cash assets of the Fund, or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates the
liquidation of portfolio securities, the Adviser will select which securities
to sell. The Fund may realize a gain or loss from such sales.
You are urged to consult your 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. You are urged to consult your
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 under Massachusetts law on February 20, 1992 as a
business trust. On December 23, 1993, shareholders of the Fund approved a
change in the name of the Fund, to reflect the Fund's affiliation with Phoenix
Home Life Mutual Insurance Company ("Phoenix Home Life"), which resulted from
the transfer of ownership of the Adviser to Phoenix Home Life on May 14, 1993.
On February 22, 1996, the Trustees approved another change in the Fund's name
to more accurately reflect its present investment policies and objectives.
Prior to this revision, the Fund's name was "Phoenix Asset Reserve." The
Declaration of Trust, as amended, provides that the Trustees are authorized to
create an unlimited number of series and, with respect to each series, to issue
an unlimited number of full and fractional shares of beneficial interest of one
or more classes and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial
interests in the series. All shares have equal voting rights, except that only
shares of the respective series or separate classes within a series are
entitled to vote on matters concerning only that series or class. At the date
of this Prospectus, there is only one existing series of the Fund, having three
classes of shares.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders may be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares having voting rights. The Trustees 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 and
subject to the 1940 Act, the Trustees will continue to hold office and appoint
successor Trustees. 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 Trustees
can elect all of the Fund's Trustees if they choose to do so and in such event
the holders of the remaining shares would not be able to elect any Trustees.
Shareholders are entitled to redeem their shares as set forth under "How to
Redeem Shares."
The Declaration of Trust establishing the Fund (a copy of which, together
with all amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts),
23
<PAGE>
provides that the name "Phoenix Multi-Sector Short Term Bond Fund" refers to
the Trustees under the Declaration of Trust collectively as Trustees, but not
as individuals or personally; and no Trustee, shareholder, officer, employee or
agent of the Fund shall be held to any personal liability, nor shall resort be
had to their personal property for the satisfaction of any obligation or claim
of said Fund but the "Trust Property" only shall be liable.
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.
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 Short Term Bond Fund (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 1, 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 Trust 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.
[RECYCLING SYMBOL] Printed on recycled paper using soybean ink
<PAGE>
Phoenix Multi-Sector Short Term Bond Fund -------------------
PO Box 2200 BULK RATE MAIL
Enfield CT 06083-2200 U.S. POSTAGE
PAID
SPRINGFIELD, MA
PERMIT NO. 444
-------------------
[LOGOTYPE] PHOENIX
DUFF & PHELPS
PDP 694 (10/97)
<PAGE>
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
101 Munson Street
Greenfield, Massachusetts 01301
Statement of Additional Information
October 1, 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 Short Term Bond Fund (the "Fund") dated October 1, 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 ............................................................... 2
INVESTMENT OBJECTIVE AND POLICIES (6) ................................. 2
INVESTMENT RESTRICTIONS (14) .......................................... 2
INVESTMENT TECHNIQUES (9) .............................................. 3
PERFORMANCE INFORMATION (6) ............................................. 9
PORTFOLIO TRANSACTIONS AND BROKERAGE (15) .............................. 10
SERVICES OF THE ADVISER (14) .......................................... 11
NET ASSET VALUE (21) ................................................... 12
HOW TO BUY SHARES (16) ................................................ 12
INVESTOR ACCOUNT SERVICES (19) .......................................... 14
TAX SHELTERED RETIREMENT PLANS (20) .................................... 14
REDEMPTION OF SHARES (21) ............................................. 15
DIVIDENDS, DISTRIBUTIONS AND TAXES (22) ................................. 16
THE DISTRIBUTOR (15) ................................................... 18
PLANS OF DISTRIBUTION ................................................... 18
TRUSTEES AND OFFICERS ................................................... 20
OTHER INFORMATION ...................................................... 28
APPENDIX ............................................................... 29
Numbers appearing in parentheses correspond to
related disclosures in the Fund's Prospectus.
</TABLE>
Customer Service: (800) 243-1574
Marketing: (800) 243-4361
Telephone Orders: (800) 367-5877
Telecommunication Device TTY: (800) 243-1926
PDP 694B (10/97)
1
<PAGE>
THE FUND
Phoenix Multi-Sector Short Term Bond Fund is a diversified open-end,
management investment company, consisting currently of one series, with three
classes of shares. The Fund was organized as a business trust under
Massachusetts law on February 20, 1992. On December 23, 1993, shareholders of
the Fund approved a change in the name of the Fund, to reflect the Fund's
affiliation with Phoenix Home Life Mutual Insurance Company ("Phoenix Home
Life"), which resulted from the transfer of ownership of the Fund's investment
adviser to Phoenix Home Life on May 14, 1993. On February 22, 1996, the
Trustees approved another change in the Fund's name to more accurately reflect
its present investment policies and objectives. Prior to this revision, the
Fund's name was "Phoenix Asset Reserve." On August 27, 1997, the Trustees
approved an amendment to the Trust creating a third class of shares ("Class C
Shares").
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high current income relative
to other short-term investment alternatives, while attempting to limit
fluctuations in the net asset value of Fund shares resulting from movements in
interest rates. 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 approval by holders of a "majority of the outstanding voting
securities" of the Fund, which as used herein means the vote of the lesser of
(i) 67% or more of the outstanding voting securities of the Fund present at a
meeting, if the holders of more than 50% of the outstanding voting securities
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund. The term "voting securities" as used
in this paragraph has the same meaning as in the 1940 Act.
The Fund may not:
(1) with respect to 75% of the total assets of the Fund (taken at market
value at the time of purchase), invest more than 5% of the value of its
total assets in the securities of any one issuer, or, with respect to 100%
of the total assets of the Fund, own more than 10% of the outstanding
voting securities of any one issuer, in each case other than U.S.
Government securities (as defined in the 1940 Act);
(2) invest 25% or more of the value of its total assets in securities of
issuers engaged in any one industry (excluding U.S. Government securities
as defined in the 1940 Act);
(3) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein (other than
real estate limited partnership interests));
(4) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit the Fund, subject to
restrictions described in the Prospectus and elsewhere in this Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward
contracts, foreign currency options, or any interest rate or foreign
currency-related hedging instrument, subject to compliance with any
applicable provisions of the federal securities or commodities laws.
(5) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but
it may make margin deposits in connection with transactions in options,
futures and options on futures;
(6) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that the Fund 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 each borrowing there is asset coverage of 300% and (ii)
enter into transactions in options, futures and options on futures as
described in the Prospectus and in this 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 a Fund's assets);
(7) lend any funds or other assets, except that the Fund may, consistent
with its investment objective and policies: (a) invest in debt obligations
including bonds, debentures or other debt securities, bankers' acceptances
and commercial paper, even though purchase of such obligations may be
deemed to be the making of loans; (b) enter into repurchase agreements; and
(c) lend its portfolio securities in an amount not to exceed 1/3 of the
value of its total assets, provided such loans are made in accordance with
applicable guidelines established by the Securities and Exchange Commission
and the Trustees;
(8) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the federal securities laws; or
2
<PAGE>
(9) maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except as set forth in the
Prospectus and in this Statement of Additional Information for transactions
in options, futures, and options on futures.
Non-Fundamental Policies
The following restrictions of the Fund are not fundamental policies and
may be changed by the Board of Trustees of the Fund without shareholder
approval. The Fund may not:
(A) invest for the purpose of exercising control or management;
(B) purchase securities of other investment companies, except that the Fund
may, for temporary purposes, purchase shares of money market mutual funds,
subject to such restrictions as may be imposed by the 1940 Act and rules
thereunder, or by any State in which shares of the Fund are registered;
(C) invest more than 15% of the net assets of the Fund (taken at market
value at the time of the investment) in "illiquid securities". Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (which may include private placements), repurchase
agreements maturing in more than seven days, certain options traded over
the counter that the Fund has purchased, certain securities being used to
cover options the Fund has written, securities for which market quotations
are not readily available, or other securities which legally or in the
Adviser's or Trustees' opinion are not deemed liquid;
(D) invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such investment)
would be invested in securities of issuers (other than issuers of Federal
agency obligations) having a record, together with predecessors or
unconditional guarantors, of less than three years of continuous operation;
(E) purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the
Fund or of the Adviser who each own beneficially more than 1/2 of 1% of its
securities;
(F) purchase securities for the Fund from, or sell portfolio securities to,
any of the officers and directors or trustees of the Fund or of the
Adviser; or
(G) borrow any amount in excess of 10% of the Fund's total assets or make
additional investments when the Fund's borrowings are in excess of 5% of
the Fund's total assets.
Notwithstanding the provisions of restriction (G), the Fund has no current
intention of borrowing money from banks or other financial institutions, other
than on a temporary basis for emergency or extraordinary purposes, provided,
however, that the provisions of restriction (G) shall not be deemed to apply to
reverse repurchase agreements and other investment techniques which may be
deemed to constitute borrowings for purposes of the 1940 Act.
Unless otherwise indicated, all percentage limitations listed above apply
to the Fund only at the time a transaction is entered into. Accordingly, if a
percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage which results from a relative change in
values or from a change in the Fund's net assets will not be considered a
violation.
INVESTMENT TECHNIQUES
The Fund may utilize the following practices or techniques in pursuing its
investment objective.
Mortgage-Related Securities
GNMA Certificates. The Government National Mortgage Association ("GNMA")
is a wholly owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The National Housing Act of 1934,
as amended (the "Housing Act"), authorizes GNMA to guarantee the timely payment
of the principal of and interest on certificates that are based on and backed
by a pool of mortgage loans insured by the Federal Housing Administration under
the Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or
guaranteed by the Department of Veterans Affairs under the Servicemen's
Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other
eligible mortgage loans. The Housing Act provides that the full faith and
credit of the United States government is pledged to the payment of all amounts
that may be required to be paid under any guaranty. In order to meet its
obligations under such guaranty, GNMA is authorized to borrow from the U.S.
Treasury with no limitations as to amount.
The GNMA Certificates in which the Fund will invest will represent a pro
rata interest in one or more pools of the following types of mortgage loans:
(i) fixed rate level payment mortgage loans; (ii) fixed rate graduated payment
mortgage loans; (iii) fixed rate growing equity mortgage loans; (iv) fixed rate
mortgage loans secured by manufactured (mobile) homes; (v) mortgage loans on
multifamily residential properties under construction; (vi) mortgage loans on
completed multifamily projects; (vii) fixed rate mortgage loans as to which
escrowed funds are used to reduce the borrower's monthly payments during the
early years of the mortgage loans ("buydown" mortgage loans); (viii) mortgage
loans that provide for adjustments in payments based on periodic changes in
interest rates or in other payment terms of the mortgage loans; and (ix)
mortgage-backed serial notes. All of these mortgage loans will be FHA Loans or
VA Loans and, except as otherwise specified above, will be fully-amortizing
loans secured by first liens on one-to four-family housing units.
3
<PAGE>
FNMA Certificates. The Federal National Mortgage Association ("FNMA") is a
federally chartered and privately owned corporation organized and existing
under the Federal National Mortgage Association Charter Act of 1938. The
obligations of FNMA are not backed by the full faith and credit of the U.S.
government.
Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multifamily projects.
FHLMC Certificates. The Federal Home Loan Mortgage Corporation ("FHLMC")
is a corporate instrumentality of the United States created pursuant to the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). The
obligations of FHLMC are obligations solely of FHLMC and are not backed by the
full faith and credit of the U.S. government.
FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a "FHLMC Certificate group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first liens on one-to-four family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the FHLMC Act. A FHLMC Certificate group
may include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC
Certificate group.
Adjustable Rate Mortgages--Interest Rate Indices. The One Year Treasury
Index is the figure derived from the average weekly quoted yield on U.S.
Treasury Securities adjusted to a constant maturity of one year. The Cost of
Funds Index reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California and Nevada (the "FHLB Eleventh District") that are member
institutions of the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco"), as computed from statistics tabulated and published by the FHLB of
San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the
cost of funds was incurred.
A number of factors affect the performance of the Cost of Funds Index and
may cause the Cost of Funds Index to move in a manner different from indices
based upon specific interest rates, such as the One Year Treasury Index.
Because of the various origination dates and maturities of the liabilities of
member institutions of the FHLB Eleventh District upon which the Cost of Funds
Index is based, among other things, at any time the Cost of Funds Index may not
reflect the average prevailing market interest rates on new liabilities of
similar maturities. There can be no assurance that the Cost of Funds Index will
necessarily move in the same direction or at the same rate as prevailing
interest rates since as longer term deposits or borrowings mature and are
renewed at market interest rates, the Cost of Funds Index will rise or fall
depending upon the differential between the prior and the new rates on such
deposits and borrowings. In addition, dislocations in the thrift industry in
recent years have caused and may continue to cause the cost of funds of thrift
institutions to change for reasons unrelated to changes in general interest
rate levels. Furthermore, any movement in the Cost of Funds Index as compared
to other indices based upon specific interest rates may be affected by changes
instituted by the FHLB of San Francisco in the method used to calculate the
Cost of Funds Index. To the extent that the Cost of Funds Index may reflect
interest changes more slowly than other indices, mortgage loans which adjust in
accordance with the Cost of Funds Index may produce a higher yield later than
would be produced by such other indices, and in a period of declining interest
rates, the Cost of Funds Index may remain higher than other market interest
rates which may result in a higher level of principal prepayments on mortgage
loans which adjust in accordance with the Cost of Funds Index than mortgage
loans which adjust in accordance with other indices.
LIBOR, the London Interbank Offered Rate, is the interest rate that the
most creditworthy international banks dealing in U.S. dollar-denominated
deposits and loans charge each other for large dollar-denominated loans. LIBOR
is also usually the base rate for large dollar-denominated loans in the
international market. LIBOR is generally quoted for loans having rate
adjustments at one, three, six or twelve month intervals.
Stripped Mortgage-Related Securities
The cash flows and yields on interest-only ("IO") and principal-only
("PO") classes are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets. For example,
a rapid or slow rate of principal payments may have a material adverse effect
on the yield to maturity of IOs or POs, respectively. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
an investor may fail to recoup fully its initial investment in an IO class of a
stripped mortgage-backed security, even if the IO class is rated AAA or Aaa.
Conversely, if the underlying Mortgage Assets experience slower than
anticipated prepayments of principal, the yield on the PO class will be
affected more severely than would be the case with a traditional
Mortgage-Backed Security.
Borrowing and Reverse Repurchase Agreements
The Fund may borrow for temporary administrative or emergency purposes.
This borrowing may be unsecured. The Investment Company Act of 1940, as amended
(the "1940 Act") requires the Fund to maintain continuous asset coverage (that
is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the 300% asset coverage should
4
<PAGE>
decline as a result of market fluctuations or other reasons, the Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. To avoid the
potential leveraging effects of the Fund's borrowings, additional investment
will not be made while unsecured bank borrowing is in excess of 5% of the
Fund's total assets. Borrowing may exaggerate the effect on net asset value of
any increase or decrease in the market value of the portfolio. Money borrowed
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. The Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Among the forms of investments in which the Fund may engage, and which may
be deemed to constitute borrowings, is the entry into reverse repurchase
agreements. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by a Fund, coupled with its agreement to repurchase
the instrument at a specified time and price. The Fund will maintain a pledged
account with its Custodian consisting of 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 its obligations under reverse repurchase
agreements with broker-dealers and banks. However, reverse repurchase
agreements involve the risk that the market value of securities retained by the
Fund may decline below the repurchase price of the securities sold by the Fund
which it is obligated to repurchase.
The Fund also may enter into "mortgage dollar rolls," which are similar to
reverse repurchase agreements in certain respects. In a "dollar roll"
transaction, the Fund sells a mortgage-related security (such as a GNMA
security) to a dealer and simultaneously agrees to purchase a similar security
(but not the same security) in the future at a pre-determined price. A "dollar
roll" can be viewed, like a reverse repurchase agreement, as a collateralized
borrowing in which the Fund pledges a mortgage-related security to a dealer to
obtain cash. Unlike in the case of reverse repurchase agreements, the dealer
with which the Fund enters into a dollar roll transaction is not obligated to
return the same securities as those originally sold by the Fund, but only
securities which are "substantially identical." To be considered "substantially
identical," the securities returned to the Fund generally must: (1) be
collateralized by the same types of underlying mortgages; (2) be issued by the
same agency and be part of the same program; (3) have a similar original stated
maturity; (4) have identical net coupon rates; (5) have similar market yields
(and therefore price); and (6) satisfy "good delivery" requirements, meaning
that the aggregate principal amount of the securities received back must be
within 2.5% of the initial amount delivered.
The Fund's obligations under a dollar roll agreement must be covered by
cash or high quality debt securities equal in value to the securities subject
to repurchase by the Fund, maintained in a pledged account. Dollar roll
transactions are treated as borrowings by the Fund, and therefore the Fund's
entry into dollar roll transactions is subject to the Fund's overall
limitations on borrowing. Furthermore, because dollar roll transactions may be
for terms ranging between one and six months, dollar roll transactions may be
deemed "illiquid" and subject to the Fund's overall limitations on investment
in illiquid securities.
Lending Portfolio Securities
The Fund may make secured loans of its portfolio securities to
broker-dealers and other financial institutions. The 1940 Act requires that (a)
the borrower pledge and maintain collateral consisting of cash, a letter of
credit issued by a domestic U.S. bank, or securities issued or guaranteed by
the U.S. government having a value at all times not less than 100% of the value
of the securities loaned; (b) the borrower add to such collateral whenever the
price of the securities borrowed rises (i.e., the value of the loan is "marked
to the market" on a daily basis); (c) the loan be made subject to termination
by the Fund at any time; and (d) the Fund receives reasonable interest on the
loan (which may include the investing of any cash collateral in high quality
interest-bearing liquid investments), any distributions on the loaned
securities, and any increase in their market value. In addition, voting rights
may pass with the loaned securities, but if a material event were to occur, the
loan must be called and the securities voted by the Fund.
Hedging
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, respectively. 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 hedging 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
hedging activities would be expected to offset anticipated losses or a portion
thereof. See "Dividends, Distributions and Taxes."
The Fund will not enter into options or futures transactions for
speculative purposes, but only as a hedge against changes in the values of
securities in its portfolio, or sectors thereof, or in securities that it
intends to acquire resulting from market conditions.
5
<PAGE>
Options on Securities and Indexes
The Fund may, as specified in the Prospectus, purchase and sell both put
and call options on debt or other securities or indexes in standardized
contracts traded on foreign or national securities exchanges, boards of trade,
or similar entities, or quoted on NASDAQ or on a regulated foreign
over-the-counter market, and agreements, sometimes called cash puts, which may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option, the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specified group of financial instruments or
securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon
conversion or exchange of other securities held by the Fund. For a call option
on an index, the option is covered if the Fund maintains with its custodian
cash or cash equivalents equal to the contract value. A call option is also
covered if the Fund holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written, provided the difference is maintained by the Fund in cash
or cash equivalents in a segregated account with its custodian. A put option on
a security or an index is "covered" if the Fund maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
custodian. A put option is also covered if the Fund holds a put on the same
security or index as the put written where the exercise price of the put held
is (i) equal to or greater than the exercise price of the put written, or (ii)
less than the exercise price of the put written, provided the difference is
maintained by the Fund in cash or cash equivalents in a segregated account with
its custodian.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires unexercised, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can
be effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from
writing the option, or, if it is more, the Fund will realize a capital loss. If
the premium received from a closing sale transaction is more than the premium
paid to purchase the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Fund is an
asset of the Fund. The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased or written is
marked to market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the last bid prices.
Risks Associated with Options on Securities and Indexes
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If
the Fund were unable to close out a covered call option that it had written on
a security, it would not be able to sell the underlying security unless the
option expired without exercise. As the writer of a covered call option, the
Fund forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call.
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If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased.
Except to the extent that a call option on an index written by the Fund is
covered by an option on the same index purchased by the Fund, movements in the
index may result in a loss to the Fund; however, such losses may be mitigated
by changes in the value of the Fund's securities during the period the option
was outstanding.
Foreign Currency Options
The Fund may buy or sell put and call options on foreign currencies either
on exchanges or in the over-the-counter market. A put option on a foreign
currency gives the purchaser of the option the right to sell a foreign currency
at the exercise price until the option expires. Currency options traded on U.S.
or other exchanges may be subject to position limits which may limit the
ability of the Fund to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller, and
generally do not have as much market liquidity as exchange-traded options.
Futures Contracts and Options on Futures Contracts
The Fund may use interest rate, foreign currency or index futures
contracts, as specified in the Prospectus. An interest rate, foreign currency
or index futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument,
foreign currency or the cash value of an index at a specified price and time. A
futures contract on an index is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of these securities is made. A
public market exists in futures contracts covering several indexes as well as a
number of financial instruments and foreign currencies, including: the S&P 500;
the S&P 100; the NYSE composite; U.S. Treasury bonds; U.S. Treasury notes; GNMA
Certificates; three month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; the Australian
dollar; the Canadian dollar; the British pound; the German mark; the Japanese
yen; the French franc; the Swiss franc; the Mexican peso; and certain
multinational currencies, such as the European Currency Unit ("ECU"). It is
expected that other futures contracts will be developed and traded in the
future.
The Fund may purchase and write call and put options on futures. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during
the period of option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
As long as required by regulatory authorities, the Fund will limit its use
of futures contracts and futures options to hedging transactions. For example,
the Fund might use futures contracts to hedge against anticipated changes in
interest rates that might adversely affect either the value of the Fund's
securities or the price of the securities which the Fund intends to purchase.
The Fund's hedging activities may include sales of futures contracts as an
offset against the effect of expected increases in interest rates, and
purchases of futures contracts as an offset against the effect of expected
declines in interest rates. Although other techniques could be used to reduce
the Fund's exposure to interest rate fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Fund, the
Fund is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by the Fund but is
instead a settlement between the Fund and the broker of the amount one would
owe the other if the futures contract expired. In computing daily net asset
value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security
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or index, and delivery month). If an offsetting purchase price is less than the
original sale price, the Fund realizes a capital gain, or if it is more, the
Fund realizes a capital loss. Conversely, if an offsetting sales price is more
than the original purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
Limitations on Use of Futures and Futures Options
The Fund will not enter into a futures contract or futures options
contract if, immediately thereafter, the aggregate initial margin deposits
relating to such positions plus premiums paid by it for open futures option
positions, less the amount by which any such options are "in-the-money," would
exceed 5% of the Fund's total assets. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds
the value of the futures contract that is the subject of the option.
When entering into a futures contract, the Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, the Fund will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's custodian).
When selling a call option on a futures contract, the Fund will maintain
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 that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain
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 that equal the purchase price of the futures contract, less any margin on
deposit. Alternatively, the Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the put option is the same or higher than the strike price of the put
option sold by the Fund.
In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") pursuant to which the Fund avoids being deemed a
"commodity pool," the Fund is limited in its futures trading activities to
positions which constitute "bona fide hedging" positions within the meaning and
intent of applicable CFTC rules, or to positions which qualify under an
alternative test. Under this alternative test, the "underlying commodity value"
of each long position in a commodity contract in which the Fund invests may not
at any time exceed the sum of: (1) the value of short-term U.S. debt
obligations or other U.S. dollar-denominated high quality short-term money
market instruments and cash set aside in an identifiable manner, plus any Funds
deposited as margin on the contract; (2) unrealized appreciation on the
contract held by the broker; and (3) cash proceeds from existing investments
due in not more than 30 days. "Underlying commodity value" means the size of
the contract multiplied by the daily settlement price of the contract.
The requirements for qualification as a regulated investment company also
may limit the extent to which the Fund may enter into futures, futures options
or forward contracts.
Risks Associated with Futures and Futures Options
There are several risks associated with the use of futures contracts and
futures options as hedging techniques. A purchase or sale of a futures contract
may result in losses in excess of the amount invested in the futures contract.
There can be no guarantee that there will be a correlation between price
movements in the hedging vehicle and in the Fund securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative
market demand for futures and futures options on securities, including
technical influences in futures trading and futures options, and differences
between the financial instruments being hedged and the
8
<PAGE>
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Foreign Exchange-Traded Options, Futures and Forward
Currency Exchange Contracts
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lesser
trading volume.
PERFORMANCE INFORMATION
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature.
Average annual return and yield are computed separately for Class A, Class B
and Class C 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 6.21%. The Class
B Shares yield was 5.85% 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 = 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 quoted for Class C Shares covering periods prior to the
inception of Class C Shares will reflect historical performance of Class A
Shares adjusted for the higher operating expenses applicable to Class C 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, Merrill Lynch Medium Quality Corporate
Short-Term Bond Index, and Salomon Brothers Corporate Bond and Government Bond
Indices.
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<PAGE>
For the one year period ended October 31, 1996, the average annual total
return of the Class A Shares was 8.40%, and from inception, July 6, 1992
through October 31, 1996 was 6.42%. For the one year ended October 31, 1996 and
since inception, July 6, 1992 for the Class B Shares, the average annual total
return was 8.36% and 6.42%, respectively.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Class A, Class B or Class C account with an assumed
initial investment of $10,000. The aggregate total return is determined by
dividing the net asset value of this account at the end of the specified period
by the value of the initial investment and is expressed as a percentage.
Calculation of aggregate total return reflects payment of the Class A Share's
maximum sales charge of 2.25% and assumes reinvestment of all income dividends
and capital gain distributions during the period.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, for each class of shares of the
Fund, both as a percentage and as a dollar amount based on a hypothetical
$10,000 investment for various periods other than those noted above. Such data
will be computed as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charge will not be included with respect to annual, annualized or aggregate
rate of return calculations.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser places orders for the purchase and sale of securities,
supervises their execution and negotiates brokerage commissions on behalf of
the Fund. It is the practice of the Adviser to seek the best prices and
execution of orders and to negotiate brokerage commissions which in its opinion
are reasonable in relation to the value of the brokerage services provided by
the executing broker. Brokers who have executed orders for the Fund 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 diverse firms and that the long-term interests of
shareholders of the Fund are best served by their 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 attitude
toward and interest in mutual funds in general, including those managed and
sponsored by the Adviser. The Adviser does not offer or promise to any broker
an amount or percentage of brokerage commissions as an inducement or reward for
the sale of shares of the Fund. Over-the-counter purchases and sales are
transacted directly with principal market-makers except in those circumstances
where, in the opinion of the Adviser, better prices and execution are available
elsewhere. In the over-the-counter market, securities are usually traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually contains a profit
to the dealer. The Fund also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, usually referred to as the underwriter's concession or discount.
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 Trustees will annually review these procedures or
as frequently as shall appear appropriate.
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In general terms, the nature of research services provided by brokers
encompasses statistical and background information, forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry
groups, and individual issues. Research services will vary from firm to firm
with broadest coverage generally from the large full-line firms. Smaller firms
in general tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor
Federal, state, local and foreign political developments. Many of the brokers
also provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the
Adviser's staff can follow. In addition, it provides the Adviser with a diverse
perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to the Adviser and is available
for the benefit of other accounts advised by the Adviser and its affiliates and
not all of this information will be used in connection with the Fund. While
this information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value and in the opinion
of the Adviser it does not reduce the Adviser's expenses in a determinable
amount. The extent to which the Adviser makes use of statistical, research and
other services furnished by brokers 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.
The Fund paid no brokerage commissions for the fiscal years ended October
31, 1996, 1995, and 1994.
SERVICES OF THE ADVISER
The Adviser, National Securities & Research Corporation, 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 direct 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 Fixed Income Fund, Inc., 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 $1.7 billion in
assets under management and has acted as an investment adviser for over sixty
years.
The current Management Agreement was approved by the Board of Trustees 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
Trustees who are not interested persons of the parties thereto, as defined in
the 1940 Act, and by either (a) the Board of Trustees or (b) the vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act). The Agreement may be terminated without penalty at any time by the
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund or by the Adviser upon 60 days' written notice and will automatically
terminate in the event of its "assignment" as defined in Section 2(a)(4) of the
1940 Act.
The 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 net assets and is paid by the
Fund monthly. The fee is computed at the annual rate of 0.55% of the Fund's
average daily net assets up to $1 billion; 0.50% of the Fund's average daily
net assets from $1 billion to $2 billion; and 0.45% 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 $74,189, $78,929, and
$86,482, respectively, a portion of which amounts were waived by the Adviser.
The Adviser makes its personnel available to serve as officers and
"interested" Trustees of the Fund. The Fund has not directly compensated any of
its officers or Trustees for services in such capacities except to pay fees to
the Trustees who are not otherwise affiliated with the Fund. The Trustees 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 Trustees 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
11
<PAGE>
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 Massachusetts business trust.
The Adviser has agreed to reimburse the Fund's operating expenses other
than Management Fees and Rule 12b-1 Fees related to each Class of Shares for
the amount, if any, by which such operating expenses for the fiscal year ended
October 31, 1997, exceed .20% of the average net assets. The Total Fund
Operating Expenses for Class A and Class B Shares would have been 2.19% and
2.69%, respectively, absent such waiver or reimbursement for the fiscal year
ended October 31, 1996. The Adviser has not undertaken to extend the
reimbursement beyond fiscal year 1997.
The Adviser has agreed, under the terms of the Management Agreement, to
reimburse the Fund to the extent that, in any fiscal year, the aggregate annual
expenses of the Fund, exclusive of 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 offer or
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.
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 Trustees 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 the Fund. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair value considerations by the Trustees or their
delegates. If at any time the Fund has investments where market quotations are
not readily available, such investments are valued at the fair value thereof as
determined in good faith by the Trustees although the actual calculations may
be made by persons acting pursuant to the direction of the Trustees.
HOW TO BUY SHARES
The minimum initial investment is $500 and the minimum subsequent
investment is $25. However, both the minimum initial and subsequent investment
amounts are $25 for investments pursuant to the "Investo-Matic" plan, a bank
draft investing program administered by Distributor, or pursuant to the
Systematic Exchange privilege or for an individual retirement account (IRA). In
addition, there are no subsequent investment minimum amounts in connection with
the reinvestment of dividend or capital gain distributions. Completed
applications for the purchase of shares should be mailed to: Phoenix Funds, c/o
State Street Bank and Trust Company, P.O. Box 8301, Boston, MA 02266-8301.
Alternative Purchase Arrangements
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
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distributions in cash or to reinvest them in additional shares of the Fund, and
other circumstances. Dividends paid by the Fund, if any, with respect to each
Class will be calculated in the same manner at the same time on the same day,
except that the higher distribution services fee relating to Class B and C
shares will be borne exclusively by that class. See "Dividends, Distributions
and Taxes."
Shares of the Fund may be purchased from investment dealers at a price
equal to their net asset value per share ("Class C Shares"), or with a sales
charge which, at the election of the purchaser, may be imposed either (i) at
the time of the purchase ("Class A Shares"), or (ii) on a contingent deferred
basis ("Class B Shares"). 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.
Class A Shares
An investor who elects the initial sales charge alternative acquires Class
A shares. Class A shares incur a sales charge when they are purchased and enjoy
the benefit of not being subject to any sales charge when they are redeemed.
Class A shares are subject to an ongoing distribution services fee at an annual
rate of up to 0.30% of the Fund's aggregate average daily net assets
attributable to the Class A shares. However for the fiscal year 1997, the
Distributor has voluntarily agreed to limit the distribution services fee for
Class A Shares to 0.25%. 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
An investor who elects the deferred sales charge alternative acquires
Class B shares. Class B shares do not incur a sales charge when they are
purchased, but they are subject to a sales charge if they are redeemed within
three 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.
Class B shares are subject to an ongoing distribution services fee at an
annual rate of up to .75% 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 six years
after the end of the calendar month in which the shareholder's order to
purchase was accepted. The purpose of the conversion feature is to relieve the
holders of the Class B shares that have been outstanding for a period of time
sufficient for the Adviser and the Distributor to have been compensated for
distribution expenses related to the Class B shares from most of the burden of
such distribution related expenses.
Class B shares include all shares purchased pursuant to the deferred sales
charge alternative which have been outstanding for less than the period ending
six 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 Fund account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class A.
Class C Shares
Class C Shares are purchased without an initial sales charge and are not
subject to any sales charge when shares are redeemed. All purchases, including
reinvestments of dividend and capital gain distributions, and redemptions are
made at the net asset value per share of the Fund. Class C Shares are subject
to an ongoing distribution services fee at an annual rate of 0.50% of the
Fund's aggregate average daily net assets attributable to the Class C Shares.
Class C Shares do not convert to another Class of Shares and long term
investors may therefore pay more through accumulated distribution fees than the
economic equivalent of any applicable sales charge and accumulated distribution
fees in the other classes.
The distribution expenses incurred by the Distributor in connection with
the sale of the shares will be paid, in the case of Class A shares, from the
proceeds of the initial sales charge and the ongoing distribution services fee.
In the case of Class B shares, distribution expenses incurred by the Distributor
in connection with the sale of the shares will be paid from the proceeds of the
ongoing distribution services fee and the contingent deferred sales charge
incurred upon redemption within three years of purchase. For Class C Shares, the
ongoing distribution services fee will be used to pay for the distribution
expenses incurred by the Distributor. Sales personnel of broker-dealers
distributing the Fund's shares may receive differing compensation for selling
Class A, Class B or Class C shares. Investors should understand that the purpose
and function of the contingent deferred sales charge and ongoing distribution
services fee with respect to the Class B shares are the same as those of the
initial sales charge and ongoing distribution services fees with respect to the
Class A shares.
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INVESTOR ACCOUNT SERVICES
The Fund offers combination purchase privileges, letters of intent,
accumulation plans, withdrawal plans and reinvestment and exchange privileges.
Certain privileges may not be available in connection with 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. Class A Shares of the Fund held under six months are not
eligible for the exchange privilege. Under certain circumstances, shares of any
Phoenix Fund may be exchanged for shares of the same Class on the basis of the
relative net asset values per share at the time of the exchange. Exchanges are
subject to minimum initial investment requirements of the designated Series,
Fund, 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 succeeding business
day), without sales charge.
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 Funds at net asset value. You should obtain a current
prospectus and consider the objectives and policies of each Fund carefully
before directing dividends and distributions to another Fund. Reinvestment
election forms and prospectuses are available from Equity Planning.
Distributions may also be mailed to a second payee and/or address. Requests for
directing distributions to an alternate payee must be made in writing with a
signature guarantee of the registered owner(s). To be effective with respect to
a particular dividend or distribution, notification of the new distribution
option must be received by the Transfer Agent at least three days prior to the
record date of such dividend or distribution. If all shares in your account are
repurchased or redeemed or transferred between the record date and the payment
date of a dividend or distribution, you will receive cash for the dividend or
distribution regardless of the distribution option selected.
Invest-By-Phone. This expedited investment service allows 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, Equity Planning 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 Equity Planning 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 Equity Planning'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 Equity Planning. Equity Planning 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 Equity Planning reserve the right to modify or terminate the
Invest-by-Phone service for any reason or to institute charges for maintaining
an Invest-by-Phone account.
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund and other Phoenix Funds may be offered in connection
with employer-sponsored 401(k) plans. Phoenix Home Life and its affiliates may
provide administrative services to these plans and to their participants, in
addition to the services that
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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, prospective investors 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 therefor postponed during periods when the New York Stock Exchange is
closed, other than customary weekend and holiday closings, or if permitted by
rules of the Securities and Exchange Commission, during periods when trading on
the New York Stock Exchange is restricted or during any emergency which makes
it impracticable for the Fund to dispose of its securities or 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
shareholders will be subject to the applicable deferred sales charge, if any.
See the Fund's current Prospectus for more information.
By Mail
Shareholders may redeem shares by making written request, executed in the
full name of the account, directly to Phoenix Funds c/o State Street Bank and
Trust Company, P.O. Box 8301, Boston, MA 02266-8301. However, when certificates
for shares are in the possession of the shareholder, they must be mailed or
presented, duly endorsed in the full name of the account, with a written
request to Equity Planning that the Fund redeem the shares. See the Fund's
current Prospectus for more information.
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 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.
By Telephone
Unless a shareholder elects in writing not to participate in the Telephone
Redemption Privilege, shares for which certificates have not been issued may be
redeemed by calling (800) 367-5877 and telephone redemptions will also be
accepted on behalf of the shareholder from his or her registered representative
as described in the Prospectus. Address and bank account information will be
verified, telephone redemption instructions will be recorded on tape, and all
redemptions will be confirmed in writing to the shareholder. If there has been
an address change within the past 60 days, a telephone redemption will not be
authorized. The Fund and the Transfer Agent will employ reasonable procedures
to confirm that telephone instructions are genuine. To the extent that
procedures reasonably designed to prevent unauthorized telephone redemptions
are not followed, the Fund and/or the Transfer Agent may be liable for
following telephone instructions for redemption transactions that prove to be
fraudulent. Broker-dealers other than Equity Planning may have agreed to bear
the risk of any loss resulting from any unauthorized telephone redemption
instruction from the firm or its registered representatives. However, the
shareholder would bear the risk of loss resulting from instructions entered by
an unauthorized third party that the Fund and/or the Transfer Agent reasonably
believe to be genuine.
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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 will be wired to the designated
commercial bank account in the United States. If the amount of the redemption
is less than $500, the proceeds will be sent by mail to the address of record
on the shareholder's account. 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, a shareholder may also redeem
by telephone through the "Invest-by-Phone" service.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to qualify as a regulated investment company
under certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). If the Fund so qualifies, it will not be subject to federal income tax
on the investment company taxable income (which includes dividends, interest
and the excess of net short-term capital gains over net long-term capital
losses) that it distributes to shareholders. To qualify for treatment as a
regulated investment company, the Fund generally must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to security loans and gains from the sale or
disposition of stock or securities or foreign currencies and other income
(including but not limited to gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derive in each taxable year less than 30% of its
gross income from gains (without deduction for losses) from the sale or other
disposition of (i) stock or securities held for less than three months; (ii)
foreign currencies or options, futures or forward contracts on foreign
currencies) held for less than three months but only if such investments are
not directly related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stock or securities); and
(iii) options, futures or forward contracts (other than options, futures and
forward contracts on foreign currencies) held for less than three months; and
(c) diversify its holdings so that, at the end of each quarter of the taxable
year (i) at least 50% of the market value of the Fund's assets are represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5%
of the Fund's total assets and 10% of the outstanding voting securities of any
one issuer and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies). If in
any taxable year the Fund does not qualify as a regulated investment company,
all of its taxable income will be taxed to it at corporate rates.
Dividends paid by the Fund will be taxable to shareholders as ordinary
income, except for (a) such portion as may exceed a shareholder's ratable share
of the Fund's earnings and profits, which excess will be applied against and
reduce the shareholder's cost or other tax basis for his shares and (b) amounts
representing a distribution of net capital gains, if any, which are designated
by the Fund as capital gain dividends. If the amount described in (a) above
exceeds the shareholder's tax basis for his shares, the excess over basis will
be treated as gain from the sale or exchange of such shares. The excess of any
net long-term capital 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 regulated investment
companies, such as the Fund, if the Fund 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 each regulated
investment company does not meet the foregoing distribution requirements.
The Code provides that any dividends 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 a 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 foregoing, the Fund's policy will be to distribute to its
shareholders at least 90% of investment company taxable income and any net
realized capital gains for each year, so that the Fund generally will pay no
taxes on net investment income and net realized capital gains paid to
shareholders. As described above, less than 30% of the Fund's gross income must
be derived from gains from the sale or other disposition of certain investments
held for less than three months. Accordingly, the Fund may be restricted with
respect to certain activities, including the following activities, all of which
may produce such gains: writing of
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<PAGE>
options on securities which have been held less than three months; writing of
options which expire in less than three months; effecting closing purchase
transactions with respect to options which have been written less than three
months prior to such transactions; and transactions involving futures and
forward contracts.
The Fund intends to declare dividends daily and to pay dividends monthly.
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 the shares have been owned by the
shareholder. Net short-term capital gains are net realized short-term capital
gains, generally 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 generally 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 investment 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
generally 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.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time it actually collects such receivables or pays such
liabilities generally are treated as ordinary gain or loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and options, gains
or losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as section 988 gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
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.
Certain offsetting positions held by the Fund (including certain positions
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
position in such a straddle may be deferred to the extent of unrealized gain in
the offsetting position. Moreover, short-term capital losses on straddle
positions may be re-characterized as long-term capital losses, and long-term
capital gains may be treated as short-term capital gains.
The tax consequences of certain investments and other activities that the
Fund may make or undertake (such as, but not limited to, dollar roll
agreements) are not entirely clear. While the Fund will endeavor to treat the
tax items arising from these transactions in a manner which it believes to be
appropriate, assurance cannot be given that the Internal Revenue Service or a
court will agree with the Fund's treatment and that adverse tax consequences
will not ensue.
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.
It is expected that the Fund will not be eligible to elect to pass-through
to its shareholders the amount of foreign income and similar taxes paid by it,
so that shareholders will not be eligible to claim a foreign tax credit or to
deduct their pro rata share of such foreign taxes. Such foreign taxes generally
will reduce the net income of the Fund distributable to shareholders. If the
Fund were eligible to make the pass-through election, and so elected,
shareholders would be notified regarding the relevant items to be taken into
account by the shareholders.
17
<PAGE>
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 certified social security or
taxpayer identification number, certifies as to exemption from backup
withholding, and otherwise complies with applicable requirements of the Code.
Backup withholding is not an additional tax. Any amount withheld may be
credited against the shareholder's U.S. federal tax liability.
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. 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.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on
the disposition of those shares. This rule applies if shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of a
regulated investment company are acquired without a sales charge or at a
reduced sales charge. In that case, the gain or loss recognized on the exchange
will be determined by excluding from the tax basis of the shares exchanged all
or a portion of the amount of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result
of having incurred the sales charge initially. The portion of the sales charge
affected by this rule will be treated as an amount paid for the new shares.
Dividends, distributions and redemption proceeds also may be subject to
state, local and foreign taxes depending upon each shareholder's particular
situation. In addition, foreign shareholders may be subject to federal income
tax rules that differ from those described above. Shareholders are advised to
consult with their tax advisers or attorneys.
The Fund is organized as a Massachusetts business trust. 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
Commonwealth of Massachusetts.
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 $50,671, $53,927, and $57,335,
respectively, of which the principal underwriter received net commissions of
$10,267, $34,673, and $19,570, respectively, for its services, the balance
being paid to dealers.
The Underwriting Agreement may be terminated at any time on not more than
60 days written notice, without payment of a penalty, by the Distributor, by
vote of a majority of the outstanding voting securities of the Fund, or by vote
of a majority of the Fund's Trustees who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Distribution Plan or in any related agreements. The Underwriting Agreement
will terminate automatically in the event of its assignment.
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:
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%
A minimum charge 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 $4,717.
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," 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%.
18
<PAGE>
Pursuant to the Plans, the Fund may reimburse the Distributor for actual
expenses of the Distributor up to 0.30% annually of the average daily net
assets of the Fund's Class A shares, up to 0.75% annually of the average daily
net assets of the Fund's Class B shares, and up to 0.50% annually of the
average daily net assets of the Fund's Class C 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 Trustees of the Fund determine are reasonably calculated to result in the
sale of shares of the Fund, provided, however, that a portion of such amount
equal to or less than 0.25% annually of the average daily net assets of Fund
shares may be paid for reimbursing the costs of providing services to
shareholders, including assistance in connection with inquiries related to
shareholder accounts (the "Service Fee").
Expenses not reimbursed during any year, because of the limitations on
reimbursements, may be carried over and paid in future years when actual
expenses are less than the respective limits under each Plan. If a
reimbursement appears probable, it will be accounted for as a current expense
of the Fund regardless of the time period over which the reimbursement may
actually be paid by the Fund. 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, including payments for expenses carried over from
previous years, will cease and the Fund will not be required to make any
payments past the date on which either Plan terminates.
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.
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.
For the fiscal year ended October 31, 1996, the Fund paid 12b-1 fees in
the amount of $63,919 ($27,005 under the Distribution Plan for Class A shares;
$36,914 under the Distribution Plan for Class B shares), of which the
Distributor of the Fund received $33,962. The 12b-1 payments were used for (1)
compensating dealers, $61,396, (2) compensating sales personnel, $2,037, and
(3) compensating the Distributor for marketing material, $486.
On a quarterly basis, the Fund's Trustees review a report on expenditures
under the Plans and the purposes for which expenditures were made. The Trustees
conduct an additional, more extensive review annually in determining whether
the Plans will be continued. By its terms, continuation of the Plans from year
to year is contingent on annual approval by a majority of the Fund's Trustees
and by a majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of the Plans or any related agreements (the "Plan Trustees"). The
Plans provides 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 Trustees 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 Trustees who are not "interested persons" shall be committed to
the discretion of the Trustees who are not "interested persons." The Plans may
be terminated at any time by vote of the Plan Trustees or a majority of the
outstanding shares of the relevant class of the Fund.
The National Association of Securities Dealers ("NASD"), recently approved
certain amendments to the NASD's mutual fund maximum sales charge rule. The
amendments would, under certain circumstances, regard distribution fees as
asset-based sales charges subject to NASD sales load limits. The NASD's maximum
sales charge rule may require the Trustees to suspend distribution fees or
amend the Plan.
19
<PAGE>
TRUSTEES AND OFFICERS
The following table sets forth information concerning the Trustees 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 Trustee is 56 Prospect Street, Hartford, Connecticut, 06115-0480.
<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) Trustee Partner in the law firm of Day, Berry & Howard.
Day, Berry & Howard Director/Trustee, Phoenix Funds (1980-present).
CityPlace Trustee, Phoenix-Aberdeen Series Fund and Phoenix
Hartford, CT 06103 Duff & Phelps Institutional Mutual Funds (1996-
present). Director/Trustee, the National Affiliated
Investment Companies (until 1993).
Robert Chesek (62) Trustee Trustee/Director (1981-present) and Chairman
49 Old Post Road (1989-1994), Phoenix Funds. Trustee, Phoenix-
Wethersfield, CT 06109 Aberdeen Series Fund 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 (67) Trustee Chairman, Metropolitan Transportation Authority
9 Rittenhouse Road (1992-present). Trustee/Director, Consolidated Edison
Bronxville, NY 10708 Company of New York, Inc. (1970-present), Pace
University (1978-present), Atlantic Mutual Insurance
Company (1974-present), HRE Properties (1989-
present), Greater New York Councils, Boy Scouts of
America (1985-present), Union Pacific Corp. (1978-
present), Blackrock 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>
20
<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 (67) Trustee Director/Trustee, Phoenix Funds (1983-present).
330 East 39th Street Trustee, Phoenix-Aberdeen Series Fund and Phoenix
Apartment 29G Duff & Phelps Institutional Mutual Funds (1996-
New York. NY 10016 present). Director, Duff & 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) Trustee Director/Trustee, Phoenix Funds (1995-present).
6585 Nicholas Blvd. Trustee, Phoenix-Aberdeen Series Inc. and Phoenix Duff
Apt. 1601 & Phelps Institutional Mutual Funds (1996-present).
Naples, FL 33963 Director, 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 and Chairman of the Board, Phoenix Duff &
Phelps Corporation (1995-1997) 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) Trustee Chairman and Chief Executive Officer, Carson Products
Chairman and Chief Company (1995-present). Director/Trustee, Phoenix
Executive Officer Funds (1980-present). Trustee, Phoenix-Aberdeen
Carson Product Company Series Fund and Phoenix Duff & Phelps Institutional
64 Ross Road Mutual Funds (1996-present). Director, Equifax Corp.
Savannah, GA 30750 (1991-present) and Keystone International Fund, Inc.
(1989-present). Trustee, Keystone Liquid Trust,
Keystone Tax Exempt Trust, Keystone Tax Free Fund,
Master Reserves Tax Free Trust, and Master Reserves
Trust. 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>
21
<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) Trustee and Chairman (1997-present), Director (1995-present), Vice
56 Prospect Street President Chairman (1995-1997) and Chief Executive Officer,
Hartford, CT 06115 Phoenix Duff & Phelps Corporation (1995-1997).
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) Trustee Vice President, W.H. Reaves and Company
164 Laird Road (1993-present). Director/Trustee, Phoenix Funds
Colts Neck, NJ 07722 (1995-present). Trustee, Duff & Phelps Mutual Funds
(1994-present). Trustee, Phoenix-Aberdeen Series Fund
and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present). Director, Duff & Phelps Utilities Tax-
Free Income Inc. (1991-present) 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>
22
<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 (50) Trustee Chairman, IBEX Capital Markets LLC (1997-present).
Managing Director Managing Director, Wydown Group (1994-present).
The Wydown Group Director, Phoenix Duff & Phelps Corporation
IBEX Capital Markets LLC (1995-present). Director/Trustee, Phoenix Fund (1987-
60 State Street present). Trustee, Phoenix-Aberdeen Series Fund and
Suite 950 Phoenix Duff & Phelps Institutional Mutual Funds
Boston, MA 02109 (1996-present). 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) Trustee Director (1986-present), President (1993-present) and
Phoenix Duff & Phelps Corporation Executive Vice President (1992-1993), Phoenix Duff
55 East Monroe Street & Phelps Corporation. Director/Trustee, Phoenix Funds
Suite 3600 (1995-present). Trustee, Phoenix-Aberdeen Series Fund
Chicago, IL 60603 and Phoenix Duff & Phelps Institutional Mutual Funds
(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) Trustee Director/Trustee, Phoenix Funds (1984-present).
43 Montclair Drive Trustee, Phoenix-Aberdeen Series Fund and Phoenix
West Hartford, CT 06107 Duff & Phelps Institutional Mutual Funds (1996-
present). Director, Vestaur Securities, Inc. (1972-
present). Trustee and Treasurer, J. Walton Bissell
Foundation, Inc. (1988-present). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Herbert Roth, Jr. (68) Trustee Director/Trustee, Phoenix Funds (1980-present).
134 Lake Street Trustee, Phoenix-Aberdeen Series Fund and Phoenix
P.O. Box 909 Duff & Phelps Institutional Mutual Funds
Sherborn, MA 01770 (1996-present). Director, Boston Edison Company
(1978-present), Phoenix Home Life Mutual Insurance
Company (1972-present), Landauer, Inc. (medical
services) (1970-present),Tech Ops./Sevcon, Inc.
(electronic controllers) (1987-present), 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).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- ----------------------------- --------------- --------------------------------------------------------
<S> <C> <C>
Richard E. Segerson (51) Trustee Managing Director, Mullin Associates (1993-present).
102 Valley Road Director/Trustee, Phoenix Funds, (1993-present).
New Canaan, CT 06840 Trustee, 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).
Lowell P. Weicker, Jr. (66) Trustee Trustee/Director, Phoenix Funds (1995-present).
731 Lake Avenue Trustee, Phoenix-Aberdeen Series Fund and Phoenix
Greenwich, CT 06830 Duff & Phelps Institutional Mutual Funds (1996-
present). Director, UST Inc. (1995-present), HPSC Inc.
(1995-present), Duty Free International (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).
</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.
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- ------------------------ -------------------------- ----------------------------------------------------------
<S> <C> <C>
Michael E. Haylon (39) Executive Vice President Director and Executive Vice President-Investments,
Phoenix Duff & Phelps Corporation (1995-present).
Senior Vice President, Securities Investments, Phoenix
Home Life Mutual Insurance Company (1993-1995).
Director (1994-present), President (1996-present), and
Executive Vice President (1994-1996), National
Securities & Research Corporation. Executive Vice
President, Phoenix Funds (1995-present) Phoenix-
Aberdeen Series Fund (1996-present). 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 (1994-present),
President (1996-present) and Executive Vice President
(1994-1996), National Securities & Research
Corporation. Director, Phoenix Equity Planning
Corporation (1995-present). Various other positions with
Phoenix Home Life Mutual Insurance Company
(1990-1993).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- --------------------------- -------------------------- ----------------------------------------------------------
<S> <C> <C>
David R. Pepin (54) Executive Vice President Executive Vice President, Phoenix Funds, Phoenix-
Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Director,
Phoenix Investment Counsel, Inc. and National Securities
& Research Corporation. 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).
James D. Wehr (40) Senior Vice President Managing Director, Fixed Income, (1996-present), Vice
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 Short Term Bond Fund and Phoenix Multi-
Sector Fixed Income Fund (1997-present). Managing
Director, Public Fixed Income, Phoenix Home Life
Insurance Company (1991-1995). Various positions with
Phoenix Home Life Insurance Company (1981-1991).
David L. Albrycht (35) Vice President Managing Director, Fixed Income (1996-present), Vice
President (1995-1996), Phoenix Investment Counsel,
Inc. Managing Director, Fixed Income (1996-present),
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), Phoenix Multi-
Sector Fixed Income Fund, Inc. (1994-present).
Portfolio Manager, Phoenix Home Life Mutual Insurance
Company (1989-1995).
William E. Keen, III (33) Vice President Assistant Vice President (1996-present), Director of
100 Bright Meadow Blvd. Mutual Fund Compliance (1995-1996), Phoenix Equity
P.O. Box 2200 Planning Corporation. Vice President, Phoenix Funds,
Enfield, CT 06083-2200 Phoenix-Aberdeen Series Fund, and Phoenix Duff &
Phelps Institutional 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).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations
Name, Address and Age With the Fund During the Past 5 Years
- ------------------------- ---------------- ------------------------------------------------------------
<S> <C> <C>
William R. Moyer (52) Vice President Senior Vice President and Chief Financial Officer, Phoenix
100 Bright Meadow Blvd. 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).
Senior Vice President and Chief Financial Officer
(1993-1995) and Treasurer (1994-1995), W.S. Griffith &
Co., Inc. and Townsend Financial Advisors, Inc. Senior
Vice President, Finance, Phoenix Securities Group, Inc.
(1993-1995). Vice President, the National Affiliated
Companies (until 1993).
Leonard J. Saltiel (44) Vice President Managing Director, Operations and Service (1996-
present), Senior Vice President (1994-1996), Phoenix
Equity Planning Corporation. Vice President, Phoenix
Funds (1994-present), Phoenix-Aberdeen Series Fund
and Phoenix Duff & Phelps Institutional Mutual Funds
(1996-present), and National Securities & Research
Corporation (1994-1996). 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 Treasurer (1996-present), Vice President, Fund
Accounting (1994-1996), 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 Insurance Company (1987-1994).
G. Jeffrey Bohne (49) Secretary Vice President, Mutual Fund Customer Service (1996-
101 Munson Street present), Vice President, Transfer Agent Operations (1993-
Greenfield, MA 01301 1996). Phoenix Equity Planning Corporation. Clerk,
Phoenix Investment Counsel Inc. (1995-present).
Secretary, the Phoenix Funds (1993-present), Phoenix-
Aberdeen Series Fund and Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present). Vice President
and General Manager, Phoenix Home Life Mutual
Insurance Co. (1993-present). Vice President, Home Life
of New York Insurance Company (1984-1992).
</TABLE>
26
<PAGE>
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
Trustees. 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.
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 $ 1,500* $53,750
Robert Chesek $ 1,410 $50,750
E. Virgil Conway+ $ 1,680 $60,000
Harry Dalzell-Payne+ $ 1,410 $51,000
Francis E. Jeffries $ 0 $ 0
Leroy Keith, Jr. $ 1,410 None None $50,750
Philip R. McLoughlin+ $ 0 for any for any $ 0
Everett L. Morris+ $ 990* Trustee Trustee $37,000
James M. Oates+ $ 1,620 $57,750
Calvin J. Pedersen $ 0 $ 0
Philip R. Reynolds $ 1,410 $50,750
Herbert Roth, Jr.+ $ 1,770* $63,000
Richard E. Segerson $ 1,620 $58,000
Lowell P. Weicker, Jr. $ 1,620 $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 Trustees and officers of the Fund beneficially
owned less than 1% of the outstanding shares of the Fund.
27
<PAGE>
OTHER INFORMATION
Independent Accountants
Price Waterhouse LLP, 160 Federal Street, Boston, MA 02110, has been
selected as 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 a
semi-annual report containing unaudited financial statements to the
shareholders. An annual report, containing financial statements audited by
independent accountants, will be sent to shareholders each year, and is
available without charge upon request.
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 and the Annual Report for the period ended October 31,
1996 are incorporated by reference into this Statement of Additional
Information. A copy of the Semiannual Report must precede or accompany this
Statement of Additional Information.
28
<PAGE>
APPENDIX
Description of Certain Bond Ratings
Moody's Investor's Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protective nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Note: Those bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1 and Baa1.
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 safe
guarded 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
and interest.
Standard & Poor's Corporation
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
BB, B, CCC: Bonds rated BB, B, 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 exposure to adverse conditions.
Duff & Phelps Credit Rating Co.
Duff & Phelps Credit Rating Co. ("D&P") is an unaffiliated Nationally
Recognized Statistical Rating Organization by the SEC as well as State
Commissions and insurance regulatory bodies. Ratings qualify for SEC Rule 2a-7
provisions and broker/dealer capital computation guidelines on commercial paper
inventory. D&P ratings also qualify for NAIC rating designations and for ERISA
guidelines governing asset-backed securities as stated by the Department of
Labor.
29
<PAGE>
Rating Scale:
D&P offers ratings for short-term and long-term debt, preferred stock,
structured financings, and insurer's claims paying ability. D&P ratings are
specific to credit quality, i.e., the likelihood of timely payment for
principal, interest, and in the case of a preferred stock rating, preferred
stock dividends. The insurance company claims paying ability ratings reflect an
insurer's ability to meet its claims obligations.
<TABLE>
<CAPTION>
Long-Term Ratings
- ------------------------------------------------------------
<S> <C>
AAA Highest Quality
AA+, AA, AA- High Quality
A+, A, A- Good Quality
BBB+, BBB, BBB- Satisfactory Quality (investment grade)
BB+, BB, BB- Non-Investment Grade
B+, B, B- Non-Investment Grade
CCC Speculative
Short-Term Ratings
- -------------------------------------------------------------
Duff 1+
Duff 1 X A-1/P-1
Duff 1-
Duff 2 A-2/P-2
Duff 3 A-3/P-3
Duff 4 Non-Investment Grade
Duff 5 Defaulted
</TABLE>
Fitch Investor Services, Inc.
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called
or refinanced and, at Fitch's discretion, when an issuer fails to furnish
proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade; "Negative"; for potential downgrade, or "Evolving", where ratings may
be raised or lowered. FitchAlert is relatively short-term, and would be
resolved within 12 months.
Credit Trend: Credit Trend indicators show whether credit fundamentals are
improving, stable, declining or uncertain, as follows:
Improving
Stable
Declining
Uncertain
30
<PAGE>
Credit Trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issuers not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the potential recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor
as well as the economic and political environment, that might affect the
issuer's futures financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
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.
DDD, DD, and D: Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs however, are not used in the "DDD", "DD", or "D" categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch's short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-l+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-5: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
31
<PAGE>
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
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 in the
Semiannual Report to Shareholders for the period
ended April 30, 1997, incorporated by reference.
Financial Statements and Notes thereto, and Report
of Independent Accountants included in the Annual
Report to Shareholders for the year ended
October 31, 1996, incorporated by reference.
(b) Exhibits:
<TABLE>
<S> <C>
1. Declaration of Trust as amended of the Registrant, filed via EDGAR
with Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
1.1 Amendment to Declaration of Trust changing name of Trust, filed with
Post-Effective Amendment No. 4 on February 27, 1995 and filed via
EDGAR with Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
1.2 Amendment to Declaration of Trust changing name of Trust, filed via
EDGAR with Post-effective Amendment No. 5 on February 28, 1996, and
incorporated by reference.
2. By-laws of the Registrant, filed via EDGAR with Post-Effective
Amendment No. 6 on February 25, 1997, and incorporated by reference.
3. Not applicable.
4. Reference is made to Article V of the Registrant's Declaration of
Trust, as amended, and filed with the Registration Statement referred
to in Exhibit 1.1.
5. Management Agreement between Registrant and National Securities &
Research Corporation dated May 14, 1993, filed with Post-Effective
Amendment No. 2 on December 30, 1993 and filed via EDGAR with
Post-Effective Amendment No. 6 on February 25, 1997, and incorporated
by reference.
5.1 Amendment to Management Agreement dated January 1, 1994, filed with
Post-Effective Amendment No. 4 on February 27, 1995 and filed via
EDGAR with Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
6. (a) Underwriting Agreement for Class A Shares between Registrant and
Phoenix Equity Planning Corporation ("Equity Planning") dated May
14, 1993, filed with Post-Effective Amendment No. 2 on December
30, 1993 and filed via EDGAR with Post-Effective Amendment No. 6
on February 25, 1997, and incorporated by reference.
(b) Underwriting Agreement for Class B Shares between Registrant and
Equity Planning dated May 14, 1993, filed with Post-Effective
Amendment No. 2 on December 30, 1993 and filed via EDGAR with
Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
7. None.
8.1 Custodian Contract between Registrant and State Street Bank and Trust
Company dated October 14, 1993, filed with Post-Effective Amendment
No. 2 on December 30, 1993 and incorporated herein by reference.
8.2 Amendment to Custodian Contract between Registrant and State Street
Bank and Trust Company dated November 1, 1996, and filed via EDGAR
with Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
9.1 Transfer Agency and Service Agreement between Registrant and Phoenix
Equity Planning Corporation dated June 1, 1994, filed with
Post-Effective Amendment No. 4 on February 27, 1995 and filed via
EDGAR with Post-Effective Amendment No. 6 on February 25, 1997, and
incorporated by reference.
9.2 Form of Sales Agreement, filed with Post-Effective Amendment No. 2 on
December 30, 1993 and filed via EDGAR with Post-Effective Amendment
No. 6 on February 25, 1997, and incorporated by reference.
9.3 Financial Agent Agreement between Registrant and Phoenix Equity
Planning Corporation dated May 25, 1994, filed with Post-Effective
Amendment No. 4 on February 27, 1995 and filed via EDGAR with Post-
Effective Amendment No. 6 on February 25, 1997, and incorporated by
reference.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
9.4 Financial Agent Agreement between Registrant and Phoenix Equity
Planning Corporation dated December 11, 1996, and filed via EDGAR with
Post-Effective Amendment No. 6 on February 25, 1997, and incorporated
by reference.
9.5 First Amendment to Financial Agent Agreement between Registrant and
Phoenix Equity Planning Corporation dated January 1, 1997 filed via
Edgar with Post-Effective Amendment No. 7 on July 30, 1997 and
incorporated by reference.
9.6 Second Amendment to Financial Agent Agreement between Registrant and
Phoenix Equity Planning Corporation filed via EDGAR with
Post-Effective Amendment No. 7 on July 30, 1997 and incorporated by
reference.
10. Opinion as to legality of the shares, filed with Pre-Effective
Amendment No. 3 on July 6, 1992, filed via EDGAR with Post-Effective
Amendment No. 6 on February 25, 1997, and incorporated by reference.
11. Consent of Independent Accountants filed herewith.
12. Not applicable.
13. None.
14. None.
15. (a) Distribution Plan for Class A Shares dated May 14, 1993,
filed with Post-Effective Amendment No. 2 on December 30, 1993
and filed via EDGAR with Post-Effective Amendment No. 6 on
February 25, 1997, and incorporated by reference.
(b) Distribution Plan for Class B Shares dated May 14, 1993, filed
with Post-Effective Amendment No. 2 on December 30, 1993 and
filed via EDGAR with Post-Effective Amendment No. 6 on February
25, 1997, and incorporated by reference.
(c) Distribution Plan for Class C Shares filed via Edgar with
Post-Effective Amendment No. 7 on July 30, 1997 and incorporated
by reference.
16. Schedule for computation of yield and effective yield quotations,
filed with Post-Effective Amendment No. 4 on February 27, 1995 and
filed via EDGAR with Post-Effective Amendment No. 6 on February 25,
1997, and incorporated by reference.
17. Financial Data Schedule filed herewith and reflected on EDGAR as
Exhibit 27.
18.1 Rule 18f-3 Dual Distribution Plan effective November 15, 1995, filed
via EDGAR with Post-Effective Amendment No. 5, and incorporated herein
by reference.
18.2 Rule 18f-3 Dual Distribution Plan effective November 1, 1995, filed
via EDGAR with Post-Effective Amendment No. 6 on February 25, 1997,
and incorporated by reference.
18.3 Rule 18f-3 Dual Distribution Plan effective November 1, 1996, filed
via EDGAR with Post-Effective Amendment No. 6 on February 25, 1997,
and incorporated by reference.
18.4 Amendment to Rule 18f-3 Dual Distribution Plan effective May 28, 1997
filed via EDGAR with Post-Effective Amendment No. 7 on July 30, 1997
and incorporated by reference.
19. Powers of attorney, filed via EDGAR with Post-Effective Amendment No.
6 on February 25, 1997, and incorporated 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>
Shares of Beneficial Interest--Class A 494
Shares of Beneficial Interest--Class B 384
Shares of Beneficial Interest--Class C 0
</TABLE>
Item 27. Indemnification
Registrant's indemnification provision is set forth in Pre-Effective
Amendment No. 3 filed with the Securities and Exchange Commission on July 6,
1992, and is incorporated herein by reference.
Item 28. Business and Other Connections of Investment Adviser
See "Management of the Fund" in the Prospectus and "Services of the
Adviser" and "Trustees and Officers" in the Statement of Additional
Information, each of which is included in this Post-Effective Amendment to the
Registration Statement.
C-2
<PAGE>
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 Underwriter
(a) See "The Underwriter" and "How to Buy Shares" in the Prospectus and
"The Distributor" and "Plans of Distribution," in the Statement of Additional
Information, both of which are included in this Post-Effective Amendment to the
Registration Statement.
(b) Directors and Executive Officers of Phoenix Equity Planning Corporation
are as follows:
<TABLE>
<CAPTION>
Name and Position and Offices Position and Offices
Principal Address with Underwriter with Registrant
- ------------------------- ----------------------------------- -------------------------
<S> <C> <C>
Michael E. Haylon Director Executive Vice President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Philip R. McLoughlin Director and President Trustee and President
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
David R. Pepin Executive Vice President, Executive Vice President
56 Prospect Street Mutual Fund Sales and Operations
P.O. Box 150480
Hartford, CT 06115-0480
Leonard J. Saltiel Managing Director, Vice President
100 Bright Meadow Blvd. Operations and Service
P.O. Box 2200
Enfield, CT 06083-2200
Paul A. Atkins Senior Vice President and None
56 Prospect Street Sales Manager
P.O. Box 150480
Hartford, CT 06115-0480
Maris L. Lambergs Senior Vice President, None
100 Bright Meadow Blvd. Insurance and Independent Division
P.O. Box 2200
Enfield, CT 06083-2200
William R. Moyer Senior Vice President and Vice President
100 Bright Meadow Blvd. Chief Financial Officer
P.O. Box 2200
Enfield, CT 06083-2200
John F. Sharry Managing Director, None
100 Bright Meadow Blvd. Mutual Fund Distribution
P.O. Box 2200
Enfield, CT 06083-2200
G. Jeffrey Bohne Vice President, Secretary
101 Munson Street Mutual Fund
Greenfield, MA 01301 Customer Service
Eugene A. Charon Vice President and None
100 Bright Meadow Blvd. Controller
P.O. Box 2200
Enfield, CT 06083-2200
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Position and Offices Position and Offices
Principal Address with Underwriter with Registrant
- ------------------------- ----------------------------------- -------------------------
<S> <C> <C>
Nancy G. Curtiss Vice President and Treasurer, Treasurer
56 Prospect Street Fund Accounting
P.O. Box 150480
Hartford, CT 06115-0480
William E. Keen, III Assistant Vice President, Vice President
100 Bright Meadow Blvd. Mutual Fund Regulation
P.O. Box 2200
Enfield, CT 06083-2200
Elizabeth Sadowinski Vice President, Administration None
56 Prospect Street
P.O. Box 150480
Hartford, CT 06115-0480
Thomas N. Steenburg Vice President, Counsel and Assistant Secretary
56 Prospect Street Secretary
P.O. Box 150480
Hartford, CT 06115-0480
</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 Registrant's
investment adviser, National Securities & Research Corporation, One American
Row, Hartford, CT 06102-5056; at the offices of the Fund's Custodian, State
Street Bank and Trust Company, P.O. Box 8301, Boston, Massachusetts 02266-8301
and at the offices of the Transfer Agent, Financial Agent and Principal
Underwriter, Phoenix Equity Planning Corporation, 100 Bright Meadow Boulevard,
Enfield, Connecticut 06083-1900.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish 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 certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its 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 26th day of September, 1997.
PHOENIX MULTI-SECTOR SHORT TERM BOND FUND
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 26th day of September, 1997.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------- -----------------------------------
<S> <C>
Trustee
- ------------------------------------
C. Duane Blinn*
Trustee
- ------------------------------------
Robert Chesek*
Trustee
- ------------------------------------
E. Virgil Conway*
Treasurer (Principal Financial and
- ------------------------------------ Accounting Officer)
Nancy G. Curtiss*
Trustee
- ------------------------------------
Harry Dalzell-Payne*
Trustee
- ------------------------------------
Francis E. Jeffries*
Trustee
- ------------------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin President and Trustee (Principal
- ------------------------------------ Executive Officer)
Philip R. McLoughlin
Trustee
- ------------------------------------
Everett L. Morris*
Trustee
- ------------------------------------
James M. Oates*
Trustee
- ------------------------------------
Calvin J. Pedersen*
Trustee
- ------------------------------------
Philip R. Reynolds*
Trustee
- ------------------------------------
Herbert Roth, Jr.*
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title
- ------------------------------- --------
<S> <C>
Trustee
- --------------------------------
Richard E. Segerson*
Trustee
- --------------------------------
Lowell P. Weicker, Jr.*
By /s/ Philip R. McLoughlin
-------------------------------
Philip R. McLoughlin
</TABLE>
*Philip R. McLoughlin Attorney-in-fact pursuant to powers of attorney filed
previously.
S-2
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 8 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 13, 1996, relating to the financial
statements and financial highlights appearing in the October 31, 1996 Annual
Report to Shareholders of the Phoenix Multi-Sector Short Term Bond Fund, which
is also incorporated by reference into the Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants" in the Statement of
Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 25, 1997
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</TABLE>
